Tom Madrecki: 0:04

One executive last year had described it as basically just an Easter holiday, every single day. And it was just like, that was just the new normal. It was just a holiday every day. So there's no more, you don't see that sort of spike. It's just that that plateau and then companies just needing to run flat out to meet that demand.

Tom Raftery: 0:24

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast, the number one podcast focusing on the digitization of supply chain. And I'm your host, global Vice President at SAP. Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery, with SAP and with me on the podcast today I have my special guest, another Tom. Tom, would you like to introduce yourself? Sure. Thanks,

Tom Madrecki: 0:52

Tom. It's great to be on the on the show today, Tom and Ricky with the consumer brands Association. And that really represents the collective interests of that consumer packaged goods industry from a supply chain standpoint.

Tom Raftery: 1:03

Okay, and tell us a little bit about the consumer brands Association for people who might be unaware.

Tom Madrecki: 1:08

Yeah. And I wouldn't blame you, if you like you were just started, like shockingly unfamiliar or something like that, depending on what circles you travel in. It's not that some huge expectation, right. But of course, the consumer brands Association represents the sort of aisles A through Z of the consumer goods industry, whether that's, you know, companies like PepsiCo, Kellogg's, General Mills, others, is really a range of companies throughout the supply chain.

Tom Raftery: 1:36

Okay. And what you you released a report recently, the economic pulse report, what were the what were the top level findings of

Tom Madrecki: 1:47

that? Yeah, and I think the thing that really comes through is that demand levels continue to be at like, sort of a record high. So you look at year over year growth in the CPG. Industry, you're talking anywhere from, you know, certainly, of course, depends on the, you know, the company and in this specific sector, right, but Sure, it overall, it's 9.4%, year over year, and that's a, it's a it's a drop from the 20%, some, you know, panic buying mode, that was in March 2020. But what's really interesting, when you look at the numbers recently, in the last month or two, is you see another spike in demand that's nearing that record buying level in March, you know, the reasons for that, I'm sure that there are, you know, there are many, they're sort of layered in with other disruptions to the supply chain, other sort of challenges with the, the marketplace at the moment, just people sort of come back post vaccine or, you know, availability, other things like that, and that the market is growing again, other things like that, but the demand just continues to be there. Okay, and

Tom Raftery: 2:51

is that causing any issues?

Tom Madrecki: 2:52

I don't think it necessarily is issues, but what I think it does is it shows you know, the, the further strain on the supply chain, right, so like, when you go to that panic buying in last March of last year, obviously, there was that moment in time when consumers would go to the store, and they couldn't find their kids favorite cereal, or the, you know, the toilet paper that they exactly wanted, maybe there was toilet paper on the shelf, but all of a sudden, it was the the roll of toilet paper take like the industrial supplies taken from the airport. And so there was a, you know, a little, you know, some challenges then, and I don't think you're seeing that now. But what you are seeing is you're seeing a host of things sort of get gummed up in the system, whether that's port delays, whether that's a scarcity of in the transportation marketplace. And really, it's like moving to some of the tightest transportation market that many folks have ever seen. And there's really no sign of that baiting, necessarily, because in the US, there's a driver shortage, which simply aren't enough trucks, there's now a shipping container shortage because of just how the global supply chain has sort of orchestrated that pallets are in scarce supply. So people can't get enough of those to put the goods on the truck. And then you have other commodity cost increases at the moment as well. So what pulp is up? What does that mean? Well, it means that toilet paper is going to be more expensive. And so there's a there's a host of commodity challenges, just as everything happens, you layer on, you know, the colonial pipeline attack that just happened to us from a cybersecurity perspective, that took out pretty much the the East Coast gas supply. And so there's a scarcity of fuel. And even it was just sort of interesting, right? That is you have these events that happen. And then you have places I saw something I'm friends story on Instagram, but that people were running out of gas or like waiting in long lines and Florida, Florida is not even supplied by the colonial pipeline. So there's sort of this mentality, right, where like, you have things that are happening and then the marketplace is just sort of absorbing it and it's impacting consumer behavior. And so that's really I think, what some of this is due to And then it just sort of layers on top of each other.

Tom Raftery: 5:02

Okay, and how is that affecting costs, then?

Tom Madrecki: 5:05

Yeah, so the costs across the board are rising, we're actually going to be releasing and looking at some of the costs, increasing numbers that are going to come out, I think this morning. We're not quite quite ready yet.

Tom Raftery: 5:19

But are a couple of weeks ago, by the time this podcast was published,

Tom Madrecki: 5:25

we can dive in, you can draw that out for your viewers. But everything that I have heard from member companies, executives, is that costs are rising, I mentioned the wood pulp example. The same is true for steel, the same is true for aluminum, the same is true for corn or whatever the commodity is, really across the board, you know, whether it's food AG, you know, more than like the chemical side of things, everything is just rising. And you've seen many CPG companies be make statements to, you know, Wall Street or to investor, me or other things like that, where they are going to have to consider taking Christ in the marketplace, or raising that to come. Like there's only so much margin within the CPG industry, and the ability for companies to absorb that. They've also in you know, recent years not done that. And so there's sort of a reckoning that has to happen at some point, right, the sort of the straw that broke the camel's back. He saw over the last year that the CPG industry delivered tremendously for consumers. But they also incurred tremendous costs of that as well, in terms of just the ramp up and production, the running 24 seven model, the way that I've always described it is that you're talking about factories that maybe were really dialed in from a operation standpoint, they're running, let's say 96% capacity are so they're like, really, like humming along, and then you bump up demand, so they're gonna run 110% capacity, and then it's just sustained. One executive last year had described it, when I was searching, this is post panic buying sort of settled into that new normal timeframe. And he had described that uptick as basically just an Easter holiday, every single day. And it was just like, that was just the new normal, it was the holiday every day. So there's no more, you don't see that sort of spike. It's just that that plateau, and then companies just needing to run flat out to meet that demand.

Tom Raftery: 7:28

And is that sustainable?

Tom Madrecki: 7:31

I they've done it thus far. And I think that it is sustainable with the right level of investment. I'm those companies are certainly they're taking their host of their, their measures, they're thinking about how do they redesign their network? How do they you know, implement new technology? What are the things what are the steps and actions that they can take, there's a lot of emphasis right now in the industry placed on visibility throughout the supply chain, having end to end, whether it's like a control tower type view, really everything that ladders up to a notion of, you know, sort of a supply network, and being able to have less of that sort of chain mindset, more of a networked one, which I think, you know, from a sort of a visual level, it is more resilient, right, you can imagine the sort of transition from something that's linear to more like a spider web network type thing, and it has that inherent resiliency to it. And it gives you different options, the ability to bounce back quickly, when times get tough. And so you see companies taking steps to become more resilient and be more competitive, especially because supply chain is so much increasingly a differentiator in the marketplace that you know that that ability to meet your retail customers needs, and ultimately the consumers needs is what sets you apart from the other companies in a very competitive CPG. environment. So they're, they're doubling down on all of the things that you would expect them to end sort of retooling thinking about, you know, how they can better collaborate with those retail partners. The other piece of this and I think that where the consumer brands Association comes in, and what we've sort of called for over time, is that supply chain, of course, doesn't supply chains don't operate in a vacuum, they are influenced by this sort of macro environment of policy of government of, you know, the things that the marketplace just in general, which is, in essence telegraphed or influenced by policy as well. And so one of the things that the consumer brands Association has done over the last year is draw increasing awareness at the government level or at the policymaking level to the supply chain supply chain is funfact not the hottest topic in normal times in Washington. The thing that people like Um, so yeah, I don't know if we've made supply chain sexy or not, but it is more and more a conversation that's happening in Washington because Cuz I think people are aware of the fact maybe for the first time that there is this thing that facilitates them getting the toilet paper or their kids favorite cereal when they go to the grocery store, right. So because of that increasing awareness, I think that we are also trying to help policymakers understand that the policies that they put in place, the decisions they make, that shapes that environment. And so there are steps that could be taken to, I think, essentially just make a better environment from the supplier for the supply chain, and to, you know, better facilitate that to remove some of the frictions along the way. I always talk about it in terms of removing the time cost and complexity from business so that consumers are, you know, able to have affordable, accessible and available products. That's sort of the the overall arc, I think that what you will see and what we have specifically called for is that, you know, really, it's all about leadership at some basic level, a lot of supply chain policy, kind of you can call it supply chain policy, is really kind of haphazard, it's not done with any degree of intentionality, maybe certain countries like China aside really sort of like in like large scale industrial policy, we'll put that in another bucket. But the the least in the US, right, you have you have transportation investment happening for certain reasons, you have the different border, you know, controls and regulations, for one reason, you have some safety stuff for another reason, you have ag funding and tax policy in one area, they're not necessarily aligned or are sort of strategically coordinated, you don't necessarily have agencies talking to each other. And so really, what we have called for in the pandemic has sort of exacerbated or shown to be the case is that there needs to be more of that pocket, there needs to be more of that coordination. So we've called for what we've called an office of supply chain. It's actually in President Biden's infrastructure proposal that he's put out there for consideration. So we're really excited about that, and the potential to create that office, I think that it would be a real step in the right direction in terms of elevating the profile of supply chain. And the only thing I some people said, Well, we don't want another government office, like there's always this sort of pushback, right? Like you don't want, like more government, like we're like, just to be very clear, we're not calling for more government, there is not a lack or scarcity of supply chain policy. In fact, there is, I mean, maybe you could maybe make a case if there's too much at times, but that the policy that's there isn't laddering, up to anything in a sort of strategic fashion. And so the the role that we imagine an office to play is one that is able to begin its coordinate, it's to break down the siloing. It's just to have that overarching role. And it's also to serve as a conduit to the private sector to glean the best information that the private sector is able to provide like this is what's actually happening in the marketplace. Right now. commodity costs are increasing transportation is isn't available, like how can we influence that? And how can we sort of steer that back to normal or closer, normal than maybe the present? So that consumers ultimately aren't the ones bearing costs of of that? Okay.

Tom Raftery: 14:01

And would that be something that would fall under, for example, the Department of Commerce are, would it be a separate department of its own? So a new department of supply chain?

Tom Madrecki: 14:10

Yeah, so the Biden's infrastructure proposal includes it under the Department of Commerce, along with $50 million in funding for it. Whether it's in the Executive Office of the President, or commerce or somewhere else, I am less as concerned about that and trust that people find the appropriate home for it. And more about, you know, what is its role? What is the sort of the, you know, the the degree to which it's empowered to actually carry things out. One of the things that I have seen in my decade plus in Washington is that you often have times where there are policy decisions that are arguably in the best interest of the country, right like this could be these steps to be done. We could reduce congestion in cities that are caused by Urban delivery, let's just throw that out there as an example, that the Department of Commerce might know a lot of insight about the growth of e commerce, the growth of, you know, demand for that. The Department of Transportation may actually be the ones in charge of some of those things and how to facilitate or better and Nate, like, reduce congestion in cities, just because Commerce has a good idea. Doesn't mean that they necessarily want to roll that idea out. If it's going to step on the Department of Transportation's toes and sort of what we're getting at with an office. The supply chain is like, Guys, if it's a good idea, don't don't sort of like this internal politicking and the the dynamics of like, Oh, is it this person's responsibility or that person's responsibility, it shouldn't really matter. It should just be about doing what's right for the American consumer, which is ultimately, right. The American citizen are the sort of the, you know, the constituents to which government should serve anyway. So it's really I think, just about breaking down some of those silos and, and meeting consumer needs.

Tom Raftery: 16:00

Okay. And is the increased demand? I think you said it was 9%. Most recently, is that likely to stay Are you know, you talked at the start about, you know, people getting their vaccines and now going out a little more? Do you think it will return to kind of the normal that was there before all this started and demand will drop again? Or where do you see that going?

Tom Madrecki: 16:25

Yeah, so we actually looked at this very issue recently from the academic research side. And I think that what we see is that there is no let's say, return one term, like the new normal versus like, what was there's no sudden just like, bounce back, like, Oh, well, that was a weird Blip. And then it did sort of settled back in, what you actually see is that the pandemic has permanently shifted consumer sentiment, and thus change consumer behavior overall. So consumers during the pandemic, for example, were increasingly exposed to ecommerce, grocery delivery, or just the availability of delivery services in general, there was for, you know, food that they're going to take out or anything so that the world in which the consumer lives has been now shaped by this. And yeah, they, you know, people really want to go back to restaurants, they want to travel again, or they want to, and so yes, you'll see that. But there's also a realization, let's just take ecommerce and grocery as an example, like, well, I suddenly saved a lot of time, by ordering online. And I got to add everything that was in my old card to this card, it took me like 15 minutes that I just was on a phone, and somebody brought me groceries, instead of me spending an hour and a half with my my kid, right, I have a 14 month old, like in the car, like going to the grocery store, having him like literally eat the box of cereal while on the store. Like suddenly, this is this is a game changing thing, right. And I was the I was the person that was very adamant pre pandemic that like I loved going to the grocery store, I worked as a chef at one point, I like looking at the fish, I like picking up all the produce and like being present, but there is something to be said about the convenience aspect and the other benefits of that. And so there's a stickiness to e commerce that I think will continue. Yeah, and we've we've seen that play out in sort of the consumer research side. And so that's just one example of this behavior that's been changed. But you also see changing dynamics about what consumers want, from a product perspective, in companies have already adapted to that throughout the pandemic, or you have people buying, I think the way that it was put it to me is that, you know, it's not just that consumers, let's say are buying, you know, different types of athletic beverages, or sort of, you know, things that are of nutritional value, they also bought a home gym during the pandemic, or there's some, there's some crazy statistic, it's like 10 million, I want to get sick 10 million, like 10 million new pets were acquired during the pandemic in the US. So it's right, like what you acquired that dog or you've got that cat that's not going away. And so now all of a sudden, you're buying, you know, your, your, you know, food for it are all of the materials that you need the poop, whatever it is. And so this behavior has been shaped by what happened during the pandemic. You also see this play out in, and I think we're companies are looking at and how they have to modify their operations, how they work with their retail customers, what are the different sort of demand and fulfillment cycles look like, you also see this play out in the context of the consumer trip and what that looks like. So you also see changes where, you know, pre pandemic, there was maybe a steady, you go to the grocery store, you get your, you know, your $150 $200 basket or something like that. And then you go home, and you go back to the next week, and you basically buy the same thing. What you see right now, and I think that you'll continue to see is that some shoppers are relying on e commerce for frequent ordering. So they're going to place a smaller order. And I think part of it has to do with the cost of shipping and the you know, the other incentives that are there, right. And so there's something to be maybe tweaked or considered in that. But you'll see customers order more frequently and a smaller quantity for things that are perishable, for things that are just at the moment, or maybe they just suddenly ran out of milk and they just want to get milk, right. So you get these smaller, you know, orders that are more frequent from an e commerce perspective. But then you Have a massive order that they go out to the store to get, and they're going to buy like the bulk size, toilet paper, they're going to load up on baby wipes, they're going to buy all the shampoo, they can't whatever the case is, and they're going to do that once a month, or they're going to do that once every two months. And so the retailer is now on the receiving end of that, where they need to be prepared for either, you know, instant, you know, immediate fulfillment of these specific items at any given moment that the consumer wants, and then need to, you know, get those from a last mile perspective out to them. And then at the same time, they need to be prepared for the sudden, you know, bulk order. And so there's there's sort of two different things happening that are very different from what was what it was sort of a balanced, more, maybe more predictable environment prior to the pandemic. Okay,

Tom Raftery: 21:25

and what's the impact of all this on the delivery companies?

Tom Madrecki: 21:28

Yeah, I mean, and then I want to, you know, I was actually used to work for ups, I want to speak on behalf of like, my old employer or something like that. But I think that what you've seen happen throughout the pandemic, in, in sort of scale back through the supply chain cpgs, are trying to adapt to what retailers need, what sort of, you know, how do you predict or increasingly know, consumer demand? I think there's a whole opportunity actually in that where you see things where it's, you know, more of like a predictive mindset that actually transitions to a new a ton of information about the consumer at the retailer level, there's a host of demand sensing tools. I think anybody that has gone on to an Amazon or Google or other platforms knows that suddenly the thing that you talked about in the room five seconds ago, all of a sudden shows up on your social media feed, you're like, that is scary. But also, thank you, I actually really appreciate that deal. And I'm going to add it to my cart. And so there's a host of demand sensing and sort of analytical tools that I think that can benefit everyone throughout that ecosystem cpgs included, it's just the ability to share that with the manufacturer so that they're on the same page as the retailer, the retailer is adapting, like I said to this changed ecommerce environment, the thing that hasn't quite been figured out, I think, from a margin perspective, really, is how to do that last mile really well. And I think that one of the reasons for that is that, you know, or I shouldn't say one of the reasons for that, but one of the expressions of that is that you have all of these different models in place, right now, people are still trialing it, testing it sort of ideating through what works, what doesn't, you see, click and collect, you see buy online pick up in the store, you see, you know, actual ship to home, you see sort of consolidated, or like sort of frequent replenishment type models where it's more like a subscription or other it's like there's a host of different things that people I think are trying to explore to get at how do you figure out the last mile cost piece of it? I don't think anybody has done that perfectly. But it's it's an area, I think of increasing sort of investment. Certainly now you see, you see a lot of investment dollars flow into the space. And so there's just sort of a renewed interest in figuring that out who the winner is, you know, remains to be seen.

Tom Raftery: 23:45

Fair enough. Fair enough. Tom, we're coming towards the end of the podcast. Now, is there any question that I've not asked, or any topic we've not touched on that you think it's important for people to be aware of?

Tom Madrecki: 23:57

I mean, we touched on the demand side of things. And the cost side, that's just extremely top of mind, I think right now, and I think it ties back to in many ways, the, you know, this notion of like an office of supply chain, they there's a there's a sort of a, you know, the economic cycles of the, you know, the world of things like that, leaving it all on the private companies to resolve it, by all means, like the supply chain professionals and CPG companies love to solve problems, they will work their way out of anything. These are some of the most sophisticated and talented supply chains in the world. And so yes, they will resolve it. But there is an opportunity, I think, to undergird those efforts or to support them with the right level of policymaking. And and again, not is to say that it should, you know, stretch into the bounds of dictating something or saying that this should be a certain way. But it's, it's really at the end of the day to recognize the importance of supply chains, the growing importance of supply chains, the fact that you to remain competitive in a globalized modern world, you need to have skilled manufacturing, label labor, you need to have transportation and connectivity across the cross that manufacturing space. You need to recognize that really the supply chain consists of everything from the farmers to the labor that is picking tomatoes and the fields, the people that are canning those the people that are transporting those people that are putting those on the shelf, like all of that needs to work if you're going to actually go have the quality of life where you go out to the store and you can, you know, just buy your, your canned tomatoes or whatever that is. So that I think recognition of that. And then getting back to the basics of like, how do you support that environment? And sort of it's time to revisit that and think through how do we, how do we best enable that?

Tom Raftery: 25:49

Okay, so perfect. Tom, if people want to know more about yourself, Tom, a Trekkie, or about the consumer brands Association, or any of the things that we talked about on the podcast today? Where would you have me direct them

Tom Madrecki: 26:02

to think it's consumer brands association.org. We've also released a number of different studies in the supply chain space, there's one on the cusp of future of supply chain from a consumer packaged goods, companies perspective, in terms of what technologies they're going to see as enabling that future environment as well as a study on supply chain policy and making some recommendations there and so be sure to check those out when you when you go online.

Tom Raftery: 26:26

Super, super time. That's when Great thanks again for coming on the podcast today.

Tom Madrecki: 26:30

Definitely. Thanks so much time.

Tom Raftery: 26:32

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, head on over to sa p.com slash digital supply chain or, or simply drop me an email to Tom raftery@sap.com. If you'd like to show, please don't forget to subscribe to it and your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.