Episode 1

Managing a Stressed Supply Chain

Featuring	Maciek Nowak, Assistant Dean of Faculty and Research
Description	Maciek Nowak, associate dean of faculty and research, sits down with Professor Emeritus Al Gini to discuss the history of supply chain development, how risk is managed, and how they respond to uncertain times like ours.
Listen	Apple Podcasts and Spotify
Season	Season 5

Transcript

Speaker1: From the Loyola Quinlan School of Business, you're listening to the Q Talks podcast.

Al Gini: Hello. My name is Al Gini and I'm a professor of business ethics at the Quinlan School of Business at Loyola University, Chicago. And I'm joined today by Professor Maciek Nowak, professor of supply chain management and associate dean of faculty and research at the Quinlan School of Business. And our topic today is supply chain management and the challenges that it presents in the COVID 19 crisis. Welcome, Maciek. I'm glad to see you.

Maciek Nowak: Thank you for having me.

Al Gini: It's a pleasure. Now, first of all, let's get a little personal here. I'm in awe of your academic pedigree and your background. I can't believe this. A bachelor in Civil and Environmental Engineering. A masters in environmental engineering. A master's in industrial operations and engineering. And a PhD in industrial and systems engineering. Did you always intend to be a specialist in supply chain management, or did you grow into the field as you accrued degrees along the way?

Maciek Nowak: Well, they were they were giving away degrees back then.

Al Gini: That's not true. That's not true.

Maciek Nowak: True. No, I always wanted to save the world. My goal was to find a way to either clean or desalinate water, which is why I was in environmental engineering and ended up taking a transportation engineering class, my senior year of college. And that's what got me hooked on transportation and ultimately supply chain management.

Al Gini: So you never intended to practice both. You went from one to the other?

Maciek Nowak: Yeah. Yeah. No, it was a fairly big shift. I also discovered that I was a lot better at that, I wasn't so great at chemistry. Yeah. So.

Al Gini: But the math courses. You could handle.

Maciek Nowak: Math I could handle. Yeah.

Al Gini: All right, all right. That makes sense. But it's an amazing pedigree and one that says a great deal about your ability to teach this class. Now, before I was called supply chain management, it was recognized as a problem of trade, a problem of commerce. And in regard to armies and navies, it was a problem of logistics and supplies. Now, in some sense, my reading is supply chain management goes back to the camel traders across the top of Africa, the Silk Road crossing in China and England's navy, in order to maintain its colonies. And in America, maybe supply chain management came up to be a part of our history because of the fur traders of the Great Lakes and then down the Mississippi. So supply chain management is an old problem, but now with new issues, is that correct?

Maciek Nowak: Yeah. And I guess the modern perspective on supply chain management and I should add that I've never had our field so well described back into back through the ages. But the modern supply chain really comes out of the military, as you mentioned in my mind. And again, like you say, it's been a part of what we do for ages. But I think when folks came back from the war, they realized that, you know, the way that we are running businesses is not efficient. And the way we did it in the military was actually more efficient. And there are better ways to organize things, better ways to move product, move it more efficiently. And from there, you had all these former military folks who started to breed these ideas of improving supply chain management.

Al Gini: But even facts remind us, just to pull out a little history, this is the danger of having too many degrees in history. I mean, Pax Romanus was based on building roads and on building a fleet that never went into the Mediterranean, but rather hug the coast. And they were traders. Rome was essentially a kingdom of traders.

Maciek Nowak: Yeah. And I think transportation itself has dictated all of history, right? When you look at where any city is located, any major city is generally on some type of water source, right?

Al Gini: Right.

Maciek Nowak: Because of transportation needs. Favorite example of mine is you think about the city of Pittsburgh. What is it known for? Well, primarily steel. Right? And why is Pittsburgh located there? Because of for steel. You need coal, you need iron and you need water. And all of those are located close by and they can get to Pittsburgh fairly easily. And so that's a city that sprouted from the logistics.

Al Gini: And the great irony, of course, is perhaps one of the busiest, richest cities in America right now has no reason to exist. That is Las Vegas, except there were no prohibitions against gambling and prostitution.

Maciek Nowak: Yeah, absolutely correct. And I thought you might mention, because Atlanta is another interesting city that is not on any it's not on a major body of water. There's the Chattahoochee River, which isn't exactly a major thoroughfare, but that was another kind of--it sprouted as a crossroads, actually, but not on a body of water.

Al Gini: That's fascinating. So in a real, very real sense, your study of supply chain management comes out of necessity and need and was connected to environmental possibilities, but now radically change because we change the ability to travel, we change the ability to access things. And then looking at your class on global supply change management, which gives it away right there, it's global, which is fascinating. And I don't think I could pass anything in it, by the way. You talk about three major areas of concern traffic management, carrier operations and warehousing. Now, 15 minutes or less, can you define all that for me? Which I think really is the backbone of that class.

Maciek Nowak: So the class actually has really evolved into more of a strategic supply chain management class. And really, we look at how do today's global events impact the way that we move product, the influences that that has on things like you mentioned transportation. So how is transportation evolved and what is the right mode of transportation that we should be using to move product? The simplest example is truck versus rail. Most product in this country moves by a truck because it's more accessible, but it's more expensive than rail. So if you're on the ball and know what you're doing, you can take advantage of a cheaper mode and something like rail. And so look at inventory management. How much should we carry, how much of a product should we have on hand? And that very much plays into what's going on now is inventory management and I'm sure we can talk about that as well.

Al Gini: Yeah, I want to ask, of the three areas that are involved in supply chain management, trafficking, carriers, and warehousing, what do you see as the most important or are all three areas equally important depending on the timing of the experience.

Maciek Nowak: I think all three are absolutely important. I think supply chain management really is this coordination of everything, all of those factors, what transportation you're using, how you're managing your inventory, where you're getting your inventory from, and where your suppliers are located. And it's there's never a perfect supply chain. There's always something going to be slightly off. And supply chain management ultimately is the continuous tweaking of how you move these products, all those different factors that you listed to get them working well, working in a coordinated manner. And there's always things you can do better.

Al Gini: Yeah, yeah, yeah. What's fascinating to me is simply as a consumer, you buy a product and it says Made in China, for example. But if you look into the instructions, have the components came from Indonesia, some came from South Africa and it was manufactured in or all put together in San Francisco. Is this an easy kind of thing to do? Has this become the state of the art that you're able to do this kind of at a distance, produce a product?

Maciek Nowak: Yeah, I think ultimately in some ways, container shipping has changed the way we do everything that we do and the ability to move cotton from the fields in Georgia across the globe to China, where it's turned into cotton, that cotton is then moved to Vietnam, where it's turned into a t-shirt. And those t-shirts are brought back here and sold a couple of dollars. Much of it again comes from this global containerization. And as a history buff, you should take a look at the history of the container because it was in 1954 getting the exact year. But in the 1950s is when the first container and you think it's a box. But it's this coming up with this standard shape and size that everybody used everybody has the equipment for allows for this international movement.

Al Gini: And it's amazing also that it was sealable so that it could prevent seepage, etc., etc., because many of those containers are above deck. Have you seen the ships cross the ocean? You wonder, what is that rectangular box doing there? And it's a ship with containers in the top. So the reality is nowadays you may grow the cotton in Mississippi, you don't make that jersey in Mississippi anymore. So it's become an international kind of manufacturing process, which is really shown up in this COVID 19 crisis that the world is going through now, that you can't get a product because we can't communicate between all the various local points of where the product comes from or the supplies come from.

Maciek Nowak: Well, and, yes, there have been a lot of breakdowns, but I think for me, one of the most interesting things to come out of this is how many people now know the term supply chain management. You go back four months and people have never heard of supply chain management or what the supply chain is and it's, I guess, more of a factor of you don't hear about it until something breaks. And I think, yes, a lot of things have broken. But I think the more amazing thing is how many things haven't broken and how when you go to the grocery store, the shelves are still stocked.

Al Gini: Yes, yes, yes. It is quite amazing. Something may be gone that week because the truck didn't come in because it was late here or there. But things are there and it is truly amazing. And if it weren't for the fact that we're all wearing masks, you wouldn't know that that was a different story now in many places.

Maciek Nowak: Yes. Well, except for the empty toilet paper shelves.

Al Gini: Right. And they're not empty right now as of this morning, I might point out. But now before we go on to connect this to COVID 19, I want to ask about the teaching of this. Are we in need of a lot of students now? Are we in need of developing supply chain management experts right now in a greater need than we had before?

Maciek Nowak: I don't know how to be as emphatic as I possibly can be in saying absolutely yes. It's really the one frustrating part of this job is that we have way more job opportunities than we have students to fill those up. It's really I mean, when you consider as we've shifted from being a manufacturing society to more of a consumer driven society, and as you said earlier, so much product is being shipped from all over the world here. That means there has to be somebody to manage that, to get that product into the US, to the store shelves, for the consumers to buy it. And we just we don't have enough people trained in supply chain management to do that.

Al Gini: Even in good times. Right now, let's assume that there's not a COVID 19. You're saying even without the crises going on, we still don't have enough people?

Maciek Nowak: Absolutely. And at every level, I mean, I'm talking from warehouse personnel up to chief supply chain officer. I mean, you look at how many states and I don't remember off the top of my head, but where the most common profession is truck driver--

Al Gini: In fact, and for my father's generation, which seems ages ago, but that World War II vets who came back, one of the uncles (and in an Italian family, an uncle, is any male that your father is from or your family is friendly with and is older, right?). One of my uncles got to be a long distance driver and got to bring my cousins on occasion would go when they got older in the truck, etc. etc. and he was considered a professional. This was big time. And then in the early sixties, he actually bought his own truck. That is at least the cabin. And he became the wealthiest man in the family for a period of time.

Maciek Nowak: And it's one of those professions where you really you can be your own boss. The number of trucking companies in the US is in the hundreds of thousands. Because any owner-operator is a trucking company in and of himself or herself.

Al Gini: Let me ask a logistic question. Are the trains not able to handle this? Are we just not taking care of our train system in America right now? Shouldn't we be investing in a more complex train system and just fulfilling the needs for your discipline?

Maciek Nowak: Well, that could be a whole other podcast. I mean, the issues with the train system are for one, I think many people think of our passenger rail when they think of train and they think dysfunction, things like that. We've made essentially a trade off between passenger and freight rail. Our freight rail system is arguably the best in the world. Wow. While we have arguably one of the worst passenger rail networks. Because the freight rail has priority. There are issues with the freight rail network, but it's more of what are things we can do to improve what we're already doing with this system.

Al Gini: That's amazing. Now I'm going to turn to COVID 19 and this is fascinating. I could talk about this--I just didn't realize how fascinating this was and how primary and basic it is to our lifestyle. I'm sure whatever I'm wearing right now was made in 17 different places and was probably put together by 26 different manufacturers. But I think COVID 19 has changed our landscape right now, and it's proven, if you'll allow this alliteration, that the fragility of our economic system and the fungibility of that system as well, that is even though it's been very fragile and we suddenly had this shock, suddenly people ran in and made that supply or came up with an alternative. Think of all these companies right now trying to make masks, just as an example of that. But when we live in a society where we're all in a petri dish and we can go from packing to Peoria, and 36 hours or less of that is carrying a disease. Isn't there a greater responsibility and a greater need for kind of exactitude in regard to our supply chain?

Maciek Nowak: Yeah. So I think I think that that exactitude that you use is one reason why we are in the position where we are the supply. Today's supply chain is a precise, well-coordinated machine. And again, you don't hear about it until things go wrong. And it is generally very well run. The problem is that in order to achieve that precision, what we've taken out of the supply chain is inventory. So when you think about you may have heard of the term 'just in time' and this was really championed by Toyota and several other Japanese firms back in the sixties and seventies. And this idea that inventory is expensive, it creates problems. Let's get it out of the supply chain. And the American auto industry followed suit and then so did just about everybody else. And they said, well, inventory is expensive. Why do we need to carry all this? Well, the reason you carry your inventory is because it protects you from risk. And the more information you have, the more you know about the supply chain, the less risk there is so the less inventory you can carry. And I think that I mentioned this, the toilet paper example is a perfect example of this. Why did people run out and grab toilet paper? For two reasons. I think one: risk. There was a concern that I'm not going to have enough toilet paper, so I'm going to stock up. I'm going to pick up a lot of inventory to protect myself from that risk. And the other was increased demand. I'm going to be at home all the time. And for the toilet paper. So those two combined to really slam the supply chain in a very unexpected way. Generally, that is something that's very easy to forecast. You have a very good sense of what your demand is going to be for toilet paper. And that suddenly changed considerably. And now to think about yourself as a supply chain, this is the way that companies have long operated. Right? I know that there will be available toilet paper when I go to the store, so I don't need to stock up. And suddenly you do. But if we say you, you could track and you knew exactly how much toilet paper there is at the grocery store right now, and you would have much more information about, okay, what are the level, the stock levels of the inventory there? And if you could see, all right, it's not dropping precipitously. I don't need there's not a risk. And so, again, how the modern supply chain works is the more information I have about my suppliers, about what's going on, the less risk there is, the less inventory.

Al Gini: So besides transportation of this stuff and manufacturing this stuff, the computer age has made all this possible.

Maciek Nowak: Yes. Yeah, absolutely. And I make it sound maybe too precise than it is. In many instances, there's still a lot of warehouses that are operating using paper. We're not in a full digital age.

Al Gini: But we are getting there. The major manufacturers, certainly my cousin Guido is calling up Antonio to say, send me, give me more than this. And he's using his cell phone. I get that. But I'm assuming that major industries, the major manufacturers, are all kind of linked into the same computerized world.

Maciek Nowak: To some extent, yes. But again, there's still, particularly when we go global, there is still so much room for improvement when you consider that every country has its own requirements for bringing product into the country. This has improved. But I mean, it wasn't that long ago that the paperwork alone on a container shipment moving internationally costs in the hundreds of dollars just for the paperwork because so much was required. So we're getting there.

Al Gini: We're getting there. I would assume that the two major players in this are the United States and China, clearly the two largest capitalistic or capitalisticly-influenced countries right now. And they've made this a priority for themselves, have they not? That is developing their supply chain management.

Maciek Nowak: Yeah. And you look at and China, in particular, has had to move a lot in terms of its progress. When you look at the development of China, where manufacturing occurs, it's all along the coast because if you go inland, China, their transportation infrastructure was so poor that moving a container from inland China to a port on the coast was quite an ordeal. And that's the one thing that they've they've changed quite a bit. I mean, there still are hurdles to overcome, but yeah, they've definitely made it a priority to develop that transportation infrastructure to ultimately make their supply chain more efficient.

Al Gini: Well, I want to ask one question. Perhaps this is a way to end, but not on a dreary note. And The Wall Street Journal suggests that Chicago, as a center of supply chain management, as a hub, is well situated to deal with the crisis we're in. And I think that this crisis of COVID 19 and the grounding of people caught in cities etc. etc... Ironically, we may not radically diminish our lifestyle and our consumer consumption patterns because of this. But I also see it as a way of healing that is bringing relief to different cities. And it may be on this business school class that suddenly isn't just a class of kind of metrics and mathematics, but really, really helping people.

Maciek Nowak: So yeah, I think that our supply chain can absolutely be a way out of what we're in. And we see this, you read about it every day, the supply chain issues, but then the supply chain successes. And when we think about you mentioned the masks that are being developed, all the PPE here and everything. There are going to be imbalances in our countries, certain places we'll have more than others. Also certain places have more instances of COVID 19. And so how do we shift the resources quickly to those locations? Right now, we're still figuring that out, but the supply chain is going to play a pivotal role in that and figuring out how do we react quickly, because as we emerge from this, there is going to be a second wave. And in certain locations, how do we respond quickly? By diverting resources to those locations. One thing that I think will be interesting as we again emerge from this is we've ramped up production of so many of these different needed items that we're going to likely end up with way more than we needed. And you see this in any supply chain, right? They react to the demand and then often there's an overreaction. Yeah, inventory levels skyrocket and then you cut off production and then often they'll drop. And we call that the bullwhip effect, which we may see some of that. But again, having all these resources, now it's going to be a matter of putting them in the right place at the right time when we need them most. And I think that's something that we have the expertise for it. I think it'll be really neat to watch. I think that the people who are trained to do this will do it well. And I think it's going to be pivotal to be able to react and handle things.

Al Gini: Well in preparing this venture. I must tell you, it really helped me overcome the old prejudice that the business of business is to make money. The business of business is to help and to serve people. And I think this discipline of supply chain management really proves the point. Thank you very, very much for being with me.

Maciek Nowak: Well, thank you, Al, and I appreciate it. And hopefully a lot of people are seeing the importance of the supply chain. And we'll hopefully get some more people interested in it and will start studying and move into this.

Al Gini: A major that guarantees a good salary. Thanks.

Maciek Nowak: Absolutely.

Al Gini: Take care.

Speaker4: This has been an episode of the Q Talks podcast where we seek to marry the wisdom of the Quinlan community with the issues of today. Special thanks to our guests for their conversation and insight with additional thanks to Dean Kevin Stevens for his generous support of this project. Matt Smiley, our student producer for editing this episode of Loyola School of Communication and UW for their continued collaboration. Please take a minute to support us by rating and reviewing our episodes to help expand our reach. Thank you for listening and we hope you join us next time.