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Amanda Kramer: Welcome to the Leeds Business Insights podcast. My name is Amanda Kramer. We are thrilled to be talking about the supply chain today with Ravi��Ravishankar. Ravi has a background in engineering and business from MIT and is a veteran of supply chain and lean transformation and multinational corporations. His career has taken him across industries from semiconductors and machinery to medical devices and food and beverage. Ravi currently teaches operations and supply chain management at the��Leeds School of��Business. Tangled supply chains have been a nightmare for consumers and businesses since the start of the pandemic, but it's not a new problem. The United States laid the groundwork for a perfect storm like��these decades ago, and solving the problem isn't as simple as emptying the cargo ships stranded off the California coast. The fact that you couldn't get that PlayStation in time for the holidays isn't the problem. It's just one symptom of a challenge that requires a more strategic approach to solve.

Today on Leeds Business Insights, we're going to hear from��Ravi, an expert on supply chains, who will help explain how we got here and what kind of ride we're in for before we solve this problem.��Welcome, Ravi, and thank you so much for being here.

Ravi Ravishankar: Thanks,��Amanda, a pleasure to be here.��

Kramer: Well, you know, Ravi,��“supply chain” has become this buzzword. What exactly does supply chain mean?

Ravishankar: Well, if you think about what happens when you walk into the store and you pick something off a shelf, whether it's a PlayStation, a roll of toilet paper, or lumber, it doesn't miraculously appear there.��There are a number of players��involved, all the way from where the basic raw materials are produced. You may have multiple steps along the way where it is then transformed into your final product. In addition to the pure material transformation process itself, you have in a number of ancillary companies or industries that are involved such as transportation, information��systems. All of these things are interconnected. And in today's world, these interconnections pretty much span the globe. So, the smallest item that you might pick up off the shelf likely has some piece of it or some��subcomponent piece of it that came from some overseas. So, if any one of these elements that you were talking about in the supply chain��gets disrupted, interrupted, slowed down, then all the other things that are tightly linked together, start getting��affected. And in a nutshell, that's what you have��got.��

Kramer: Thank you very much for that explanation to ground us. You know, many of us on this podcast didn't get our PlayStation in time for the holidays. Here we are today, still incurring these��issues, and there's no short-term end in sight. What does the new normal look like for consumers and businesses?

Ravishankar: In the short term, these delays are going to continue. You may see a little relief in some areas, but the bulk of the issue is still there. It's not like COVID has disappeared. If I have a lake, everything is level, it's one of these beautiful things that you watch, this��glass-like mirror surface, and so on. If I toss a rock into it, it's going to generate ripples. Those jet ripples are going to extend out all the way to the shore. They're going to go back. They're going to come back. It's going to take a while before that ripple has entirely settled out, and you have back to your glass-like state.��

Kramer: Absolutely. And as we think about the impacts of COVID, let's go there for a minute. We've got this skilled labor shortage and then the potential to use incentives to fix that issue. Could you tell us a little bit more about what's going on specifically with the labor piece?

Ravishankar: The labor shortages exist for a few different reasons. You have people falling sick, right? And you have countries shutting down. You have businesses shutting down, and so on and so forth. Some people have essentially left the labor force entirely for a variety of reasons. Heaven forbids, some people passed away. Other people decided, “You know what, I'm tired of doing this particular thing. I'm going to go do something different.” You have financial incentives that changed people's financial circumstances, that allowed them to weather the storm—very good thing that they were able to weather the storm. But during the��time, they also get time to reflect on, “Do I want to go back and do what I was doing yesterday?” And in many cases, that's not the case. So, they've talked about the great retirement or the great exit from the workplace.��

Millions of people have essentially left the workplace permanently. And some of these people who have left the workplace permanently are in trades that have traditionally been in short supply to begin with. And they also have been skills that have not been the most attractive to the younger generation. Because if you think about it, to become a��skilled crane operator, it takes years. You not only have to go get training, you also have to know how to do this in a fairly stressful environment. You don't hear high school students saying,��“I want to go become a crane operator.” And the same is true for many of these other trades that are out there—truck drivers, train operators. So, you have a confluence of people leaving. It's taking you time to restock, so to��speak, that labor group. And additionally, there��is not necessarily always the��long-run incentive to stay in that profession.��

So, we have to think about the labor pool as not just as an educated workforce. There are skills. Just because you don't have a formal degree does not mean you don't have a skill. And the economy needs people��that have a wide range of skills. Everybody inside that supply chain is important. The realization of that didn't happen until COVID hit. We didn't consider this person essential until we realized how critical they were to our everyday existence. Everybody's essential at some level. If I change the circumstances enough, who becomes essential is going to change. If you have a war, soldiers are essential. If you have a famine, food production is essential. Everybody is essential at different points in time, and we need to look at the entire labor pool in that manner.

Kramer: Absolutely. It's really an interesting context as we think about this phrase, which we may not have considered before, in terms of who is considered an essential worker. Now, the interesting piece is, the supply chain has been moved to the forefront of concerns, especially here in the United States. But really, you've indicated that we have fundamental operational errors that are happening now and that��have been happening. We're under pressure, and we're dealing with the symptoms as opposed to the fundamental problem. So, can you tell us more about how you think our country is managing our supply chain issues?

Ravishankar: We don't make stuff in this country. We mostly import anything that is made. And that is a fundamental problem when, all of a sudden, where something comes from is disrupted. It doesn't matter what that item is. If you don't make something, then you need to ensure that the supply from wherever it is coming from is rock solid. When you've got something like a pandemic, when you've got something like a national disaster, it's out of your control. Your ability to ensure that continuous flow of materials and goods, and so on��is essentially lost. If you go to the very beginnings of this thing back in��March of 2020, everybody was saying, “Oh, we need an N95��mask 3M,”��when there are no N95 masks. Well, why is that?��

First of all, the demand for the N95 mask is a hundred times what it has normally been. The last time you bought an N95 mask as a consumer is probably if you were doing sanding in your garage. Now, you're talking about wearing an N95��mask to go to the grocery store. Most of the base materials to produce N95 masks and the largest producers of N95��masks are overseas. They're not in this country. If you go back at the moment in time, you're looking at the thing, “Yeah, this makes complete sense. Why would I make something for $1.75 if I can make it for 25 cents?” Nobody is intentionally trying to sabotage the country or intentionally trying to put us at a disadvantage.��

People are making sound business decisions based on tax policy, incentives, and the push to globalize things. There are so many different things that are coming into play.�� So, in making these sorts of decisions, you, in a sense, put yourself at risk.��But nobody even honestly thought about the��risk, simply because you've not had an event like this in over��100 years. So, when you're thinking about things like this, you can't make policy based on what's happening in the next five years or even 10 years. You have to think about what's going to happen in 30 years. What's going to happen in 50 years?��

Kramer: Absolutely. That makes sense. In terms of answering the question, how did we get here, it's really a decision, it sounds like, that has been made over time at a public policy level that is now having these rippling effects, like the lake that you were talking about.��So, as we think about how this will play out in the next two to three years, five to 10 years, and beyond, now that we're in this situation, what do you think this looks like?

Ravishankar:�� Companies are going to try and stabilize. They're going to try and look at, what is their risk exposure? It's not like businesses operate without thinking about, “What is my risk?” As I cross the street, I can consider the risk of tripping. Or, I can consider the risk of getting hit by a bus, too many different things. One is more likely to happen than another. And generally, businesses are going to try and mitigate the risks that are more likely to happen. You can't possibly mitigate every possible scenario that's going to play out. But the pandemic has sort of done that a little bit on our��heads. This kind of thing could happen. Not just once in��100 years, it could happen more��frequently. Who knows? Right?

So, in the next two to three years, companies are going to take a look at risk. They're going to say, “How do I start mitigating my risk? What are all the different areas where I have risk?” And start to say, “What do I do?” So, it's mitigation of risk from the perspective of, “My business will shut down if I don't have an��alternative supply to something.” So, they're going to start looking for��alternative suppliers.��Preferably, I'll get it to suppliers that are a little closer to home. But in many instances, there is no alternative supply closer to home. It just doesn't exist.��So, now it's going to be, “Okay, who is going to start this business in this country? Why would they start this business in this country?”��

One of the big issues is, we don't have enough semiconductors for making cars or making different, you know, PlayStation that you afford. We don't have enough semiconductors. Even if you made PlayStations in this country, there are a thousand things that go inside that PlayStation. And where are those thousand things coming from? Any one of those things not being available, you��can’t make that PlayStation. So,��in some of these industries like semiconductors, for example, the investments are at billions of dollars. It takes five years to put a plant up. It takes a few years just to get the regulations and the approvals for things and so on. So, you're talking a few years to get things up, and then you are going to decide what they're going to make in a particular facility. And then you're going to start making it there.

But the cost structures have not changed, right? The reason you didn't have a facility in the U.S., for example, for certain types of industries, is because it was��cost-ineffective. You couldn't make money based on what people are willing to pay for it. That has not changed. That hasn't fundamentally changed. The only thing that has changed is risk.��So, how much of a risk premium will people pay? Labor force same sorts of things. Do we really have a trucker shortage or not? Depending on whom you want to talk to, or��depending on who you're listening to. On one hand, they say, “Yeah, we've got hundreds of thousands of people at CTLA licenses, but then��were all these people, why are they not driving trucks?” We went back to that, for a variety of reasons. Can you actually make a living driving your truck, if you're in California or you're in New York, even say around here and in the Denver area? How much do you have to pay a trucker to incentivize them to become a truck driver? So, some of these things take a very long time to play out. So, the incentives and so on have to be structural.��There has to be a reason why I want to be in a particular profession because that is a certain payoff.��

Kramer:�� That absolutely makes sense as we think about the next two to three years. Do you have a perspective on the beyond? Is there something that businesses can do aside from thinking about bringing or leveraging suppliers in the United States in order��to aid with rectifying the supply chain issue that we have?

Ravishankar: We have to start making stuff in this country. There's no getting around it. As long as you are buying things from somewhere else, it doesn't matter what it is that you are buying. You're always going to be at risk. So, you've got to decide what is it that you want to make? What is it that you really care about?

Kramer: Absolutely. That makes sense. Ravi, as we think about this, we've touched on labor policy, supply, making items in the United States, as we bring those all together, is there a��kind of umbrella look you could give us in terms of the way forward? Could you bring all of this together for us, as we think about the way forward from both short-term and long-term perspectives for the United States?

Ravishankar: The country has to assess its risk in a broader context—the risk to its people, the risk to its supply, the kinds of things that people need. And��how do we mitigate against that risk? And it's not about nationalism. How do you mitigate risk in this country at a national level? Because the government doesn't produce stuff. It's businesses that produce.��So, if the government wants to mitigate the national risk of food and N95 mask, whatever it might be, they have to basically think in terms of—there are plenty of companies, there are plenty of business leaders, plenty of organizations, and so on and so forth, that are going to react to it based on the direction that the country sets for itself.�� It's not just providing incentives. It's providing a structure that itself acts as an incentive for companies to say, “It makes sense to me to do this here.” They're not a charity. They are basically operating to generate a profit, which means they're going to look at financials. They're going to look at costs. They're going to look at this. They're going��to look at that.��

Many of those things are, at some level, dictated by policy, by tax incentives, by credits, and so on and so forth.��Those kinds of��national-level things are not set by the company. They are set by the government level. The country has to basically say, “This is what we need to do for the health of our country.” The��keyword is��“the entire country,” not a small group within the country, whoever that group might be. It has to be for the whole country because, as we just spoke a moment ago, who is essential is going to change. We have to establish at a very��high level where��is this country going to go in the next 50 years. We have to take a very long view and established policy based on that. And companies then react to that, right? Companies basically say, “If we keep changing our mind as to what matters based on who's elected, it's very difficult to stay the course.” But if we say, “This is where we are going. We are going to do this for the next,” you know— As it takes a very long time to get here, it's also going to take us a very long time to get out.

Kramer: That's the thought exactly right there summarized in terms of this has been a problem for a long time, for decades, and it's going to take that time and a very concerted effort by a large number of entities and people in order to get us out of it.��So, that's a pretty humbling thought. How does this change how we do our jobs until we have a resolution?

Ravishankar: I tell you something that��changed, right? Last year you saw if you went to a Home Depot or you went to a grocery store, you could not buy seeds. People got into a��panic, basically saying, “I'm not going to get food. I need to grow it myself. I eat. I need to manufacture it myself.”�� In terms of how we do things, we need to be very aware that we are not operating in isolation. We are all very interconnected to each other. We have to keep that in perspective as we move forward. There is no point in getting frustrated or angry that the problem is not solved. It's not a problem that can be solved that fast. Because some of the people who have been neglected, so to speak, and suddenly rose to prominence, one of the fears, I think that spoken or��unspoken, is that��“When this goes away, I'm going to be exactly what I was yesterday. You care about me right now because you needed me right now. But what happens if I come up with a vaccine or whatever it might be that solves this problem? Then what? I'm going to be right back where I was yesterday.” And that is honestly part of one of the things I worry about a little bit, right? If this problem gets solved a little too fast, then we’ll forget that there was a problem. And��we’ll go right back to the way we were because it went away. It's like, “Whew, I'm glad it's over, and let's go back to living the way we were.” I'm not saying it should continue. Don't get me wrong. I'm not suggesting that you wanted to have COVID around for however long. But if something happens for a very short period of time, you also forget, you forget the hardship that you know happens with that. And this is where policy, and this is where structural��things, become so important. You have to have a structure that you can't reverse quickly. You have to put that in place. If you wanted to protect ourselves and saw that make it more robust and resilient, it's going to require that.

Kramer: Right.��In each��episode, we have an LBIdea or a main takeaway. And the takeaway here, I��think, is twofold. One that it's important to make our own products. And two, that in order to do that, we have to broaden who we think of as essential workers and what their value is to society.��

Ravishankar: That is a central theme. If you want to mitigate supply chain risk, some��amount or some items you have to make. So, you've got to decide what is that. What are the things that you are willing to put yourself at risk? And it's not just making stuff. It's making it, it’s packing it, it’s unloading it, it's loading it. It's putting it on the truck. It's getting it off the truck. It's all these things. It's not just the educated workforce. There is a tremendous number of people who are skilled, who, during the pandemic, worked incredibly hard. They probably have a high school degree. If that—And you and I will not be able to do that. If push came to shove and we were forced to do that, I guarantee you, we would not be able to unload a semi-truck for eight hours, taking crates off that thing and putting it up. For two hours, we would be whipped.

As a society, we have to think about that. We can't just think about it. “Oh, we have a pandemic. We need a dude over��here to unload my truck.” Well, I need the guy, and I need to make sure he's��okay, even if I don't have a pandemic. We can't ignore this entire swath of people and only count on them when we have a pandemic. Everything from how we pay people, how incentives are there, how things are structured, these are all very��long-run��types of things that are not easy to solve. And they take policy, they take education. It's very difficult.�� It's going to take all of us together to start to realize, “Hey, you know, we need to rethink.”

For example,��there are things like there's been this CEO to the employee pay gap, right? This has been a topic that has been discussed��ad nauseam for 20 years. For 20 years, we have talked about CEO to the highest level to the lowest level pay gap. How many multiples? In that same 20 years, that number has only gone up. It hasn't gone down. It's like, so what are we doing? Structurally, we've not done something that basically puts a cap that says, “Guess what, buddy, you��are a CEO? You cannot make more than 50 times. That's it. It's set in stone. It's set by the government. You want to give yourself a raise? Guess what? You're going to have to give the janitor��a raise.” That's how your policy is going to—So,��you know, we’re talking about structural things that require a tremendous amount of effort.

Kramer: That's a really interesting example. Are there other examples of labor policies that have a hand in the supply chain and resiliency, like say, minimum wage?

Ravishankar: First of all, our concept of what a minimum wage means has evolved over time, right? A minimum wage is something—I'm going to hide a kid to come home. My Lord! Well, I want to make sure that I'm not taking advantage of that kid. So, I'm going to say here at a minimum, you need to pay this person now. But then,��there are so many people at that level now, right? For a variety of reasons. You've got so many people at that level. Now we are saying a minimum wage needs to support a person’s ability to support a family. If that is really what we��mean��is a minimum wage, then I can tell��you, $15 ain't dead either.��

Minimum wage is something that's happening at the national policy level. What does it mean in this country? What��does minimum wage mean? What are we expecting that to be? And there are many things that play into that. Because if I raise that level, right—now, I'm going to go to the other side. If I��raise that level, that wage is going to play into everything that you and I buy. Because you have a structure, and it is tiered for a reason, right? What you are essentially saying is that persons who are making the highest wages have the highest scale or the highest need. We needed the greatest need for this person, so on and so forth. Okay.

But, so if you push something from the bottom, what is going to happen to the top? You're going to push the��top-up, too. And then nothing has changed. They've shifted. It shifted everything up.�� You have to think about that structurally. What are we talking about doing? How much are we willing to pay? What is our labor pool? How much influx of labor pool do we have? What kind of things are we bringing inside? I mean, all of these things come into play. And these are—it's a very tangled web, and it's not easy to unwind that quickly. So, the supply chain problems have got tentacles that go in a thousand different ways.��We are just experiencing the��sort of effect, right? We are just facing the ripple. We've tossed a rock in the pond. And all of a sudden, this ripple is playing out. It's making us rethink. My fear is that, if you let things alone for too long, that ripple��will die out. It'll be back to business as usual until something else happens. And I guarantee something will happen, just a matter of time. Will it happen at this scale? Who knows? But something��will happen.��

Kramer:��Those visuals are really helpful to understand the complexity here of that tangled web, the ripple effects of all of these decisions. For our last question, I want to think about another change that might be coming when it comes to the world of work, particularly these jobs that are crucial to the supply chain. A question that may be on a lot of our��listeners’ minds is, will robots fill in or replace some of this workforce that we're talking about that had these specialized skills? Potentially working in the warehouse or some of these jobs that are incredibly difficult to do?

Ravishankar: If I were to sort of look into this murky crystal ball, even without looking into a murky crystal ball, I would say almost certainly. At what level and what complexity? It depends. It is very hard work. This is really difficult work to do, for eight hours a day on your feet doing things. It's physically demanding. So, companies are going to basically look at it and say, “Okay. So, instead of hiring somebody that can, because of the fragility of human beings can, only work for eight hours a day and they need two 20-minute breaks because otherwise, they're going to collapse and die on me, I'm going to invest the $150,000 on a piece of equipment that is going to run 24/7.” These are practical things that are going to happen. There's no getting away from it.��The easiest tasks that can be done will probably be the ones that will go, the easiest tasks that are easily programmable, easily repeatable, and so on and so forth.��

There are companies right here in Boulder, there's a startup company that's based out of the founders, out of С���� Boulder, right? And one of the things these people work on is��a software for the robots. And the software for robots is tied to, very specifically, the gripping. So, it's the hand, if you might, right? So, if you think human beings have the unique skill or ability, if you might, our fingers can grasp things, uneven objects, smooth��objects. You know, we are able to flex it. And there are a lot of companies that build things that now resembled, you know, what fingers. But then there's more to it, right? It's how much pressure should I exert on things like this? So,��there are huge amounts of development��that are going on in this space. Because the amount of pressure that you exert to pick up a box and what you do to pick up something that's squishy is very different. So, it's things like this that are— But it's absolutely—it’s absolutely probably going to happen.

Now, will that lead to the domination of Amazon and so on? I don't know if domination comes as a result of them. Why do—You have to go back and say, “Why is it that I'm shopping on Amazon? Why is it that I'm going to Walmart?” Right? You're going to Walmart because they have made the supply chain efficient. That's why you are going to Walmart. Okay. And so, these companies are basically continuing to invest in making the supply chain efficient. So, you know, love him or hate him, right?��

The reality is that businesses that focus on doing something and doing something well, whatever it might��be, eventually become successful. They've completely transformed the way the fulfillment system is structured, right? The Kiva robots and things that they are using, which��are now Amazon's robots. And there are hundreds of companies that are now in this space. There are companies overseas that are—and they're trying to transform lots of businesses in many different ways. Human beings are creative. They're going to look at the problem, and they're going to basically say,��“How do I make this better? How do I make this faster? How do I make this cheaper?” These three things are inexorable. They're not going to change that.��A hundred years ago, 200 years ago, we��were going on in buggies with horses. And here we are now,��talking about electric vehicles that are going to drive themselves in this and that.��This is going to happen.��You need to be thinking about what your life is going to look like in 30 years or 20 years, or even in 10 years. What is it that you need to study? And what is it that you need to develop skills? And so, everybody has to continue to—I mean, I have to continue to study now. So I mean, I have to keep staying abreast of what is happening in the supply chain world. And everybody has to do that.��

Kramer: Thank you so much, Ravi, for joining us today and providing��all the stellar information.

Ravishankar:��You are welcome. Thank you very much.��

Kramer: Thank you again for listening to Leeds Business Insights, and a special thank you to my guest,��Ravishankar.��Make sure you don't miss a single episode. Subscribe to Leeds Business Insights wherever you get your podcasts. See you next time.