Yossi Sheffi - The Magic Conveyor Belt Part 1

today's book explains why Supply chains are hard to operate and getting harder fortunately future managers can employ a combination of suitably educated employees and digital technology to successfully manage ever higher complexity people and companies can use digital Technologies to make themselves more efficient and more effective to address the expanding and changing needs of the planet Our Guest today is the author of a 19 85 textbook on Transportation networks and eight management books dealing with supply chain resilience sustainability industrial clustering and he is the world's expert on Supply chains it is a great honor to have him on the show for a three-part series on his latest book The Magic conveyor belt Supply chains Ai and the future of work Professor Yosi sheffy welcome to the show thank you for having me Aiden nice to be here it is great to have you and you're joining us from your weekend place over in the states we've been planning this for quite some time and it's difficult to find time in yosi's schedule so let's dive in we're not going to waste any time I thought we'd start with the question that might be in the minds of many of our audience if they clicked on the link which is the whole idea of Supply Chain management really that has something got to do with Innovation Etc and really like you said many times you be introduced at a dinner party you tell people what you do and people would be kind of going oh thinking you could see the blank stairs in their eyes but Co changed that for everybody yes I always tell the it's a true story that people until March 2020 people used to ask my wife what you know what's your husband doing at MIT and she said doing research on Supply Chain management and the response was it look like a deer in the headlight uh what is this I a few months later my wife wife walked in the local supermarket and didn't have something that she wanted to buy and she asked the 17y old clerk why there's no oranges or whatever it was and he says don't you know ma'am we have Supply Chain management we have supply chain problems so okay that's it it's now there it went from the from the boardroom discussion to the basically to the kitchen uh to the kitchen discussion so yeah the fact that there were shortages and and problem so everybody start realizing that stuff does not appear magically on the supermarket shelf or Amazon deliver it there's a whole history how does it get there the originally the book was written in respond to people asking actually my wife I she has many many friends and people are asking uh okay we hear about supply chain what's going on what is it can you ask your husband to uh to talk to us about it and there my options were either talking giving 100 one to oneon-one talks or do something else so decide to write a book and the beginning is all explanation of why it's so complicated why it actually did not fail why it was a heroic effort of people and companies and and collabor a lot of collaboration that made sure that nobody went hungry for example um so explain how complex it is and in some sense try to bring people to the realization that if they if they don't see something on the supermarket shelf for Amazon is out of stock they should not be angry or pissed off or in fact if something is on the is on the shelf or Amazon delivery they should be amazed and thankful if they understand how many stages it take from as a mine in China to a series of dozens of supplier and Subs supper sub transportation company and um custom regimes and tax regime going through the whole world several times over until they get a fully functional product on the shelf and once they understand what it is they become a amazed and a lot more forgiving something is not there I wanted to ensure we're all on the same page from a an audience perspective and to to understand the importance of a supply chain not only to feed and cater for the 8 billion the planet but also how understanding Supply chains is key to Innovation and indeed inic efficiency I'd love you to do us the honor of defining supply chain in its current manifestation and as you tell us it was a current a term only coined back in 1982 yeah ER look supply chain always existed in the sense that you know the the joke is a child ask ask his parents how did people live before oxygen was discovered Just Like Oxygen supply chain were always there they always there was trading there were people you know making stuff what change is with the uh invention of the of the container with the internet with the communication with the maritime advancement air air freight advancement supply chain became global so because it was possible to get the best supplier in the world regardless of where they are and that supplier will build some part that will go into some other supplier who will put it in a bigger part and put it in some other uh element and then go and this will be assembled somewhere else into a vehicle a blender a toaster whatever it is um through this because it has it crosses um oceans and National boundaries one it's become very complex very complicated just the fact that one has to coordinate with dozens and dozens of elements all the time and as I said actually the amazing thing there is there is no central control there's no Zar that says okay you do this you do this actually the Soviet Union tried to do it and it was a miserable failure in the in the free market it is all a result of a pair of negotiation buyer seller buyer seller buyer seller and until you get to the uh to the finished product So Adam Smith Co talk about the invisible hand supply chain operation is the manifestation of the VIS invisible hand there are processes that go over time and space without any central control now it is even harder to for companies let's let's talk for example about an automobile company talk about I don't know Renault or General Motors uh it is hard for them to know who their suppliers are now they know what's called tier one suppliers they pay to certain people to do certain part but these people also have suppliers and those suppliers are and the suppliers don't want to reveal to Mercedes or Renault or GM who their suppliers are because for several reasons first of all it's a trade secret and second they're afraid that the OEM the automobile manufacturer will go around them it go directly to their supplier and TR it's a so it's very hard for company to have what's called visibility into the entire supply chain yet it works amazingly it works now people are trying to solve this problem talk about it but by and large it's a as I said it's a manifestation of the invisible hand let's give the example let's build on the example of cars I I pulled a quote on that and I thought this was so fascinating it's it's the depth that you go into to expose all this because this we just buy the product we're just the end part of the whole supply chain but you write here most cars have about 30,000 Parts made around the world with many of them traveling multiple times across and between continents each of the 30,000 Parts must be highly engineered composed of specific materials carefully manufactured and then delivered to thousands of suppliers who assemble many of these parts and send the resulting subassemblies to car factories all these subassemblies are then put together to make a sophisticated yet affordable automobile it really is remarkable and maybe you'll give us an overview of for example the the car something that we take for granted the car so the car you to assemble the car they run on the production line the car has seats for example this an example I did not use in the the car has seats so company called Johnson Controls is one of the leaders in making seats for car now modern car the seats come with all kind of small electric motors to move it back and forth to uh inflate the back to give you Lumber support all these are small um small motors that um John control doesn't make they buy him from another supplier they also have to buy cloth or for example either uh cloth or some other material to to cover the seed the cloth is it has its own supply chain because it has it goes to U Weavers who have to buy certain textile who have to buy certain from cotton manufacturers and and the cotton manufacturers are all over the world so a car that is that is made made in Texas the funny thing may start some part may start as a cotton growing up in Texas then it will move to China to get textile then it will move to you know Bangladesh to start weaving it and cutting it then it will move you know to a Johnson Control factor in Canada to try to put it around a a seat and then the seat will move back to the Texas Factory it is maybe a stone throw away from from the you know from the cotton field to put in into the car meanwhile the cotton and parts of the seat were traveling around the wall and then and there are several um of this supply chain one for the motors one for the cloth one for the basic material a lot of it is there to make a car and then the unfortunate thing is what we call the golden screw out of the 30,000 part one is missing the there's no car you cannot make the car it was the case during at the end of the pandemic Ford Motor Company had a problem you know the F-150 truck is the best selling truck in the United States made by by a Ford uh small truck you know that the that people use not not the big over the road trucks it's a pickup truck would use and they did not have the small ovals that say Ford the the U you know their logo basically that they put on on the front and they have thousands of truck stranded and they couldn't sell them because they didn't have this little oval which has nothing to do with the engine with the transmission with anything you need everything to be that's the amazing part everything to be there just in time just when the car is being put together everything has to be there with people with Machinery with factories being able to put everything together so that's once you start understanding the enormity of this and this is we just talk about one part there are so many parts and each one of them has its own supply chain so it's a so you start understand how complex it is and how amazing it is that the car can be sold for only only quote unquote 30 $40,000 it's it's it seems like nothing compared to the activities that bring it together it's fascinating and one of the examples you gave many of us during the pandemic or even due to the war in Ukraine have been impacted by the rising cost of raw materials for example and one of the great examples you give that again we just wouldn't even think about is axon Noble and how their main product which is paint has 50 to 60 ingredients alone people find it okay that the cars has 30,000 parts or an airplane has close to a million part what is actually what people find even more amazing is that a diaper a baby diaper has more than 50 parts I mean a modern diaper has more than 50 parts and by the way you need all of them I mean it's they provide certain certain functionality and work together and it's a almost every product the reason that at one point in the book I talk about bananas you report this a chapor but oh you were you were ready for this one I didn't have the space in the in the studio to bring in a car or diaper I didn't just didn't want to bring a diaper so I brought a banana to kind of illustrate this one this is a great story I'd love you to share this yes so the reason that I talk to explain supply chain I said okay this is way too complicated way too complex way too huge so I said let's talk about banana why banana because banana is a product that has only one part banana furthermore it comes with its own packaging so you don't need packaging so I Tred to look at what happens to Banana how do they go from a you know a field in Costa Rica to a store in in Boston or somewhere and it starts by know the first ingredient are water and sun and you know good good soil so the banana grows then I describe the process how they cut the bunches and send them over wires to clean them and then put them on trucks and send them to the port in Costa Rica then they go on a refrigerated ships come to the United States they come to from there they'll come to usually the port of uh of New Orleans and then they'll be distributed to various um Distributors and retailer the interesting thing is that the people think that banana is just a you know natural fruit you just buy by a banana what could be more natural than that people don't realize that it undergo absolutely several industrial processes before you get it and the reason is the retailers don't want just banana they want so many green banana so many half yellow banan so many yellow bananas because they want to sell it over time and every consumer has its own desire and needs so actually bananas go to either the distributor or the retailer they go to a cold warehouses where when the when the retailer order they start putting certain gas into this and depending on the time that the gas in there and the concentration of the gas they can absolutely control the color of the banana the ripening of the banana it actually control the ripening process and then they get some of them when they are green some of them when they are half yellow some of them are three4 GRE yellow some of them are totally yellow the way the retailer orders this and and then it go it goes to the store so understanding that even something as simple as a banana goes to so many processes and so many steps to get to the supermarket shelf and uh so it's just because it is so simple it's amazing that it's even that is that complicated so you start thinking about my God something that has 30,000 Parts how did they do this is one part it gives you massive empathy towards buying local and the reason why what that actually means you know when you buy local from a local Spire the air miles that doesn't happen all this interdependency that actually happens or or is is avoided by buying local that was one of the real big realizations for me yes it's a however with a little Nuance here because for example flying um flying flowers from South America to Boston is better than growing them in Boston more sustainable because there is just there's plenty of Sun plenty of water good good soil no problem they just grow when you do it in Boston you have to put it in hot houses you have to a lot of processing and it's very very energy intensive so it's you know we have to take it with a grain of salt it's not always local by and large yes but not always brilliant brilliant I'm going to share Yosi what you're mentioned the the score model that you have in the book and maybe you can talk to this and explain it to the audience this is the score model and it's got seven processes and this really for me brought it to life the process start with the estimating demand even outside this picture estimating the demand once we know what the demand is we want to start buying parts raw material whatever we need to make it then it goes to the transform it's the this is the outer the the left on my side it's the left Circle it's a you Source the the part you Source the raw material and you transform you transform into a product or a part or a subp part then it goes to the orchestrate and then you go to the right hand side you have you have the order in hand and you fulfill the demand but of course all this processes managed by prior planning which is the top Circle and the planning is intended to synchron synchronize supply and demand so you don't have too many parts that nobody wants and you don't have orders that you cannot fulfill so you have to the planning goes to synchronize the supply supply and demand at the bottom cycle we have the return now you want to as much as you can reduce waste and start regenerating the same the new product from the remnants of the old product so you take it back and you move it back to the transform and make uh new product the interesting thing is you can imagine this structure happens along along a line there are several companies and along a chain and it happens in each one of them and they are connected because the source when you say Source on the left side it's actually it's the actually the order from the company on the left um so and the uh fulfill on the right hand side is giving the uh is fulfilling the demand from the company on the right which could be the consumer but mostly if it's in the middle of the chain the company on the right so you have this is the chain that you have a group of or a a line of companies you can imagine uh This Way each doing all these processes each doing the planning each think about the return the transformation the Fulfillment the ordering each orchestrating all these activities this was brilliant this diagram because it changed my thinking about a supply chain that it's not actually just a linear chain it's it's a tiered approach and you talk about there's there's many tiers within the tiers as a as a result of some type of breakdown and and this key line I thought was so important because when we talk about you know the magic of getting the product at the end is so dependent on so many parts of that chain you say here a singular dependence involves a risk for the company should one supplier fail multiple suppliers on the other hand allow the company to continue production when one supplier fails we saw that during Co but having multiple suppliers increases the management complexity by creating the need to manage inspect audit and negotiate with many more entities and this as a result can lead to tear within the tiers sometimes unethical iCal suppliers with the need to deliver results to shareholders or to the organization people might quickly go and find a new supplier and that supplier might not have the same ethics as your previous one well several several comments on what you just said first of all it's not only increase the complexity it increases cost because if you have let's let's say the the ultimate you have a single supplier if you put all your order on one supplier you'll get a good rate a good price because you put a lot of volume and you actually with the volume you actually reduce the cost for the supplier so you can get some of it so it's it's a complexity and and the cost but of course having multiple supplier will cost more but reduce the risk because you'll have if if you have one Supply and that supplyer fail you toast there's not much that you can do what you talk about the needing to quickly finding other supplier has several other problems because we know some of my research and others uh about fakes about The Fakes increase dramatically in Period of shortages because companies do exactly what what you just described they quickly try to find another supplier and when you look at many of the um recalls that happen with the children toys and in the last few years they happened because companies got caught supplier had a problem they had to find somebody else and it was just they you know they use paint which has wrong material in it wrong uh wrong component and things like this that became a problem and they had to do a big recall leading to high cost so it's always good to be prepared but here give you an example of company that I think does it very well Intel is actually I do a lot of work with Intel and Intel how do you you know Square the circle on one hand you want low cost on the other hand you want um risk you want to to deal with risk mitigation so in Intel has for every product for every part that they buy it has five levels of um what do we call resilience so at level one they buy some parts and they only have a study of who are the other suppliers in this business all over the world who makes who also makes this we buy from one but who makes level two they go and they try out one or two of them level three they go and make a run from one of them level four they try to do repeated runs so they see if there's you know consistency with from the other supplier level five they actually use two suppliers so they always and every one of the product they kind of move between depending on the perception of risk and depending on the outside world suddenly there's a war of Ukraine oh some product may move from two to three to four because they try to get other so so they try to have their cake and eat it too but I think that's a very very clever approach yeah you you say in the book as well the chains are so long and have so many organizations involved that the parties can only estimate and typically can't know for sure what's going on at the far ends of the chain and you say for example here I thought this was so interesting that seemingly unrelated disruptions like coov taught us a shortage of gas in Europe for example due to war can create ex unexpected impacts like a shortage of food in Africa maybe you have some examples of that that's another problem with the lower tier of the supply chain when you have just Commodities so and many Commodities are used in multiple products think about oil think about wheat think about every commodity you think of is not using one product and when you have shortage in in in certain area it it impacts other give you give you an example opposite example inance during coid um automobile manufacturers sto ordering chips they were make they don't makeing car nobody was buying cars so they stop ordering chips at the same time of course people use laptop and cameras and zoom they all need chips so all the chip companies started selling started having contract with the technology companies oh coid was starting to you know we coming out of coid and people start looking at cars again the car companies that said ah we need chips again they said oops not only we don't have but we have long-term contract with entirely different industry we can't give you the chips so it's hard to think all the connection is hard to imagine sometimes I mean none of the other companies imagine that they are in competition with you know D computers what do they have to do with each other well they use the same chips so it's a there are component that goes in every that go in in many many products and it's through with chemicals it's through with many many Commodities you know one of the things I thought was so interesting for this show for many of our audience y see are people who work in Innovation or new product development Etc and say for example you're ahead of innovation in an organization and you're trying to force through a new idea or a new product Etc this is often why it gets blocked this supply chain and introducing new supply chain and how difficult it is to manage the business already or all the scenarios that you have to plan for in supply chain yet somebody who doesn't understand it until they've read your book and hopefully listen to this series goes oh okay now I totally understand it because you you when you don't understand what's actually going on behind the behind the the front stage you you have no empathy for it yes you have no empathy and you think that everybody who uh who start raising issues is just you know backwards doesn't like doesn't want Innovation does look there's nobody more than supply chain managers who are crying for help all the time they are the first people in many cases to adopt technology sometimes the wrong technology but they all nobody knows better than Supply chair manager how complex and difficult the issues are so look there was a the whole move for example with blockchain turn out it was not the panasia that everybody was hoping for but lots of companies the American FedEx and big companies started testing them immediately see maybe it will help maybe we can get we can start trusting more what we get the information all this did not quite pin out but it shows the hunger that people have that the task are so complex that people are looking for help but on the other hand people who come usually from outside the profession and tries to to suggest Solutions find out the solutions don't quite work for example why blockchain don't work one of the reason it is slow so people think oh we can do you know 10 operations a second in supply chain you need to do a million operation a second just just to be you know to uh to be on top so you have to understand the scale of these monsters in order to understand what will work what doesn't work solution Point solution that don't work at scale are usually meaningless for supply chain you need to work at scale so you know people are hesitate there's also another thing when when you are in marketing and somebody comes to you and suggest a new I don't know AI system to Target your marketing better great it's a nice Innovation may even work or don't but if it doesn't work the company doesn't stop if the supply chain doesn't work the company goes out of business that's not it's not for the faint of heart to stop the movement of product to your customers because that's what it does you're not going to be able to to supply the product so you have to take it seriously you have to make sure that everything works so and so also by Nature I should say many Logistics operators are cautious in the sense when you operate large ships and large grainers and trucks and or you work in factories that use hazardous material you know mistakes can be costly it's can be issue with with lives and limb so people are cautious it's a you fly airplan you drive big trucks you drive big ships you're not frivolous you know the lives in your hands so it's just the nature of the Beast it's so so important this book for for even realizing the the challenge of a supply chain manager and their teams and you know I used to always have a huge empathy for a CTO Chief technology officer trying to bring in new technology from an old it system because often times if they have a seat at the board table they get all they get is is is grief from their colleagues why isn't it done quick enough and so do supply chain managers and now I understand why but I thought we' we'd shift to a different area that you talk about as well these are insights sorry one comment about it supply chain managers were victims of their own success supply chain manager got so good and the complexity was so hidden even from the CEO of their own company that when suddenly things became very difficult prices were going up Suddenly costs were high and all this people were attacking them what is you don't do your job it it's just not understand what it took to control the complexity and the reach of of of modern supply chain so in that sense it's like U driving on on asphalt on the road if everything is fine you don't even think about it but you only think about it when something doesn't work that's also Chief technology officer the same thing you know if everything is work smoothly and all this nobody nobody even talks to them I call it the referee effect you know a referee for a football game no nobody cares if a ref has a good game they expect they expect that just to happen but everybody gives them grief of course that's a good I'll use this this term yeah please Doo of course of course of course I'll have to explain what football really is but anyway well I say football because that can be whatever football is in your country whoever is listening to us but um I I thought we'd shift to a different area that you talk about again huge insights for me eye openening insights because you share insights about Outsourcing and offshoring and how countries like China and Japan require firms to use domestically owned Partners domestically domestically man manufactured goods or domestically supplied services in order to operate in their Eon their economies now again somebody who doesn't understand will go oh yeah let's just get it built in China it's way cheaper there and then there's the whole IP problem that goes on here as well property transferer to local companies this was eye open it for me I'd love you to share this you're talking about white people went to China or why people are living want to live China why why they went in the first place and there way they want to leave okay in the first place decades ago people went to China for low labor cost China offered the low labor cost and today people are still going to China but they're going to China because they have the best infrastructure of the world the best trains and Roads and airports and better than anywhere else uh new and working uh they have a good University who turn out good engineer years who turn out you know working good companies who are Innovative and and you have the Chinese government in many cases behind their Chinese Champions until they get too big and then the government controls it but but but China is also Chinese are entrepreneurs by nature and the lots of good companies are coming out of uh existing China for example China is now leading the worlds in electric vehicles the new crop of electric vehicles are mind bugling they're good they're not just the the tin boxes that we used to think about Chinese cars that nobody want they are actually good and goodlooking and good cars uh so first of all China is becoming really a manufacturing Powerhouse also for you know Advanced Technologies uh second China is a huge market and the more National istic they become the more you have to produce in this market so now let's talk about currently when people are trying to leave China so the result of what we just said is that companies invested billions of dollars literally in decades in building entire supply chain in China because they understood that you don't just have a supplyer that supplyer need another Supply and he Supply need supplies the whole chain has to be created and has to teach them how to manage this and how to do it they became good at it and there are all supply chain in China so even many companies under political pressure are leaving China they're not really leaving China they put the final assembly in Vietnam but the entire 99% of the value is still in China because all the suppliers all the materials all the part still coming from China but they can put a label made in Vietnam not in China that is to satisfy some uh you know political requirement get out of China especially in the US it's starting to change now and companies mostly it's not for for political companies are afraid that China will do what Russia did to uh to Taiwan and then then the uh the world will be will be cut in two because just like Russia there literally no direct trade relationship between the the West in Russia whether it's Europe the United States Canada what have you there really no everything was cut for example I'm I'm flying to China next week and it used to be a 12-hour flight now it's 16-hour flight because you cannot fly over Russia so you have so you have to go around I mean that's just a real real implication of of of all these things that we just reading the paper about um so if something like this happened with China that will be much China economic power is much much bigger than Russia uh we can do we can deal without Russia it's very hard to to to live without China it's a they still hold there are certain areas material that they are control the vast amount of um production the world even things like aluminum uh China is a huge source of aluminum so but there are other places that have aluminum Australia has a lot of aluminum others but China has most of the smelters they build smelters like there's no tomorrow so even if you get the the the aluminum from from Australia most of most of it goes to China to be processed and then go somewhere else so it's a it's not easy to leave China add to this again we go geopolitical here but add to this the fact that the a country that is missing the boat is Mexico Mexico could have been the next China but the anti- business attitude of uh amlo the current the current president they're losing historic opportunity because they sit right next to the United States good universities lots of people lots of gangs that can if you give them work they're not going to go to sell cocaine they can sell all automobile parts so or whatever um and we're just not doing this I mean the Mexicans are business is still moving to Mexico despite everything but it could be a tidal wave without it because you mentioned aluminium I I just wanted to grasp onto that because I I thought that was fascinating that this shiny white metal it's found in everything from beverage can to engine blocks to rockets and on the planet you tell us this fact where did you get out of this as of 2020 producers worldwide make 8 kilograms or 18 pounds of aluminium per person on Earth that's how important that is as a as a as a um textile yes yes it's a it's crucial element it is strong it is light and um it's some it over time maybe in the next I don't know decades it it's some of it is replaced by all kind of fibers there are airplanes that are made with certain kind of fibers but again there's no no way to run because these fibers require certain um material to bond bonding agents that the material for them is in China so it's just it's very hard look the basic issue is the following in the west we are not doing the trade of I would say smartly because we are all environmentalist all think oh global warming my God and so for example we have Rare Earth material China is I don't know 90% huge percentage of the production of the world of rare earth material that go into EV that go into you know Advanced defense system going to Advanced cars going to it now you know which country has more where Earth in the ground than China the United States only we don't mine it because we are because of environmental issue we don't give license to for mining uh okay so now we don't the problem is in many sectors let's talk about government uh but others as well there's no system thinking we cannot have two we don't hold two thoughts at the same time we need National Security we need good environment okay we cannot just say environment roots cannot because then we give up something that we care dearly about um I don't want to live under Chinese rule uh you know I'm willing even to have some problems and be a little hotter not to live on the Chinese rule um we need to balance a lot of unpleasant choices in some some sense and we tend not to do it because politicians like to pretend that they're only good choices and sometimes they're no good choices that they you know what do you do here H I like to breathe fresh air and and drink grean water just like the next guy but as I said I also like to have you know EVS I also like to have you know I also like to make sure that the next or F35 or whatever the next US Air Force jet is not powered by Chinese Chips I mean that's how do we do it we have to square this uh Circle somehow one of the things that came to mind when you were talking about China for example and the power now from the Outsourcing and offshoring over the years was In The Innovation realm we talk about examples like Dell computer and all that was really doing was they were being boxed locally or kind of orchestrated from a business finance perspective and the ship of thesis that's kind of you don't know what's the original ship anymore there was a show Yosi on TV in over these parts of the world called Only Fools and Horses and there was a guy a character in it called trigger and this guy had a broom and he's like ah this broom is amazing it's like a a sweeping brush I've had it for years I've changed the head 10 times and I've changed the handle 20 times you know and and I you know you think about the idea with what's the original product here who's what's the product and this is a a problem for many organizations who have outsourced to China and then China turn around and this has happened many organizations and they go the the initial supply chain um part supplier decides actually we don't need them anymore we can do this ourselves and this has happened a lot of businesses well because China insisted on um either that you want to make something in China you have to partner with a Chinese company and um or you give IP I I'm work I do a lot of work with the modna you know remember from the vaccine they're around my office right next to my office is Mona Monna had a contract billions of dollars contract with China in order to sell the the Monna vaccine in China One hitch the Chinese say we need the recipe for how to make it and Mna says that's not going to happen and they move away from doing this this was a they said we can't do it because yeah you'll buy the first bch and then you'll make it yourself it's not going to happen we're not going to do it so yes the but let me you know we talk a lot about China and there's something amazing about China that we should not forget in 1978 China joined the World Trade organization at that point 99% of Chinese were living in awful poverty in a few decade China took 800 million people and move him to the middle class that's a humanitarian achievement on an unimaginable scale nobody else was able to do it Africa didn't do it South America didn't do it nobody did it in anywhere close to this time so one has to moderate any criticism of China because they did some amazing things and if you think about if you measure success in how many people don't die and don't live in poverty and and all this in massive massive numbers that's why I'm always saying one has to recognize this yeah we have to forget some sometimes about profits and profit making because that's often what it's about really it's about the bottom line and the bottom line should need to be something else as you say you know people are living in poverty Etc there was a really really interesting part here you you mentioned about growing flowers locally versus in a different part of the world and Green Houses Etc I mean you you don't want to be you don't want to be growing bananas in Ireland put it that way but one of the things you remind us about here is Adam Smith's absolute advantage and then David Ricardo's comparative advantage and this was really helpful to understand why one country would favor reporting one product and exporting another this was fascinating and the concept of absolute Advantage is relatively easy I mean one country is better at making one thing another country is better better making another thing instead of every country making its own one very efficiently and one you know losing money on it they trade this is the essence of absolute adventage Ricardo showed that it's actually better to tra even better to trade even when one country has all the advantages and by the way we see it China has a lot of advantages right now they're the one of the biggest trading country in the world I mean it's a uh for many years the United States has you know all the advantages United States during the Clinton Administration is not that far had the you know surplus of uh of money of of trade of everything but it kept trading because it made sense in the book there are numerical example to demonstrate why why it is so I don't want to go it's hard to go over them you know uh on the air but um trading makes sense unless politicians get involved and start putting trade barriers and start selling it as if we're punishing China not realizing we actually punishing us or Western consumer when we put up trade barriers um and one one understands the um the impetus to do it uh it's political experience in the short term ah doing something about our workers our stuff protect our workers no you don't you actually make everybody worse off so you have to manage it you can there are many many ways of managing it and by the way it's in interesting the European Union um something that many consumers manager in the United State don't pay attention to because we have such aversion to Uber governments you know control unelected really and and control everything um but they come up with some good Concepts and uh they talk about for for example they talk about how you talk about the fifth Industrial Revolution how people and machines have to work together and all it is absolutely the the challenge of the next generation of of the coming generation so in terms of of um worrying about sustainability for example when European does the Border adjustment that's that's European concept that just so we say how do we put something on our our manufacturers well we give advantage to China uh or to America they don't want to do it so we do we adjust them when something come we put a tariff on this the problem is this when every tariff be gets the counter tariff people feel they must respond so it start deteriorating and with less and less trade and everybody is worse off at the end so the idea was good I just don't think it will work so because China is not going to sit quietly and and let EU put or America certainly is not going to do Congress will never agree to this to do uh to put that for example France will put or you in general will put tariff on American Goods so the next stage will be French cheese and and and French wine and and German cars and everything that you can think of we'll have we'll have a tariff on this and then the European respond and you it's it's a bad cycle we have Guinness here in Ireland but but you know they they have a different Guinness in Africa as well which is actually produced locally it tastes totally different but one of the you mentioned there about like for example the oecd the organization for economic cooperation development they use value added to measure contribution to a product that was an interesting concept as well they wanted to show that you don't have to uh export finished goods in order to to actually do do very well and they said the problem is the metric the measurement system because the measure system of a GDP gross domestic product is looking at only product only finished product how much you make how much you export how much you consume they said no no no no if you also look at if you actually charge the value that you add to intermediate products you just make you just bought something bought some raw material you made some part and you sld it to somebody else who make a sub assembly out of this you added value here it doesn't show up in the GDP so they try to measure the value added like in fact like value added tax I mean they try to show what value was added along the way and it said and there are example in the bu mentioned example of countries I remember now that in the with with the old old metrics we're not doing well but once you take this into account you see they're really doing very well so a lot of it was the measurement system not so much the operation there's a couple of great examples I and please pick pick one or if you wanted to talk about them all but I love these examples in the book so we many of our audience are in the US and Canada so they will know the well-known breakfast cereal grape nuts so that was a victim of complexity breakdown then there was also marag geddon you talked about as well for Marmite lovers and then finally there was the the whole complexity of a t-shirt a basic t-shirt and the supply chain of that so maybe you want to pick one of those whichever your favorite is well I there was a very famous book travels of a t-shirt not by me excellent book it follows what happens to what is the the the journey from the cotton fields to a finished shirt t-shirt she tried the the other the woman tried to show how can it even possible that you go through the you cross the world several times you cross continents and a t-shirt is sold for two bucks for $2 which means that the manufacturing is 50 Cents maybe uh how can it be so efficient and so and and so complex and efficient you know at the same time and so all the processes go to and how everybody is so good at what they do with is the the weaving and the textile and The Cutting now the result is that some labor intensive operation like cutting and sewing can be done only in Sri Lanka and Bangladesh by women who are actually exploited and uh that's that's unfortunate time because if you are serious and think about the t-shirt that in the United States you buy for $12 a pck of six really that's that's the t-shirt that you buy it's nothing how much did the woman who sit in Sri Lanka and sewing it day in and day out was making she probably couldn't live with this it's it's it's really awful you think she was trying to show also some of the social side of of what's involved in this overly cheap product and how much waste in them how much they are being you know there's a whole another issue of U waste in in clothing you know when you go to what is the the store Primark you see people they're buying in mountains of of products very cheap they last for a while and then they thrown away I mean the waste is ridiculous you think about it very little of it is gets actually you know circulated and and and and gets back back into production so it's um there's a whole of course we come back to other issue but there a whole story of the the conspicous consumption I mean we buy much more than we need and uh and waste much more waste food food in the United States about 40% of this is is wasted 40% of the food it's it's just thrown away and and you know what's the unfortunate thing a large part of it because of the legal system so true case we just went about three years ago I went with my wife to a a store that they sell it's a restaurant but they also sell a lot of um you know cookies and bagels and stuff like this so we come at the end of the day and we see them they we come they close at like 900 p.m. and we just next to MIT at night we just walk walk into the store and we see and they they want to give us for free you know bags and cookies all all kind of baked goods and then we see them taking large whis basket and just throwing it away the whole thing and that's why don't you give it to uh you you know homeless shelters why don't you give it to you know people who need food they said because if something is wrong in one of them will get will be sued and we will lose so we don't we cannot take the risk and sometimes it's just nothing loss people just say that they you know got a tummy AEG from eating one of our stuff and they so and there'll be some lawyers who will take the so on contingency fee and we will lose so we just throw it away and the amount that get thrown away are mind bugling so it's it's a whole lot of things some is just inefficiency some of it is just letting food you know expire sometimes the expiration date is also a risk management issue because most of the food that expires after you know three days you can still eat it I mean it's it's not but people are overcautious and say oh this this you know food can last only so much and then there's expiration date you you know we throw it away a lot of this is uh problematic yeah we we have a a company here in Ireland I'll give them a shout out they're B Corp the called food cloud and that's what they do they work with Tesco and all these big retailers to take the food on exper expiry date and give it to in some cases shelters Etc and homeless people in order to to move but you know you see what they do they take on the risk from Tesco Tesco doesn't have the risk anymore so Tesco is fine and they are a company that's really an NGO it's a b Corp so they are less exposed than the big pocket bed big bed Tesco even if they go to let's say the United States contest even if they go to a trial there'll be a very sympathetic Defender Tesco will not Tesco will be the big bad company so Tesco is okay with giving it to somebody else who then distribute it that's fine um why there not too many of those in the United States I don't know no there are some but very small well they can get in touch with food Cloud one of our great Irish success stories I I thought a couple of last things if that's okay one is um to bring it to a business level so we often talk about leaders and business Etc uh a kind of a hero who ran forward for a long time was CEO Alan malali and you tell us in the book that as the financial crisis was ravaging companies in 20098 malali made an impassioned plea to the United States Congress for a government bailout to save his fiercest competitors so you're kind of going what would he not like them to disappear but he argued here that that more than 90% of Ford's suppliers Also Serve GM and Chrysler he explained should one of the other domestic companies declare bankruptcy the effect on Ford's production and operations would be felt within days if not ours I thought that was such an incredible Insight he had the Congressional testimony I gave in the book I quote from the Congressional testimony he he you know beged the government to save his competitors because it's as you said they use many most of the same suppliers and if this suppliers need the volume they cannot make money just with one uh one producer you know one original equipment manufacturer one car company they need all of them because to get to get volume they said you must you must save my competitor it's a by the way Ellen malali was a legendary leader he was he turned around the boing he was see of boing before that turn boing around he was a real ah the stories about him he was a real Visionary businessman who understood that you don't optimize for profit you optimize for quality and a lot of other uh and then profit follows you don't you don't don't optimize for profit he there's a a movie a book called car uh and there are many many you know story story about him how he changed the the uh the culture in Ford when people were still the part were competing with each other for example one one quick story he um every management meeting they the the head of all the department so first of all you say enough with your assistant making the presentation you make the presentation because everybody bought the chief of staff for you know for manufacturing for supply chain for procurement for the finance for marketing second he say always all the news were good everybody was giving report the news was good he said everybody's doing well but we are losing money how can it be and then one of the head of department at one point showed the dashboard it was all red said we didn't meet this qu we're losing here we're losing here we're losing here the people around the table were already Distributing his job and his bonus they thought he's gone Ellen mulani said there listen listen listen and started clapping hands and this guy became the CEO after after Ellen malali he said finally we get somebody tell the now we can fix it because if everything is good there's nothing to fix and yet the company is losing money so a legendary leader yeah I I love the stories of malali one last thing I thought we conclude part one with the people so we touched on this earlier on about the empathy for people in supply chain supply chain managers being victims of their success but you you look at the people behind the supply chain so for example the great driver resignation and one of the things I thought so interesting was when when you see a driver and maybe you're the guilty party here that keep them waiting for a long time you think maybe they're not leaving because they're on the road for a long time but that's not the case you say at all that's not why most drivers resign from their jobs as drivers and and this also touches into what we'll talk about in the future about if there's a huge amount of say us people who work in driving and AI is coming down the line that's going to present whole new challenges as well for the world this is research done in my in my Center at MIT we show that driver quit because they're treating better because they come to to unload the truck and they have to wait for three 4 hours they're not getting paid for this time that's the problem they're not employees they they get they get paid by the by the mile they don't drive they don't get paid so it's not that they want to wait and on top of this they're treated badly they're not allowed to use the bedroom they're not allowed to have a cup of coffee in some places not of course in not everywhere so this this is all issue where can people find that more about you you're you're you a huge following on on social media you're also lots of talks you give talks all over the world as well you mentioned you're going to China VI not via Russia around around Russia where's the best place to reach out and find you first of all I'm anybody want to contact me I'm my email is cheffy my last name s a ffi mit.edu uh you you know um cheffy mit.edu will just get you to my website my website has all my articles all my book all my talks all everything you wanted and didn't want to know about me it's a brilliant book to understand it for a novice like me it's an absolute Gem of a book the book is the magic conveyor belt Supply chains Ai and the future of work and our guest Professor Yosi sheffy I'm very grateful thanks for joining us thank you very much for having me and we'll see you soon back

2023-10-15 04:22

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