Host Mike Graen is joined by Dr. Matt Waller, Dean Emeritus for the University of Arkansas ­- Sam M. Walton College of Business, as they discuss the state of the retail supply chain industry in 2024. Topics of this part 1 conversation include:

• Leadership and supply chain management insights.
• Supply chain issues during the pandemic.
• Supply chain technology.

Let's go ahead and get started. Because this is all

about on shelf availability. And we know supply chain plays an

important role with that. But before that I think most people

who are tuning in obviously know you already, but go ahead. And

you know, go ahead and introduce yourself to us. To the listeners

out there, you know, who is Dr. Waller and tell us a little bit

about yourself?

Sure, I'll do it very briefly, since we've got a

lot of good content to talk about today. So I'm Matt Waller,

I'm Dean Emeritus of the same and Walton College of Business.

I was Dean for eight years. Before that I was an associate

Dean. And for that I was Department Chair of supply chain

management. I also work in private equity, to some degree,

I worked with a private equity firm, called new road Capital

Partners that focuses primarily on supply chain technology, but

they also look at retail and marketing technology as well.

And I've been a professor in the Walton College for a long time,

my area is supply chain management. And I live in

Northwest Arkansas. So thank you all for joining us.

Awesome. Well, here's the first question that I

think people would love to know you just you just finished a

very impressive run, as the dean of the University of Arkansas,

Sam Walton Business School. So thank you for yourself, sir, for

your service in that. And we know that's that's a very

different role than you've had in before and probably you'll

have in the future. But but maybe give us a little bit of

experience. And you know, look under the covers a little what

was the experience like? What did you really enjoy about it?

Anything you want to share with us about you know, your time as

the Dean of the Business School?

Yeah, we, during my eight years, as Dean, I loved

it. I loved working with the students, the faculty, the

staff, the alumni, administrators, from other

colleges, the state of Arkansas businesses in Arkansas, it was a

wonderful time. And one thing I did that I'll share that is a

little unusual. When I started as Dean, I decided to write a

book about being a Dean of a public business school. And I,

you know, part of the reason I did it was because when I became

Dean, I wasn't expecting to become Dean for one thing. And

we had our current Dean at the time, had an offer to go back to

his alma mater, as Dean there. And all of a sudden, I needed to

be Interim Dean. And I really didn't know how to do it. There

was no handbook, or anything like that. But I wrote a book

and I want to mention it just because most people listen to

this book and want to read it. It's called Dean's List calling,

leading a modern business school. But the reason I wrote

it is kind of interesting. I thought, if I write it, one,

it'll help whoever follows me. But two it will help me think,

what do I want the end of the story to be? So writing, if I

were ever to take another leadership position like this, I

would write another book because it forces you to think

strategically? Where do I want to go? How am I going to get

there? It also forced me to, I went around as a new Dean, I

talked to other Dean's and said, who are who the best business

school Dean's in the country. And it's not always correlated

to the best school necessarily, you know, who have been able to

really lead these business schools to greater heights

anyway. And so then I interviewed them and really

enjoyed learning from them and implementing some of the things

I learned. And so I put it together in a book. And now a

lot of especially early stage, business school Deans call me

because when they Google something about it, they find

this and I've also talked about it at some of our conferences,

but that was really fun. One other thing I'll mention that's

related to to this, as you mentioned, Mike, every two years

Gartner ranks supply chain programs in the country. And I

started the Department of supply chain management 2011 We didn't

actually have a department and in 2020 We got our first ranking

of number one, by Gartner. And Gartner is probably better than

a lot of the rankings because they actually look at details

like the curriculum, all kinds of other things. It's not just a

beauty contest, if you will, like US News and World Report.

So we got that they do it every two years, we got it two years,

two segments in row 20, and 2022. Our masters, our graduate

program in supply chain is ranked number two by Gartner.

We're trying to get that up to number one. But at any rate,

yeah, being Dean was a great experience and but I'm glad to

be Dean Emeritus now.

Very good. Well, one of the things that I'm gonna

brag on you a little bit, and you're a very humble guy, so

you'll hate this, but I'm gonna do it anyway. Not only did you

run that, that that business school with style, and grace and

integrity, etc. But you did everything in your power to make

sure it was handed off in a quality way. I mean, you you

personally spent, I don't know that this happened. But I feel

like you personally handpicked Brent Williams at a very early

stage and go, Okay, you're gonna walk this with me. So you don't

just get thrown a set of keys like I did. But instead, you get

a nice long transition period. And the amount of time and

effort that you put into making sure this thing was going to

continue to grow in a lot of people don't do that. And I just

want to thank you for that. And Brent's doing a great job off to

a tremendous start in a lot of that as because I think you

spent the time upfront to make sure. I don't know if you know

Chip Bergh, from from Adidas. No, I just completely

discredited Levi's, so sorry, Levi's. Him and I used to work

with the guys with P&G, and they had a one year CEO transition

with the new CEO one year large, unheard of in the industry is

Yeah, but it's like, we're gonna basically do this together for a

year. And we'll give you pieces at a time. And I think just a

really, really, really smart way to do that. So. So I've got a

couple of things that we're going to talk about supply

chain, because the purpose of this is really to talk about,

you know, sort of the supply chain. And we're going to spend

some time about the supply chain. And certainly as it

relates to and what I would consider to be the topic of this

podcast, which is basically on shelf availability. And I put

this up here first, Dr. Waller. And this is fascinating to me,

right? So this is Doug McMillon, the CEO of Walmart, and his

quote is really simple. If you're not meeting the wants and

needs of the customer, you're done. You are done. There's not

a lot of loyalty here. And as we talked, Matt Pfeiffer several

times on the podcast, this thing here ultimately puts the

decision of what do I want to get a hold of in the customer's

hand. So loyalty is not to a Walmart or to an Amazon seller,

it's I want to get that product. How can I get it? And how do I

leverage this technology to do this? And that's what it is why

on shelf availability is so important. While Doug doesn't

call that out? If I consistently go to Walmart and buy stuff, and

I'm looking for it's not there, I'm going somewhere else. All

right. Number two, and I don't know if you've ever seen this,

you should probably send this to Brent. Or Brian at the supply

chain, which is this is was at one point in time, I don't know

if it still is on Doug McMillon screen screensaver. So every

time he opened up his phone, this is what he saw. And it's a

story of you work really hard to become number one, once you stop

becoming number one, it's really hard to recover. You know, 1950s

1960s 1970s Sears was the number one retailer 2017. They're not

even on the list anymore, right? So you know that constant? How

do we continue to improve even though we're the best? How do we

make sure we market and tell people the story I think is

really, really, really important. But to me, these are

the kinds of things that I think keep Walmart up at night, which

is just making sure they have products, either in a store or

available for online picking. So cust so customers aren't

disappointed. One other quick fact that I'll tell you is this

is this is something that was done by Tony D'Onoffrio. And he

did a lot of research on this, but I'm not going to go through

all of this, but one in 2023 $1.7 trillion of inventory

disruption. What's that mean? That means your inventory is

inaccurate or you have out of stocks? So 68% of that 1.7

trillion is out of stocks, and the other is overstocks. Right?

That's a big number. That's a big, big number. Then we get

into reasons why and et cetera, et cetera. But you what you end

up seeing is the supply chain plays a big role in on shelf

availability. There are three things that I have taught I

tried to make it really really simple. There are three reasons

why products not in the store number one store operations,

which means it's in the store somewhere but it's probably in

the backroom. So for the customer, it's not available.

Number two, the bottom one we've got this whole perpetual

inventory and Dr. Waller you and I have talked about this a long

time that on hand accuracy and the accuracy of information to

feed a forecast and a replenishment system. garbage in

garbage out, if you have bad data that you're sending to the

replenishment system, you're probably not going to get

really, really good results. So those two we've really talked at

length in this particular podcast. But this is what I want

to focus on today. It's now 2024, let's talk about the

supply chain. Because at the end of the day, if there's not

product in the store to put on the shelf, everybody says it's a

supply chain issue.

What really started this to some degree were

consumer reactions that were odd, like, you know, hoarding

toilet paper and things like that, but but the bigger issue

in the supply chain really came from the stimulus of the

government, the government put so much money into the economy.

And that stimulus is what caused most of the supply chain

problems. Some people will say, well, it revealed the problems.

But I don't think that's true, completely. Part of my reason

for that is, you know, you have to rationally run a supply chain

to minimize costs and meet service levels. And who woulda

guessed that the federal government put that much money

into the economy, they were guessing. And at the same time,

the interest rates were really low. And so and so we do still

have problems. You know, a lot of times when we talked about,

yeah, there were a lot of stock outs during that timeframe. But

there were also a lot of excess inventory, as well, right, you

can have two products in the same retail supply chain and

have some product that you have too much of and others that you

don't have enough of. And still a lot of retailers and suppliers

don't have visibility to their inventory. And that's a key part

of the problem. The other thing I would say is there's two

effects that I wanted to mention. And one is that, you

know, everyone hears about the bullwhip effect, and that was

brought up, I don't think it was the biggest problem for the what

happened during the pandemic. And a pandemic didn't cause the,

the problems in the supply chain, the stimulus is what

caused most of the problems. But, but in any case, people

just to clarify, a bullwhip was present. And it was part of the

problem. But there's another concept I'll mention, people may

not be aware of. But the bullwhip effect, which does have

a lot of people have talked a lot about it basically says

this; order variability, order variance in particular increases

as you go up the supply chain. So the variability of orders at

the retail supply chain is smaller than the variability at

much higher levels, echelons in the supply chain. So if you

start having greater variability at a low level, it gets

translated into even greater variability at a high level in

the supply chain. However, capacity constraints chop off

those peaks, revenue. And so when you look at a whole supply

chain in an economy it's not as great as you might expect, from

sure a theoretical perspective of the bullwhip effect and what

what was a bigger cause of some of the problems is something

called the inventory acceleration phenomena. And that

is, it's a real simple idea. You know, when demand is real level,

it can be uncertain, but you know, what the average is, over

time, you can forecast really well. You replenish, on average

at at a one to one level, you know, you're not ordering at a

one to one level. But your your replenishment is about a one to

one level, you may be ordering case packs instead of each is

but it's still one to one kind of an idea. But when demand

starts increasing, replenishment gets notched up to more than a

one one low hmm, right? You have to be able to, to have enough

safety stock and to take advantage of economies of scale

and transportation. So and then. So if you're in if you're

ordering that greater than a one to one level, the next Echelon

above you that distribution center is going to do the same

thing and it's an ordered another one greater than one to

one level. And that will keep happening as you go up supply

chain so the orders start getting amplified and people

aren't aware of necessarily how much they're being amplified and

what the implications are. If demand decreases, so when demand

decreases the inventory accelerator phenomena would say

that instead of ordering the one to one level, you go to less

than one to one low. That happens through the whole supply

chain as well. So that can also result in stock outs. But both

of those things did have a part to play in it, capacity

constraints had a part to play. And, and then, on the demand

side, people were not just people, but even organizations

were over ordering. So that they would have enough inventory,

maybe more than their competitors.

So if it's 2018 right now, and we know 2020 is

coming. What what would what could we have done to minimize

we're going to have out of stocks, right? We're not with

all this years of just in time inventories and trying to drive

down inventory levels of various stock, the pandemic created

demand, both through incentives that you said, as well as people

just ordering cleaning for supplies, etc. What could we

have done, other than maybe not provided an incentive to draw

demand up, which probably competent compounded the

problem? What could we have done? If we if that happens?

Again? I hope not. But if that happens again, in 2026? How do

we prevent what we saw in 2020? happening? Are we only smarter

than we were before?

In some ways, I think we are smarter in the

sense that, for example, on the transportation side, I think at

the store level, I'm not sure. I still think there's a lack of

visibility throughout the supply chain. I mean at the retail

level across retail, some retailers have a lot more

visibility than others, but you need visibility, you need to

know what's going on to be able to respond to it. Obviously, you

don't want to respond after everything's out of stock you

know. But I think that, you know, some things that are

better is that we have you know, because more shoppers are using

things like buy online, pick up at store, buy online for

delivery by online at home, etc, etc. You know, you're getting

more visibility to consumer behavior. Right. So I think that

will help in the transportation area. You know, there's,

there's, there are platforms. For example, if you look at

truckload transportation, there's platforms out there now

like that there's a company called an emerge and they have a

platform that helps kind of marry supply and demand for

truckload transportation. There's, there's, there's a

wider variety of technologies, your early stage technologies

that, you know, they say necessity is the mother of

invention. Well, there's all kinds of innovations that have

come out of this in the supply chain. But there's also

technology other that existed prior to this, but no one

realized they need the need them until after it already happened.

Right. So those are those are some things that I but in terms

of the government is so dependent for a government, the

government is probably overreacted from a stimulus

perspective. And a lot of times the stimulus went places that

shouldn't have gone. And now we have a bunch of debt. And

because we have a bunch of debt, the interest rates had to

increase. And the interest rates are causing a dish, you know,

additional problems. Businesses have troubled planning, when

they don't know what the interest rates going to be, and

when they don't know what the prices are going to be. So, you

know, from from a planning perspective, business, inflation

and that that video you showed really highlighted this. It's

very hard to plan and execute when you're in an inflationary

environment. You know, we're sorry, inflation never was as

bad as say what they experienced in Argentina or somewhere like

that. But basically, inflation is always caused by the same

thing. And people kept saying, okay, the supply chain

constraints are causing inflation. A lot of the

empirical research is not showing that inflation is caused

by government spending, printing money that It is what causes

inflation. And in this case, so the government spending caused

in stockouts, which caused supply chain problems, which

caused inflation. So you had a double whammy from an inflation

perspective. And now interest rates are high. When interest

rates go up, many people won't put as much money into equities,

whether they be in private markets or public markets. And

equity is what causes innovation to grow. And innovation is one

of the greatest ways to reduce inflation and to increase wealth

of people. So I think that, you know, if the government were

rational, and they're not, they would, if they knew it was

coming in 2018, they wouldn't have created all these, maybe

some stimulus but not to the degree they did. And they might

try to hold interest rates constant. It's like, if we just

know what interest rates are, we can plan if they're going all

over the board. We have no way to plan. Right. And so those

are, I think the government could have allowed for a more

stable environment is what I would say. But we also need to

be investing, the government needs to be investing instead of

just stimulus handouts to people, they need to be

investing in infrastructure. We have bridges that are

dilapidated, you know, our electric grid. Something like

50% of our electric grid is over its expected life. Wow. Are our

electric grids a big problem? We need lots of investment in the

electric grid and things

interesting. So they could potentially repurpose that

money that they were going to give to instead drive the

demand, which probably already was there some demand there

instead, invest in the infrastructure to support what

we need to do. Yeah, you mentioned something a second ago

about stuff, let's forget about the golden pandemic, because

that was that was in the past, we've learned a lot of stuff.

You You mentioned the bullwhip effect. And I lots of people on

the line have already heard bullwhip effect and heard that

forever. But it's basically demand at the consumption level

is pretty flat. And in every stage of the logistics coming

more and more and more and more. We've been talking about the

bullwhip effect. I remember when I was in college, we talked

about the bullwhip effect. Have we fundamentally flattened out

that bullwhip effect? And if not, what are some of the either

processes or capabilities need to put in place because to me

having visibility of all items in the supply chain across the

supply chain? So manufacturers knew exactly what was in the

stores and exactly what were in the retailer DCS and exactly in

their DCS? It certainly wouldn't have helped the global pandemic

because there's just too much demand. But we still have these

little pockets. Everybody knows where their stuff is. But nobody

knows, end to end, where stuff is located. Is that an

opportunity for the industry to figure this thing out? Because

we've been talking about the bullwhip forever.

Yeah, so the bullwhip effect can be mitigated

through information. There's no question about that. But even

problems associated with what I mentioned earlier, the mTOR

acceleration effect, that can also be mitigated with more

information about product position, where, you know,

frequency, rate of demand, all these kinds of things. So but

you got to be able to take that information and plan with it,

too. It's not enough to just have the information. Right,

you've got to be able to make plans with it. So yeah, I think

that right now, there's still surprisingly a lack of

availability of information. And the more information we have,

the easier it will be to plan. But if we were to get that

information, these companies are going to need tools to build a

plan with this information. Right. Right.

Yeah, not not to talk us all the way through the

end of the story. But you know, my 40 years in the industry, the

way we transfer information from one entity to another, is

typically using electronic data interchange, which technology

has been around for 50 years, right. But that massive amount

of information that's now out there. That's a lot more

information that I think is suitable for that kind of

transactional platform. There was a lot of talk, probably a

couple of years ago, it started to hit tailed off a little bit

about this idea of a blockchain where everybody had Insights,

where is that really real? And by the way, I'm probably

catching you off guard because I don't think we talked about this

question. But blockchain blockchain to me was kind of the

epitome it was going to be able to share information privately

and, you know, everything in the supply chain and cetera. And you

don't hear that much about it anymore. I,

I believe, well, if you think about it right back in

the 90s, when the internet's been around a long time, right.

But when the worldwide web came out in the 90s, and at first it

was just pushing information, right? And then eventually, you

got to put order things, buy things and make transactions,

PayPal came out, etc, etc. But there was a time if you

remember, at the end of the.com, boom, the.com Bust. Everyone

said, Oh, this was all hype. People thought that E commerce

was hype. No, I mean, for over a decade past that. Right. Right.

I think the same thing is true with Blockchain. I am still very

bullish on blockchain. I believe that one of the challenges with

with Blockchain right now has to do with visibility. And knowing

when product is moved around, you can't have the blockchain

doesn't work as well, if there's manual entry of information. So

if you're using technologies like RFID, as an example, and

more broadly, in the supply chain, where, you know, movement

can be captured immediately, then smart contracts can be

written based on that movement. And executed, I still think this

is coming. Yeah, this will happen. I don't know if it's

gonna take five years or 20 years. But I know this. All

technology implementation is increasing. And what I mean by

that is, what used to take 30 years to be introduced, is

continued to decrease in time. Right. But I'm still very

bullish on blockchain.

Well, I think the other thing that's that's coming

along, and I don't want to derail this conversation, but I

know I've talked this on the podcast with GS1, as well as

with Myron Burke, in the last month, the whole idea of

serialized data. So I've got, you know, two pens. They both

have the same UPC, but this one, serial number one and this one,

serial number two, it's foundational, in RFID, that

gives me the ability to know this one sold and this one did

not sell. I it's just really, really, really powerful as all

kinds of asset protection use cases as well. You know, what

did I receive versus what did I pay for because I can literally

identify each one of these uniquely. I think, as I've

talked to people like that, you know, Justin Patton from Auburn

and Dr. Hardgrave from the University of Memphis, we still

struggle with most legacy systems inside of retailing

manufacturers, still UPC quantity. So how do you get down

to that next level, that's going to be the big challenge. And

blockchain may be an example that EPCIS, which is an RFID,

Platinum data sharing platform may be it, we're going to have

to figure out this app because it feels like we're still

running into the same problems over and over again. And I do

know that you know, when we did the Auburn study, the chip

project, if you will, multiple billions of dollars of claims

and shrinkage is and counterfeit product. It's still a problem

out there in the industry. And we still haven't figured out a

way to solve but we really need some industry leadership to kind

of help figure out what that future looks like for sure. So a

good if you're still bullish on blockchain, because just

personally, I've it was a whole bunch of excitement a couple of

years ago, and now it's kind of faded away. So hopefully, people

were still looking at that because, you know, like, it's a

real mechanism.

Warren Buffett is one of his famous quotes is

"when everyone's greedy, be cautious. Everyone cautious, be

greedy". Oh, I think that that's true. Right now, with Blockchain

technologies. Intrusting and with RFID and other kinds of

technologies. Internet of Things. Yeah. Yeah, yeah.