SMC3 panel examines ways of managing and operating through risk-based events

Regardless of how many years of experience one has, managing supply chain and logistics operations through periods of risk and challenging times requires equal helpings of resourcefulness and resilience, among other key factors.

That was a key theme in a session at this week’s SMC3 Connections conference in Orlando, Fla., which included Tom Nightingale, CEO, AFS Logistics, Tom Schmitt, President, CEO, and Director, Forward Air, and Brad Stewart, Treasurer and SVP-Investor Relations, Knight-Swift.

Awareness in a risk-based environment needs to receive a higher level of attention that specific risks, according to Forward’s Schmitt.

“I am less concerned about the specific risks being this or that, and I'm more concerned about, if we applying some of the skills that he learned over the last three-plus years,” he said. More agility, more flexibility. Adjusting. We may not know what we have to adjust to, but we know we have to have that DNA strand of being agile. The risks go a little bit in cycles, too, like market decline was not a top risk two years ago. It's a top risk right now. But the agility is something we need to bring to the table no matter what of the which of these risks show up. We will not recognize every black swan, but we better be ready to be agile, fail fast, and then adjust. That type of DNA strand got emphasized in a big way over last several years. No matter what we do, no matter what risks we see, again, let's remind ourselves it's a marathon. Let's show empathy. Let's go above and beyond in support of people, that's our own people. That's our business partners and customers. They remember in a good way when you go out of your way.”

While building risk management is key for supply chain and logistics operational strength, Knight-Swift’s Stewart explained that, from a business perspective, the biggest risk is the U.S. consumer.

While demand levels are down compared to past pandemic-influenced years, he said consumer spending is holding steady, with consumers “carrying the water” for Knight-Swift’s business.

“And as shippers deal with this inventory dislocation…that's the biggest risk facing our business prospects from an external standpoint,” he said. “Another one that I would throw up there is on the labor front, you know, with freight having softened up to the degree that it has over the last few quarters, what you usually see in a freight down cycle is labor loosens up, and you're able to staff up your fleet. Increase your seat, a truck percentage and improve utilization and do the best you can to offset falling rates. Now in this down cycle, we've got plenty of the rate pressure and plenty of freight softness, but we haven't seen labor loosen up to the same degree. And I think that's a reflection of how tight labor is in the economy in general. And there's plenty of alternatives and those alternatives look attractive when freight is spotty and you're not getting the miles, and are used to getting to miles drive the paychecks. And so that's been a challenge. We aren't given the same levers to pull to compensate for falling rates this time around.”

What’s more, Stewart observed how unemployment rates outside of the tech sector remain near, or at, all-time lows. But, at the same time, he noted that companies saw how hard it was to attract and retain labor during the pandemic and are slower to make adjustments on the way down.

For AFS, Nightingale said that while his company is fortunate to have a model bringing growth in the current environment, as well as 18-to-24 months ago, it is not immune to the risks its customers face.

“Major risks have come from shocks in demand, whether it is was driven by everybody being stuck at home during the pandemic, or that labor is really hard to find and been unbelievably sticky, despite the increase in interest rates,” he said. “The third dimension to that is the actual inventory carrying costs, whether it is the inventory carrying costs on the customer standpoint or the cost of their debt. I am increasingly hearing more about that becoming a problem and debt service also becoming a problem.”

And when layering on hard-to-find and expensive labor and irregular demand patterns, coupled with a high cost of capital, Nightingale said that creates a heavy risk-based environment.

As for how to deal with planning for the unexpected, Nightingale made the case that for something like a Black Swan event, such as the pandemic, you almost cannot do so.

“You can create frameworks so that you can respond quickly,” he said. “You can drill on certain other high probability or events, but something that's as far removed from consciousnesses, as that is, is almost impossible to prepare for. I mean, we all wish it had never happened. But I think having some frameworks in place really helped all of us respond more quickly, and we are all better for it, unfortunately, through some really unfortunate circumstance.”

Schmitt explained that the notion of Black Swan events, by definition, are events that you're not supposed to be able to identify before they show up.

“What you can do is having a DNA and a culture, of agility, flexibility, like acting fast, in some cases, the typical rewarding if somebody acts fast and fails that you celebrate that failure the same way you celebrate successes,” he noted. “So, the more you can do to instill a culture that looks like that, the better we are when these things happen.”