Ep. 90: Andy Kettlewell - Volatility of Supply and Demand

Contact Andy Kettlewell: https://www.linkedin.com/in/andykettlewell/

"Reimagining Supply Chains to Navigate a Pandemic and Beyond" with the Chicago Council of Global Affairs: https://youtu.be/zAGPc9vlaxU

Andy Kettlewell video for Satya Nadella, CEO, Microsoft, Inventory Management: https://youtu.be/vkSNW6CJN7Q?t=570

FULL EPISODE TRANSCRIPT
Mitch: (00:05)
Welcome to episode 90 of Count Me In, IMA's podcast about all things affecting the accounting and finance world. I'm your host Mitch Roshong, and I'm here to introduce you to our featured guest speaker for today's conversation, Andy Kettlewell. Andy is the Vice President of Inventory and Analytics for Walgreens after serving many years prior in various supply chain and inventory management roles with the company. He spoke to my cohost, Adam, about all the disruption across business and how he has managed to handle the volatility in the marketplace. Andy addresses the impact of supply and demand budgeting for these unexpected factors and how technology has enabled him to make better business decisions. Keep listening as we head over to their conversation now. 
 
Adam: (00:54)
Andy, COVID-19 has been disruptive across all aspects of business. How have you handled the demand volatility in the marketplace, and then in turn its impact on operations?
 
Andy: (01:08)
It's a very important question for where we are in a post COVID-19 economy. So we've seen dramatic changes in not only the magnitude of demand changes and demand volatility, but also the frequency and the pace of those changes. And, and to make that real and what we've all experienced in our lives, it's everything from, you know, the run on toilet paper, and you've probably experienced those shortages firsthand and how the news media kind of helped to extrapolate and share that story widely, thus creating a run in a panic situation to other commodity items like hand sanitizer and masks and other items that were needed for a shift in consumer behavior, right? With, with COVID-19 that the marketplace has had to respond to, but what we're also seeing is a shift, in everyday items. So with the traffic patterns and how, how's it impacted all of our lives. So likely you're not going to your office right now. So that means you're not passing the convenient Duane Reade in Manhattan, or your Walgreens, you know across from your office in downtown Chicago and that's changed our consumer behavior away from maybe those instant consumption items to more of those take-home items, right? That as we shift our behavior. There's been a couple of other interesting transformations here across all aspects of the business. So Satya Nadella, the CEO of Microsoft, in their last earnings call, likened  the digital transformation of two years of digital transformation that happened in two months. McKinsey and Company's research has shown that we've seen 10 years worth of growth in eCommerce penetration in only three months. And so we're, eCommerce penetration is now North of 30% across all of retail. These are dramatic shifts in consumer behavior that, you know, our organization at Walgreens and every retailer is having to accommodate to. So in the reaction and the operationalization of that, right first and foremost, every firm is having to keep their team members safe and so when within a global supply chain, right, that means, you know, new protocols, new efficiency measures, but everything from how we keep our distribution center team members safe, to our truck drivers, to our store team members to keep operations moving was, was point number one. And that means everything from personal protective equipment to new policies, procedures, different shifts in labor management, to help keep our employees safe, to then keep the product moving. And then from there, very tactical impacts within our supply chain that we've had to address including, we've redesigned all of our demand, forecasting and replenishment algorithms. Now what that means is right, all those consumer behaviors, the systems that go behind that, that use artificial intelligence and machine learning to identify what you're going to buy in Walgreens tomorrow, have to be much more dynamic. I liken this to a, for most firms like a sand mandala, if you're familiar with that term.The Tibetan Buddhist monks, you know, spend hours and days, you know, building the perfect sand mandala and then they have to wipe it away and then start fresh. That's exactly what most firms are doing with their forecast models across their entire end to end supply chain to become more adaptive and responsive to consumer demand. And then sourcing, right. you know, at the heart of COVID-19, we found areas within the end end supply chain that were very efficient, but didn't have many redundant sources. And what I mean by that, right. is that, I think about that toilet paper example, right? A very efficient supply chain, the factories run 24 by seven to spit out the exact right amount of product that matches demand usage for commercial toilet paper and consumer toilet paper. With everybody not going to their offices or to sports stadiums anymore, the demand for consumer product goes up, that's manufactured on different machines and, and requires, you know, sourcing new partners and, and the capabilities to build that new product. And then lastly, I kind of on the business of response to the demand volatility is around longterm planning, right? A lot of what we do to figure out what consumers will buy  and needis really sociology at the end of the day. Right. and we have to predict how consumers are going to behave in the future, and so that means longterm planning, right? In March, we were trying to figure out gosh are public pools going to be open. And are we going to sell many swim toys at Walgreens to our consumers, to trying to predict whether or not trick or treat is going to happen right now, coming up with, Halloween season. You know, Walgreens is the number two Candide retailer in the United States and whether or not trick or treat happens is a very big deal that has massive balance sheet and cash flow impacts if, those sales don't happen as they normally would, that we have to work through in plan, and to do that, you know, we're trying to tap into new and novel data sources to, you know, try to predict what the next big thing is going to be for consumers or how our consumers behavior will change, versus, you know, the past precedence that's been is that over the number of years. 
 
Adam: (06:20)
So you've talked a lot about how you know, consumers are effective in your operations, and one of the examples you mentioned was like the toilet paper, the great toilet paper shortage that happened when the pandemic started, you know. Can we talk a little bit more about the volatility of the supply impact, especially on the balance sheet, because, you know, you need that supply to be able to sell the products to the consumers. 
 
Andy: (06:40)
Yeah, absolutely. I would, I would suggest that what we've seen through COVID-19 is the most volatile and widespread supply disruption that most supply chains have seen in the last several decades. And the difference here is, is most supply chains are built to withstand normal levels of volatility, and this is everything from gosh, the semi had a flat tire, right, and arrived a day or two late to, you know, if we're doing manufacturing, operations in areas that are prone to getting hurricanes in the Caribbean or in Florida or in Texas, you know, we're, we're, we're prepared to have redundancy in manufacturing or planning to be able to shift assets a...