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...