Intro/Outro (00:01):
Welcome to Dial P for procurement, A show focused on today’s biggest spin supplier and contract management related business opportunities. Dial P investigates the nuanced and constantly evolving boundary of the procurement supply chain divide with a broadcast of engaged executives, providers, and thought leaders. Give us an hour and we’ll provide you with a new perspective on supply chain value and now it’s time to dial P for procurement.
Kelly Barner (00:32):
2022 was a wild year. How is it that the speed and complexity of the world seemed to keep increasing? I can’t tell you how many times I would read a news story this year and then think seriously, you just can’t make this stuff up as we get ready to boldly go forth into 2023. I think it’s a good time to pause and take a look back at the major procurement and supply chain news stories that defined this year. So in this episode of Dial P, I’m going to review the results of a poll that I ran on LinkedIn to find out which stories you think were the top ones of 2022. I’ll share a couple of honorable mentions that really stand out to me, but which didn’t make the top of the list. And then finally, I’ll uh review the overarching challenges and lessons learned that all of us should be carrying into 2023.
Kelly Barner (01:33):
But before I go any further, let me introduce myself. I’m Kelly Barner. I’m the co-founder and managing Director of Buyers Meeting Point. I’m the head of operations and content at Art of Procurement, and I’m your host for Dial P here on supply Chain. Now, I’m constantly scanning the news for complex articles to discuss things that I think are interesting, but which may escape people’s notice. Dial P releases a new podcast episode or interview every Thursday, so be on the lookout for future episodes and don’t forget to check out past episodes as well. In fact, we’re continuing to run content right through the end of the year. Before we get back to the top news stories, I have a quick favor to ask. If you find value in the time we’re about to spend together, please find a way to engage. We have listeners on all kinds of platforms, so you can give us a review on iTunes, you can subscribe on Spotify.
Kelly Barner (02:35):
You can share a post or like something you see on LinkedIn or Twitter. You can even send this recording directly to a colleague that you think will find it useful. As always, I’m grateful for your interest and attention to what we’re building here at Dial P. Now, as I mentioned before I begin our in-house countdown, there were a couple of stories that I was gripped by this year that I couldn’t add to the poll because I was limited by LinkedIn to just four options. One was all of the fallout from Russia’s invasion of Ukraine. It impacted energy costs and availability, especially in Europe, and that challenge continues. But the struggle that I really wanna focus on here was the effort made to get grain out of Ukraine with their port being blockaded. The Ukraine is either fourth or fifth. The numbers vary by source. When you look at the world’s largest exporters of grain, they fall behind Russia, Canada, the US and France.
Kelly Barner (03:39):
They’re still producing despite the fact that the war rages on, in fact, they had a better growing season this year than many other regions of the world. The problem is getting it out of the Ukraine to the people who need it. Before Russia invaded the Ukraine, 90% of their exports left the country via deep ports in the Black Sea, and that includes their grain. When that was closed off to them, both land and sea options were explored and there were challenges with both. Russia is blockading their ports or was at the beginning of this story, and they denied it and blamed the West, so that made ocean options very difficult. They needed those deep ports to get the very large tankers in to take the grain rail was another option that was investigated, but there were compatibility issues with the rail gauge itself moving between Ukraine and Eastern European nations.
Kelly Barner (04:40):
The Black Sea Grain Initiative was arranged just to get the grain out. While the war continued to rage on Russia has been in and out of the deal, but generally speaking, the grain has mercifully kept moving even when Russia suspended their participation. Now, the problem is not completely solved, but this initiative did manage to ward off the widespread starvation that may have occurred if it hadn’t been possible. The other honorable mention I wanna give goes to Spencer Patton. He was the large FedEx ground contractor who dared to take on the delivery giant and lost his major source of revenue in the process. He called for a Purple Friday protest one that did not materialize. I didn’t hear anything about Black Friday deliveries being interrupted by FedEx ground contractors walking out, but Spencer Patton did teach the rest of us an awful lot about the inner workings of this huge part of the FedEx ecosystem.
Kelly Barner (05:46):
FedEx ground is actually delivered through the help of 6,000 contractors, also known as independent service providers. They provide delivery, pickup and line haul services. They hire their own employees, they invest in their own equipment. Importantly, they pay for their own fuel. Now, being a contractor is very different than being a franchisee because contractors have a lot less visibility into FedEx’s corporate doings and it lowers their leverage with the company. As the contractor’s costs have gone up or at least fluctuated, FedEx has not increased payments to them accordingly. In fact, there are accusations that FedEx is keeping the fuel surcharges that they are charging their customers instead of passing them along to these contractors who are the ones that are actually bearing the increased cost of fuel? According to C N N, 30% of these FedEx Ground contractors are at risk of financial distress. Wages are up by 37%.
Kelly Barner (06:54):
The cost of trucks is up by 30%, and because of labor shortages, those contractors are now competing with FedEx directly for drivers. So what about Spencer Patton and Patton Logistics? He attempted to, let’s just say organize even if we don’t necessarily mean unionize the other independent service providers so that they could all push back on the company together. FedEx sued him for violating the terms of his agreement. They also canceled their contract with him, and the combination of the lawsuit and the cancellation sent a very loud, clear message to all of those other contractors do not mess with us. So they didn’t have the Purple Friday walkout and the lawsuit is working its way through. Federal court can watch for news about FedEx versus patent logistics. Only time will tell how that will work out. All right, those are my honorable mentions. Let’s move and count down the top four news stories of 2022.
Kelly Barner (08:02):
Based upon your vote in fourth place with 4% of the vote, we actually find another court case, Byron Allen versus McDonald’s. Byron Allen owns Alan Media Group and they in turn own the Weather channel among other digital media properties. It is a black owned business. Now, McDonald’s welcomed their participation in their digital media advertising program, specifically in support of their supplier diversity initiatives, which sounds wonderful, but of course the devils in the details. McDonald’s has a formal minority owned digital ad buying program, but it is confined to specific segments and according to Byron Allen, those segments are less lucrative. His company wanted to participate in the national general market competition and McDonald’s said No thank you. So Byron Allen has a history of suing companies and also putting public pressure on them for just this sort of thing. He sued charter communications, he put public pressure on General Motors.
Kelly Barner (09:17):
Now I’m hoping in the case of all media group versus McDonald’s that it actually goes to trial. If that conversation can be had in sight of the public eye, all of us are likely to benefit. An interesting little twist on this story is that among the legal representatives who have been hired by McDonald’s involved with this case, we find Loretta Lynch, former US Attorney General, who also happens to be a black woman helping to defend McDonald’s against Byron Allen’s claims. Again, we have to wait for the trial, which is slated for May of 2023 or news of a settlement. We will see in third place with 10% of the vote. We have a story that actually just had another chapter added to it over the weekend. Tony Blevins was the vice president of procurement for Apple, and he worked at the company for over 20 years where he built up a reputation for being a very intense and shrewd negotiator.
Kelly Barner (10:26):
Over the summer, he was captured in a TikTok video making a racy comment. It was a quote from the 1981 movie Arthur featuring Dudley Moore. I won’t repeat it, but it’s certainly not R rated. That video went viral to the advantage of the TikTok er, but the horror of Apple. They quickly fired Blevins at the time. I ran another poll asking the Dial P audience if he should have been fired for the video. The results were a clear two-thirds voting, no, he should not have been fired. Here’s the update, which is really interesting. Over the weekend, the Wall Street Journal released an exclusive interview with Blevins. We learned some new things. We found out that the woman in the car with him while the video was captured was his wife, and she thought his racy joke was funny. Once the video went viral, apple actually called him at one 30 in the morning and demanded that he’d get the video pulled down because people internally were angry.
Kelly Barner (11:36):
When he was unsuccessful at even reaching the toker, he was fired with zero severance. Somewhat strangely, the company still wanted to host a good bye party for him, and they invited a hundred people to it, but the plans broke up when Blevins broke off communication with Apple. Now, when I shared this on LinkedIn, the new news story Anthony Cler at Unna made what I think is an excellent point. There is probably a lawsuit in the works, one that’s sadly we are unlikely to ever hear about, but still I can dream right On the procurement front, we also learned that Blevins was not replaced with a new vice president of procurement. Instead, his former team was distributed through operations. So Apple procurement went through some organizational upheaval through this as well. In second place, with 32% of the vote, we find the railway strike rail unions have been struggling to reach an agreement with the companies for years, and it looked like a strike was imminent in September, but it was prevented by 11th hour talks involving Labor secretary and former mayor of Boston, Marty Walsh.
Kelly Barner (12:57):
Now, that agreement was herald as as good news, but it was just between the union representatives and the rail companies. The union membership still had to ratify the agreement through a series of votes. It quickly became clear that that deal was not going to be accepted. There was already monitoring when Walsh declared success, and that just grew louder as the votes went forward. As we moved through November, four of the biggest unions had either voted down the agreement or returned to the bargaining table, and the primary issue, their reason for voting the agreement down was not actually around pay. They had negotiated a significant pay increase of over 20%. The key issue was about quality of life issues like being able to secure days off. Now, a strike would’ve been a huge issue if it had come to pass. According to the Wall Street Journal, 28% of US freight moves via the rail network that’s only second to trucking at 40%.
Kelly Barner (14:04):
Interestingly, the trucking industry is freight rail’s largest customer. So if rail stops, so does freight. According to the Association of American Railroads, 467,000 additional long haul trucks per day would be needed to handle the freight that currently travels via rail. And of course, there’s the cost. The US Department of Commerce estimated that a shutdown of the Nation’s rail service would cost more than 2 billion a day. So faced with the option that the unions were probably not going to ratify the agreement and the enormous cost and disruption that would’ve been associated with the strike, everybody turned to the remaining worst possible, least desired option. Congress got involved. The House and Senate both passed a bill, which President Biden then signed into law on December 3rd, making it illegal for the railway workers to strike so the federal government can make them work, but it can’t make them like it.
Kelly Barner (15:12):
There’s still a lot of frustration from the workers towards the federal government as well as towards their union representatives. This strike may have been legally averted, but I don’t believe this story is over by a long shot. We will continue watching it looking for new developments, and that brings us to number one with 54% of the vote. You selected this as the top news story of 2022, the Baby Formula shortage. This is a story that hit me in my heart and my head at the same time as a mother and as a supply chain professional, this was definitely one that I could not believe what my eyes were seeing and what my ears were hearing. The baby formula shortage dominated news headlines through the spring and summer, and then it disappeared, so it would be reasonable to assume that everything was fixed and had gone back to normal and everything was fine, which was not the case at all.
Kelly Barner (16:18):
I recently brought this story back up to date in a Dial P updated classic, and I was really disappointed to find that nothing notable had actually changed. So here’s the issue. At the core of the story, there are four domestic producers of Baby Formula that make up 89% of the market. There’s Abbott Labs, which produces Similac 43% of the market record, Ben Kisser, which produces en famil 37% of the market. Nestle makes Gerber Pergo actually makes the store brand or or many private label formulas that you may buy, but that 89% and then the top producer with 43%, that is a huge and almost reckless over concentration in a very important market. Ironically, the federal government played a role in creating this over concentration. The Women Infants and Children Federal Assistance Program known as WIC is federally funded, but administered at the state level. 60% of all the BABY Formula bought in the US is bought through this program, and it’s how they award their contracts that led to this over concentration.
Kelly Barner (17:39):
Each state bids out the contract for their entire WIC voucher volume to one provider. Abbott is currently the supplier for over half of the agency’s administering wic, and the Biden administration kind of took two different paths. They started by loosening the requirements. So if your state is supposed to have Similac on the voucher and people can find and famil let them use the voucher with another provider, they also started working internationally to make it possible to import formula from other countries. But it wasn’t just the administration of this program that led to the dire situation we faced. There was also a highly publicized plant closure between September of 2019. In October of 2021, the F D A either had negative inspections or missed inspections in audits at the Abbott plant in Sturgis, Michigan. That’s where they make Similac, that brand that represents 43% of national formula volume.
Kelly Barner (18:47):
On February 17th of this year, three Similac product recalls were issued after infants began getting sick, there was contamination at the plant and allegations that two infant deaths had resulted that same day there was a total shutdown of the Sturgis Michigan plant, and in early March matters became worse when the scope of the recall was increased. By March 18th, the F D A had completed their investigation. They came with a list of recommended steps and actions that Abbott could take to get the plant back open. Abbott continues to deny responsibility for the infant deaths. Now that Abbott plant did reopen, but not until July 1st, an event which was actually delayed for two weeks because just as they were getting ready to go back into operation, there was rain that led to heavy flooding at the facility and it had to be re-closed. I originally released the Dial P episode about Baby formula in May, but the shortage didn’t peak until July when the national average out of stock rate was 31%.
Kelly Barner (20:00):
As of October, we were still seeing an average out of stock rate of 18%, which was certainly down from the peak in July, but nearly double the rate that had been seen before the AVID plant recall and closure. And in fact, if you go into a store, whether you buy formula or not, you’re probably seeing some lasting changes from this. I still in my local supermarket walk past the Formula section only to see a sign that says, we are limiting volume, and please come up to the front desk because that’s where we’re keeping all of the formula. Perhaps the most unbelievable thing about this story is actually a lack of update. I could find no evidence that WIC is being reexamined for the role it played in causing this crisis. Why would they continue to award one contract per state instead of deliberately creating a little bit of diversification in the supply chain and making it possible for smaller manufacturers of baby formula to actually grow and distribute this market a little bit?
Kelly Barner (21:03):
Instead, the federal government seems to have put most of their effort into making it easier to import baby formula from abroad instead of increasing competition here at home. And that is your 2022 Procurement and Supply Chain News Year in review. Here are my key takeaways, both from the episode and from the year that we’ve all just lived through procurement in the supply chain. Being in the news is sometimes a good thing and other times a really bad thing. The role of government involvement, whether it is through labor agreements or federal program funding and administration, can easily start with good intentions and still lead to really bad outcomes. And the same dynamic can be found in the private sector with McDonald’s and FedEx ground running national programs in a way that they think benefits them, benefits their shareholders, and benefits their customers, but maybe doing so at damage to other companies and groups.
Kelly Barner (22:10):
Now, that’s my point of view on the year, but I wanna hear what you think. Even though that poll is closed, do you agree with the voted ranking of the top stories? What other stories or runners up in Honorable mentions would you add to the list? And most importantly, will we ever learn? We can be sure of one thing. 2023 is bound to hold surprises. After all, you just can’t make this stuff up. Until next time, I’m Kelly Barner, your host here for Dial P. Thank you so much for joining me. On behalf of myself, the show, and the whole team at Supply Chain now. Thank you for listening and have a great rest of your day.
Intro/Outro (22:59):
Thank you for joining us for this episode of Dial P four procurement and for being an active part of the supply Chain Now community. Please check out all of our shows and events@supplychainnow.com. Make sure you follow Dial P four procurement on LinkedIn, Twitter, and Facebook to catch all the latest programming details. We’ll see you soon for the next episode of Dial P four, procurement.
