S2E1: Embracing Innovation to Drive Success with Kenco Group President Denis Reilly

 S2 Ep. 1 Tennessee on SCM Transcript

Thu, Sep 14, 2023, 12:33PM • 38:35

Tom Goldsby 00:28

Hello, and welcome to another edition of Tennessee on Supply Chain Management brought to you from Rocky Top, Tennessee. I'm Tom Goldsby, joined by my good friend and colleague co-host, Dr. Ted Stank. Hello, Ted, how you doing?

Ted Stank 00:42

Hey, Tom, I'm doing well. Thank you.

Tom Goldsby 00:51

So the Labor Day holiday and has come and gone. It's great to be back together for our first episode of the second season, we got picked up 10.

Tom Goldsby 01:41

Now speaking of our last episode, I do have to tell you, Ted, I've gotten a lot of praise. People just walking down the street are telling me 'Hey, great podcast. When can we hear more from Dr. Ted Stank?'

Ted Stank  01:54

Tom, you've known me for a long time. And you know one of the things that I do best is talk. So here we are.

Tom Goldsby  02:00

Let's go ahead and jump into the world at large. Like I said, we are just post Labor Day and a lot of talk of labor today. But before we talk about labor, let's talk about the end of the supply chain, consumer confidence. And we've been talking about the kind of humdrum kind of glum attitudes out there in many pockets. And certainly, you know, credit card debts are starting to swell. But I think you saw that the consumer confidence index read 69.5, which is a few notches below where it was just a month ago. But it is up from where it was a year ago, when it was like 11 points lower than that. We've had maybe a little bit of surge of confidence that maybe took us through the summer people were going out and about and traveling again and doing fun stuff. But it seems like as we head into this autumn season, maybe a little bit more pessimistic. 

Ted Stank  02:58

I think there's a lot of pessimism about what's going to happen with holiday season. Certainly, our shipping volumes are down, what we usually see is peak season is down. But consumer confidence seems to be remaining at that level. It's really interesting, where we have this kind of dichotomous situation that you talk to people on the street, they say all everything's going to hell in a handbasket. And yet, consumer confidence is still decent. It's uneven across industries, of course, but service industries are still seeing a boom ecommerce is coming back from the spoon it saw you towards the end of COVID very interesting times that we're in.

Tom Goldsby  03:37

Yeah, I think what you're alluding there to is paying attention to their behaviors and not necessarily what they're saying. So, frankly, that's what I do is I think that, you know, people will say one thing and do another/ I think they're still spending pretty robustly like, maybe taking on a little more credit card debt to do it. But I think people for three-and-a-half years now have had pent up purchasing power, and they've wanted to leverage it. We've seen wages have been pretty healthy and employment continues to be robust. And I think that's where we're going to take the conversation next. But there's kind of this notion that things are really aligning these things that used to be kind of direct, and correlations are running a little bit inverse of each other.

Ted Stank  04:25

We were looking back in July at was Amazon Prime Day rise, right? We thought that would be a harbinger of the holiday season and peak season because they had some record days. And Walmart and Target also experienced really high buying during that time. And yet now we're seeing as we head into that peak season, what doesn't look to be what peak season was prior to COVID. Maybe it's just again that all those analogies that we became accustomed to pre-COVID have been broken and things are different. You and I have worked a lot on different research on planning. It always is a fallacy to me, if you talk to any individual folks in the supply chain. They know that trend lines don't necessarily predict the future. And yet we base all of our buying and capacity planning on those trend lines as if they were going to go on forever.

Tom Goldsby  05:16

Yeah, we drive the car by using the rearview mirror.

Ted Stank  05:18

Right. And we need to stop doing that. But I wonder if by peak season things have leveled off. We're not going to see that huge seasonal jump, but maybe it's because we got burned so much during COVID, that we've kind of kept inventory levels up. We'll see.

Tom Goldsby  05:35

A new jobs report came out, and it's a little bit a mixed bag. Came in over, but unemployment did go up to 3.8%. So how do you make sense of that? How is it that we saw more jobs, but meanwhile, unemployment woes?

Ted Stank  06:02

Well, I'm glad you asked me that. Because you know, we've talked about this before. I'm not an economist, but I had stayed at a Holiday Inn Express. So what economists are saying is that there's a few reasons for that going up. Again, there are industry differences. And we're going to talk to our guest speaker about this later on in this podcast. But the transportation logistics industry because we're not shipping as much has seen a drop off in jobs. And in fact, the Yellow freight bankruptcy last month contributed 30,000 to that joblessness report. But one of the things that has caused that 3.8 hiccup is that 700,000 new people filed jobless claims last week—ones who had not been in the job market, and are now back in the job market. It's a classic economists thing to say, right. I think somebody said economists are the only ones with more than two hands. Right? On the other hand, that could be a good sign that people are jumping back into the job market who had been on the sidelines for a long time, because they see opportunities or maybe because their credit card debts.

Tom Goldsby  07:08

Well, our very own Marianne Wanamaker has pointed out that workforce participation still hasn't rebounded. So getting those folks off the sidelines back in the workforce could be really good and bode well for the logistics industry. Because, by and large, we're still running pretty lean on headcount. Jobs continued to look pretty healthy, wages pretty healthy. But unemployment is ticking up. 

Ted Stank  07:38

I remember taking an econ class about 100 years ago, and 4% is full employment is what they used to tell us. So it's no surprise, we're visiting my son and daughter in line in Nashville this weekend and waited for a long time at a restaurant, even though we could see empty tables. And people were grumbling in line about how they can't get servers, and we see that in any labor-intensive industry. We're struggling still to get people to fill the roles that we have.

Tom Goldsby  08:11

Again, we haven't really developed any meaningful immigration policy, which is a huge shortcoming. 

Ad Break  08:42

Tom Goldsby  09:11

With regard to labor major shifts seems like this, what we call the summer of strikes, unionized labor has found itself in a new kind of driver's seat and I use that term driver's seat and referring to a not so veiled reference to the UAW. Within a few weeks, they could be in the throes of a strike right at one or more of the Detroit Three.

Ted Stank  09:37

We're recording today on September 5, and that deadline date for contract negotiations is the 14th, I believe.

Tom Goldsby  09:43

So that's fast approaching, and others some suggestion that maybe unions are hip and cool. Like they're certainly at what we saw out of the UPS strike,  Teamsters garnered a lot I have strength that sink, leverage the strength. And I think in that situation, UPS had no other recourse.

Ted Stank  10:09

I would say the last year has seen a number of Bitcoins for labor, most recently UP. Before that the railroads when that West Coast ports. I’m very interested to see what happens with UAW. I think the unions are feeling emboldened by labor conditions. I mean, a lot of jobs and not a lot of people to fill those jobs are going to be very interesting. Evidently, the new president of the UAW is a nontraditional person really came up through the ranks, and has not played ball with the auto manufacturers like previous UAW presidents have. In fact, usually they'll choose one firm to negotiate with and use that as a template for the others, he's taking on all three big North American manufacturers at the same time, And so they are flexing their muscles. That said, 10.1% of US workers belong to unions, which is among the lowest level in decades.

Tom Goldsby  11:17

Does it continue on that trajectory? Or does the bottom out and start to research? It's going to be interesting, I mean, particularly in those fields that do have some degree of skill required. Again, as an employer, your hands are largely tied. And so, I do think that the UPS package was just so robust, it gathered a lot of attention. And in fact, you know, the Teamsters are looking to organize it a lot of places. They’ve been trying to make plays at Amazon. And it'll be interesting to see if that resonates out there. But more than 300 fulfillment centers, more than 1200 operational facilities in the United States alone, that's a big target for sure.

Ted Stank  12:01

At a time when skill sets are dramatically changing based on technologies, automation, digitalization, etc. I read recently that 45% of high school students do not see a need for a college degree to have a financially successful lifestyle. They're all going to be social media influencers. I hope what it means is potentially that message about need for strong trades, need for education in maintenance of automation and robotics programming, that potentially community colleges are going to get stronger. When I was in high school, there was a very clear demarcation about midway through about people who were going to go to trade schools and people were going to four-year colleges. And I know some European countries, Germany notably, have that same path. And I think it is absolutely critical for us to build that kind of strength.

Tom Goldsby  13:00

We're in higher education industry, and I absolutely believe that we need the trades. I think that far too many people, frankly, go to university expecting some better quality of life. In my estimation, the more likely pathway to that quality of life, and probably securing yourself, for the workforce of the future, is probably in the trades. 

Ted Stank  13:30

I mean, certainly I want it to be kind of innovative in terms of what we're considering the trades, with much more technical emphasis. But just to take it back to a consumer perspective, have you tried to get a plumber or electrician or carpenter recently?

Tom Goldsby  13:45

There's a reason why they're garnering those wages.

Ted Stank  13:51

A lot of talk about technology, innovation, labor. It strikes me that the industry that is very close to home for you and me, the transportation and logistics industry, is at the bleeding edge of all of those issues in the last several decades with the move towards outsourcing, and for manufacturers and retailers to stick to their knitting back to our old Michigan State days. The rise of third-party logistics providers has been really phenomenal. A number of firms globally and domestically have risen over those years. And one of our great partners in the many years that I've been here, just down the road, headquartered in Chattanooga, Tennessee is Kenco Logistics Group.

Dennis Riley has agreed to be with us here as our guest. Dennis is President CEO of Kenco, whose services include distribution, transportation management, material handling and fleet services, ecommerce fulfillment, and supply chain intelligence IT solutions. He has been working in the supply chain logistics field for 35 years with a number of other companies. He began his career at FritoLay after graduating from University of Tennessee with a logistics degree. He also has an MBA. And we are very proud to say that he is one of our great board members of the University of Tennessee Global Supply Chain Institute Advisory Board.

Denis Reilly  15:39

Welcome. appreciate being here. Thank you.

Tom Goldsby  15:41

Great to have you on the podcast. And again, Ted and I were chatting before you came on. We're so excited to have a 3PL represented and particularly a near and dear friend of ours in terms of your organization. But also you personally, you've done so much for our program and serving on our ad board. We just are so appreciative. But why don't we kind of level set a little bit again. As we talked about this dynamic world in which business is taking place, it seems like 3PLs are at the tip of the spear. You are the service provider to manufacturers, distributors, retailers, and their world is changing. And meanwhile, they're asking you to change right along with it and help them to meet their needs. So can you talk a bit about the landscape in which Kenco is operating and a bit about how you create value in the eyes of your customers?

Denis Reilly  16:33

If you’re in a lot of different industries, you kind of see a lot of different changes some change quicker than others. And the trends might be different. But a lot of times about 80% of the issues are the same, we can kind of go across each one. We're in about four or five different major verticals, in today's environment, compared to the last two years, which has really been all about growth track capacity frontier, whether it be transportation, or warehousing. That's what the major focus was previous two years. This year, a lot of it's really focused around cost cutting—kind of what you tend to see before where if you can't grow, the top line has got to protect the bottom line. So a lot of 3PLs customers logically asked to become more efficient in cost cutting and getting creative. So that tended to be a theme. 

And we could see it coming through this year. And our job is to help figure that out. But there's a lot of other things ever since COVID hit. A lot of customers are really looking at their supply chain, because of the different things that happened with COVID, they end up with a lot of inventory. But it wasn't really what the customer wanted at that time, right. So all that shift, as well as the acceleration of e-commerce, and direct-to-consumer, all those factors kind of impacted. Let's relook at our network. And honestly, some of them are looking at it at least two or three times a year. So we're doing multiple studies trying to get what post-COVID looks like. So that we're starting to get better as far as maybe predicting a little bit better going forward.

But they also tend to ask some questions like innovation on automation, not only cutting costs, but with the shortage of labor that we all keep talking about. And it doesn't seem like it's going to change anytime soon. How do we deal with it right? And how do we drive productivity? A lot of that comes around automation, which there's a lot of different technologies out there that are a lot more affordable, nasty work, they're a lot more mature. So you can kind of put those into play a lot easier than you could before. I think companies tend to look at paybacks a little differently. So instead of trying to get something I'd say in a year and a half, two, two and a half years, because you have to keep the facility up and running. Probably the biggest thing, I think that there's a big push for and rightfully so is kind of having a innovation mindset.

So that 3PLs need to be testing the different automations and technologies out there. So that we're even baking in opportunities down the road that will drive continuous improvement, let's say 2-4 years out with some of the new technology coming on board. And we really never did much that before until it was kind of tested, then you implement it. That's all shifting quite a bit, because I think most of the things are out there that we have access to now, you can implement. You don't have to go through massive testing, like you did before. And I think one of the areas that developing advanced analytics, that's becoming a really key part of really leading into more resilient supply chains. So better forecasting: 3PLs can forecast labor better than they could before. We can predict transportation failures by lines or delays. But before we always talk about it seems like we always talked about it for years and forget about it. You can do all that stuff. Now you can create control towers, it gives the customer visibility of everything more real time and that obviously creates a lot more resilience in their supply chain. They can make quicker decisions. AI tools are out there now to be able to do that.

Tom Goldsby  20:06

Dennis, you're talking about employing advanced tools, and innovating with the customers bringing forward these solutions. And recognizing that, yeah, there's some commonality. But there's also a lot of differences in those fringes. One area I did want to pick up on because it is such a dramatically different world is business to consumer. You all pivoted pretty substantially even in the throes of pandemic to kind of ride that wave and serve your customers with B to C fulfillment. And that's a very different beast. Can you talk about some of those differences and how you're helping customers to be relevant in that world of B2C?

Denis Reilly  21:03

Yeah, it is quite different. And a lot of it became a push by using our larger customers that were doing pallets in the layers picking from many years ago. Look, we're going to be pivoting towards direct to consumer, and we need you to have that skill set. So 3PLs understood that if you're going to try to stay ahead and create, you gotta get ahead of that. And some basic operations are now shifting to a lot more complexity, which has actually been a lot of fun. And of course, that's where that value is. So the technology, the warehouse layout, and the processes are all different within a warehouse. But you really have to have a different mindset on the speed to process the order. 

So usually, with a paladin powered out, you have a couple of days. You have to make sure you have everything unloaded and you kind of cover the loads to three days out. Now it's the same day, maybe the next day. So all of a sudden, you have to have that sense of urgency and the data to be able to make quick decisions. So can you pivot your operations during that timeframe during the day? Certainly. So you'll be slow, whether it's you know, during the spring, but you're really busy in the fall. So you have to kind of plan around that as well as capacity within the warehouse. But you didn't have that have that on a weekly basis. So you may be tough on Monday, you get all the orders, everybody's clicking and buying stuff over the weekend. Busy Monday, then it kind of gets down later in the week. So that flexibility is something that's really a different type of operation and different types of people and technologies that you need to be able to manage that. 

And I think the big shift is even going to continue where you're really moving towards a multi-channel, omni-channel requirement as a 3PL. It’s not only the each pick anymore. The case pick, they would like to have all that done in the building. They don't want to have to have a bunch of different buildings, especially midsize customers that can't really afford to have dedicated operations, let's say like an app or something like that. So that shifted the multi count during the pallet layer case. And each in the same operation is a shift in that complexity. If you can do that, well, that's really adding value and kind of meeting our customers needs. So it continues to evolve. But again, I think we're having better tools now to be able to make all that happen a lot quicker.

Ted Stank  23:19

Sounds like that really ties into your themes, though of innovation and technology and being able to bring that to bear. One of the good things about business consumer is that you get access to that final end demand. And I'm sure you're using that to help you better plan, labor plan inventory, transportation lanes.

Denis Reilly  23:38

Absolutely. 3PL are often outsourcing labor and managing that. And that's where we have to use advanced analytics to be able to help us forecast. Sometimes we'll get customer information, and we can forecast labor up to about 70% accuracy. We get up to about 90-92% accurate by using advanced analytics and other data points that now we know about that particular operation. And the more information you get, you can use machine learning and AI.So we're able to do those things now. And that's really important. 

But the technology that you get to deploy now, it's just a lot easier. It's proven. It's just getting the right talent in place to be able to implement the tech. When the robots come in, you just plug them in and once they actually are powered up, they just go. We don't need a bunch of programmers. And then when you don't need them, you pull that that capacity out. You send them back. Flexibility is amazing in today's world. You have more options out there. So based on the type of product and density, there's a pretty good solution or system out there that fits that need, that's proven time and time again. And you can deploy it in there, and you have access to that a lot easier. So it's pretty exciting. And I think that's what's driving e-commerce as well as capacity.

Tom Goldsby  25:25

It’s been actually just such a pivot, you know. The way people conventionally think of warehousing is places that inventory just goes to sit and dwell and wait until a customer draws upon. It sounds like you're running three rings given the different nature of the operations. Omni-channel might require one client of yours to seek this multitude of solutions, perhaps under one roof and the complexity. I know our friend, Todd Steffen at Colliers points out that it usually takes a lot more space and a lot more people to do that. How are you achieving that integration and the flexibility that you need to meet these customers different needs under incredible times of duress now?

Denis Reilly  26:27

Yeah, it almost requires a different type of person. So you know, the whole discussion earlier in the podcast about availability, labor, you know, we might actually be able to get some of those bodies, but are we getting the right talent to be able to meet the needs that we have. And that's becoming challenging. The individual that has to work in that environment. Before it was a little bit sleepy or wasn't as intense.  They have to be able to access data and not be afraid to work around robots. And think on the floor, there's a lot of activity going on. So it's kind of a different individual. They have to be good communicators, be able to handle a lot of that information, not be afraid of data, and then be able to convert that into real-time information. It is more stressful than maybe what warehousing used to be. So the individual talent that we need is a little harder to find, and also a lot more effort into training. We've spent significant amount into training, just because once we get them in there, they have to work in that environment. It's a lot different than it was even honestly 5-7 years ago.

Ted Stank  27:41

I know that you have partnered with some other companies for a flexible workforce as well. Can you comment on that strategy?

Denis Reilly  27:50

Honestly now we're trying to move a lot quicker towards even getting into get it permanent. How tight the market is, if you find a good employee that you really want to go after we're now trying to move as quickly on the permanent versus the temp side. Just because they could walk cross street and get another job somewhere. 

And then we're trying to provide a lot of flexibility. We have something called shift swap. We're actually able to be more flexible in their environment, because a lot of times you'd lose your employees because of attendance, they have certain things going on, especially in today's world with COVID and overlap of different issues with schools. Now we have something that we're using that’s allowed them to be able to bid off their shift and bid on other shifts, but manage it in a with a lot of employees just through the technology. And it works really nicely in that the employees now feel that we're working in their environment a little bit more or their needs, to be able to create that flexible environment versus being so rigid. And that's becoming a lot more popular. So really working around that they're what they want as employees, figuring that out will cut down that retention issues, especially if you're working in these complex environments where you spend a lot of money on training. You want them to stay. You just can't throw anybody at that type of atmosphere.

Tom Goldsby  29:12

Flexibility is the name of the game in terms of your ability to serve your customers and their changing needs. You talked earlier about how their strategies have pivoted quite a bit in the course of this past year. And then of course, within the four walls of your operations, robotics and flexibility.

Tom Goldsby  29:35

Also labor and flexibility haven't gone hand in hand and you will have had to adopt that flexibility. But it is really cool to see those technologies that were kind of on the sidelines for so long now very much at play.

Tom Goldsby  29:51

Using this notion of robotics as a service that you can turn on, turn off and ramp up and ramp down is just remarkable.

Denis Reilly  29:58

It’s amazing mechanics But really, you're right, flexibility those areas is really key. But it's doable now. 

Ted Stank  30:07

We've taken us deep into a lot of your insights on technology in distribution and logistics. Let's kick it up several 1000 feet. What are your views on being a senior leader of a major company in this space today? What are some of the trends you're thinking about from that standpoint of leading this kind of organization into the future?

Denis Reilly  30:37

We're a midsize 3PL competing against larger 3PLs. So we have to be very intentional and selective about what we do. Our side is always making sure we're relevant in three to five years. And I don't mean, hey, just kind of relevant in our environment. We could become extinct fairly quick if we're not adding and addressing all those supply chain issues that are out there. When we pivoted into e-commerce, nobody was making money on it. Why do it? We're a family-owned business. We're making plenty of money right now. But we mainly did it because that's what our customer wanted. And we felt the big issue they were going to have down the road was that they needed partners to help them manage through and create value and grow. So my job is constantly focused on that—obviously making sure that we have the right strategy, and that we're constantly refreshing. We're constantly double checking that we are investing in the right areas, so that we can compete effectively, and make sure our customers are being focused. 

And then it's really down to talent. Do we have the right talent in place, both at the executive level, but all the way up and down secession planning all that is so crucial. Now it's even down at the facility level. We have 110 facilities. We worry about succession planning at the site level to make sure that that we're constantly getting the right talent to meet our strategic plan and also add value to our customers.

Ted Stank  32:15

I think you've really hit a strategic sweet spot. I remember attending some meetings where there were some pretty heated conversations between manufacturing, our retail clients, and their 3PL support about how you want us as a 3PL to be innovative and strategic. But every year you rebid our contract and drive us to lowest unit cost. And I think that companies like Kenco have really moved beyond that with your long-term clients so that you really can be innovative.

Denis Reilly  32:46

Now you're right, we're not interested in that transactional type of relationship. Because we really can't add that value. If you just want us to be a labor player, any 3PL is a labor pipe, it's probably not what we want to do. So we tend to look for that strategic partnership. And as a result, we've got our average relationship is about 18 years. We've still got Dupont from the 1950s. And if we can't see that we can add value, we don't want the relationship either because it's not right for our customer. Everything is focused around the customer’s needs and our employees have to stay focused on that to be successful. But that's the only way you can earn that strategic partnership if they can trust you. And you can help them with their problems they have, if they see you actually investing in all these different things. We’ve got some very large customers that, if we're trying and failing on some new innovations, they're okay with it. Because they feel that we're trying to make it every once awhile they break through. And we get some really good technology as well as advanced analytics tools that they love and get benefit from. The big shift in the last couple of years is that you need to prove that you're being innovative. And that doesn't mean everything's successful, but you have to show it, you have to invest in that. And I think that's fair, that's what they're paying us to stay ahead of the curve and help them develop their value chains going forward.

Ted Stank  34:11

The three of us have been doing this for a long time, right. And sometimes you get the feeling like we're still fighting the same battles that we fought 30 years ago. But then we have conversations like this. And it really gives me a lot of positive impact to see how things have changed. You couldn't have these conversations with senior leaders at your big clients 20 years ago, because they didn't see the innovation potential in logistics. And so, it really is encouraging and exciting to hear about that. A lot of my students, they get really jazzed about logistics operations. And I say well, if that's the case, then you probably should narrow your recruiting search to some of our top 3PL partners instead of looking at manufacturing or retailers because the real magic and logistics is happening in your space.

Denis Reilly  35:02

Yes, actually, because you see it all the different verticals too. If you're in healthcare, they have certain challenges. So the cool part about being a 3PL for all these different verticals, you get to get some learnings on one and apply it to another. And that to me, that's what's been fascinating. And probably why I've stayed in it is because you get to see those different challenges. And you get to kind of leverage best practices out of the different verticals. But Ted, you're right, just because we've been out here a long time. But I'm by far the oldest at our company. It seems like when we got out of school, it's the same issues on time visibility and all that. But the cool part is right now you actually have a lot of that. And it's still advancing every year so quick, especially with AI. There's nothing's really not impossible to do. From that standpoint, the possibility of what we can do is something that we want to stay focused on so that we can kind of be ahead of the curve and bring great solutions to our wonderful customers that are trying to grow and deal with these issues.

Tom Goldsby  36:01

Well, Dennis, I think it's just been great to hear you share your perspectives from the top of an organization. I was just over an alumni auditorium right before coming over to record the podcast, and I was teaching customer selectivity and how and why is it is to try to be all things to all people. And I think you minimize that being very selective in those clients and customers of choice. Size and growing those accounts and having going into the future and growing together, looking after customer success, and I think you all epitomize that. So, Dennis, thank you so much for sharing those perspectives with us. It's been a great ride that we've had. We continue to leverage your expertise and the relationship we have with you and Kenco into that indefinite future.

Tom Goldsby  37:15

Well, this puts a wrap on our first episode of season two. All right, looking forward to what transpires between now and the next recording to keep our eyes open and, and our wits about us. But Dennis, thank you so much for making this a special podcast. Again, thanks to all you listeners out there as well. If you have any comments or questions, you can find us at gsci@utk.edu.

Ted Stank  37:38

Thank you, Tom. Thank you, Dennis. Thanks to our production team, Casey, Keith and Brian Canever. We will talk to you all next month actually, we're going to be live from the Council of Supply Chain Management Edge Conference

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