Vikrant Host

Welcome everyone to Execution at Scale. We're real operators, real answers, as we know that all the conversations happen over coffee or beer. So today I have Dr. Jim Tompkins, who is an international authority in supply chain building end-to-end supply chain solutions. Jim is more than just a person I know. I've known him for more than five years. He answered me first time when I was starting my second company just over a LinkedIn message, which I really appreciate him for. I don't think Jim, I ever formally thank you for that, but thanks a lot for always helping me out, getting on a call with me for no reason, even if it was like for me venting out that how things are going. So really appreciate that. Over 50 years, Jim has founded 15 businesses that together generated over 2 billion in revenue. His latest venture was Tompkins Ventures in 2020, which apparently he claims like he did it out of retirement. And yeah, like, you know, it's a pleasure to have you, Jim. And Jim holds a bachelor degree from bachelor, master's and PhD from Purdue University, where I graduated from as well in industrial engineering too. So boiler up, yeah. He has written 31 books, more than 2000 articles, more than 2000 speaking events. And I think as far as podcasts go, this would be 500 plus.

Jim Tompkins Guest

So, well, you said that I helped you without any background. Hey, we're both Boilermakers. So we all stick together.

Vikrant Host

Appreciate it. Boiler up again.

Jim Tompkins Guest

Yes.

Vikrant Host

Awesome. So let's go into like, so our main agenda for today is resilience versus efficiency. So Jim, my first question to you is that you have written a lot, which I read like, you know, about the tension between resilience and efficiency. So where do you see like companies getting that trade off wrong?

Jim Tompkins Guest

Well, I think what we see is that people get the trade off wrong because they don't really understand what resilience and what efficiency really means. Resilience is actually a term from physics. And in physics, if I hold a ball at this height and I drop the ball and it hits the surface and bounces right back up and hits my hand just when it comes back up, that's resilience of one. If I drop the ball and it comes only halfway up, that's a resilience of 0 .5. And so resilience is the ability to absorb shock and to recover quickly. To the contrary, efficiency, and both Baikin and I are industrial engineers, and so we know a lot about efficiencies that was drummed into our heads. Efficiency is the ability to reduce waste. It's the streamline processes and to eliminate anything that does not add value. And so resilience and efficiencies are two totally different concepts. And so how best to illustrate this, I think probably one of the things that hit us around COVID time or a little before that was just a major, wow, what are we doing, is the issue of just-in-time inventory versus just-in-case inventory. Efficiency votes for just-in-time. Resilience votes for just-in-case. And so people ask, which one is right? Well, that's a bad question because it doesn't make sense to answer which one is right. The answer to that question is, it depends, is what are the conditions you're living with?

Vikrant Host

You know, when you talk about just-in-time for sure, that was like the first initial years, that's all I was doing, that how do we get like just-in-time implemented? Oh, like every 15 minutes, we need like these small wires to be shipped to this manufacturing plant, you know, to that point. And another important aspect, which I was thinking was that definitely like efficiency versus resilience, like, you know, you have to plan for both, given like, you know, the right time. I also want to know your thoughts on that sometimes people get to know about the impact late. What I mean by that is, I can maybe give a real-life example of me, like, you know, when COVID hit, I came back, I cannot remember where I came back from, to Indiana, and in 2020, and I went to go get milk because I was suddenly feeling like eating cereal randomly. And I realized, all the grocery stores are empty. And that was the moment I realized that, oh, like, what's going on, I went to Trader Joe's, tried to like, you know, stock up and like, you know, obviously, people react in those scenarios as well, which everyone did. And at the same time, this reminds me of the other concept, the bullwhip effect in supply chain, right? So like, the small chain starts very early, but people really get to know it later on. And again, and again, you were saying 2018, but everything about resilience, and being able to like the VUCA times and everything like that all started more like, you know, people started talking more about it in like, after 2020. So I also want to know a little bit your thoughts on that. And what was the main thing which changed in 2018, according to you?

Jim Tompkins Guest

Yeah, you're absolutely right. I mean, 2018, we lost the steady state. 2020, we went crazy. Because nobody knew anything. I can recall a vice president of manufacturing for a major appliance company called me, and he was crying. He says, Jim, I just had to send 1400 people home, because we can't make refrigerators, we can't make washers, we can't make dryers, there's nothing we can manufacture, because we don't have the components. We're missing something for everything. These 1400 people live from paycheck to paycheck. And when I sent them home, they're going to go home and they're going to wind up having empty refrigerators. And so this is this is just terrible. And oftentimes, this is something that companies do to themselves. Under the banner of efficiency, they put all their eggs in one basket, which results in them being brittle. And so the purchasing department, the purchasing department is buying 100 items for this guy at $1 each. And this guy is buying 200 of those same items, and he's getting for $0.95 each. And this guy is buying 300 of the same item and getting for $0.90 each. And then a smart guy comes along and says, why do we have three sources? Let's buy 300, 400, 500. Let's buy all 600 from the same company. We buy all 600 from the same company, and we're not going to pay $1 or $0.95 or $0.90. We're going to pay $0.85. And look at the money we'll save. We'll save a fortune. Guess what? They do save a fortune. And that's marvelous. And the guy might even get a promotion out of it. But then what's going to happen is you now have all your eggs in one basket. And that company that's selling you that component, when they get disrupted and they're not able to produce, you're out of business.

Vikrant Host

Bottom line of everything is supply chain in one way or the other. And I think like optionality versus optimality is probably the keyword from this first section of our talk today. So that brings me to the next question. So you did give some example about the refrigerator company. And can you think of something or maybe share more in detail that a company which leaned more into efficiency?

Jim Tompkins Guest

The whole concept of optionality is kind of like insurance. It's an insurance policy. And so the thing we have to think about is the same thing we think about when we buy insurance. And when is the cost of the insurance policy greater than the risk that it alleviates for you? And if you're paying more for your insurance policy, then is likely that you're going to save if the risk occurs, then you have too much resilience. Okay. And so too much resilience means you've got too many options. So maybe I had the example that was three people we were buying from, and that was wrong because the pricing wasn't good. But we also said one was not so good because now you're brittle, but maybe we should have had two. And maybe let's think about four. Let's think about this. How do we change it? Maybe that item is only used on these appliances, but on these appliances, something similar, and I could make that a common part. And I can buy more of that common part, and I can get the benefits of the volume discount, but I don't lose the optionality of having multiple vendors. And so if you build extra inventory that you never use, you don't have extra inventory. What you have is waste. Or if you have extra suppliers, they say, well, let's get five suppliers. Well, we've got five suppliers, but you're only using three. Someone said, well, that doesn't cost you more. Well, it doesn't cost you more, but guess what? That supplier has been adding capability that you don't use. And so if you do need them, he's not there.

Vikrant Host

That's amazing. And coming through, so most of the audience who listen to my podcast, as you know, they're more like 3PL. So I would like to ask a more specific 3PL question. So if you were advising a 3PL today, how would you tell them to think about the trade-off differently than a Fortune 500 company?

Jim Tompkins Guest

The Fortune 500 companies, they've got scale, they've got capital, they've got bargaining power. And so what they can do is they can maneuver around this resilience thing differently than a mid-size 3PL does. And so it sounds like the same question, but the answers are totally, totally different. So for Fortune 500 company, they can afford resilience by doing redundancy. They've got enough scale that they can do that. But a mid-size 3PL can't do that. And so what they need to do is build redundancy, not by using resilience, but what instead they need to do is they need to be building resilience by using agility. And so the 3PL needs to not use its scale, not try to do a deal that builds resilience, but needs to have a solution that is based on responsive, flexible labor stay as modeled, real-time visibility, and having the ability to pivot quickly.

Vikrant Host

We all have like, you know, they are like, people are talking about how do you go from like doing pallet in, pallet out to fulfillment. I also wrote a white paper on it. But what happened after 2020, 2021, there were a lot of companies, 3PLs who were popped up doing only e-commerce. They were even softwares like, you know, WMS systems only helping e-commerce fulfillment. And now they are also like going in the other direction that they need to do like pallet in, pallet out as well, because their clients are asking, how do they do it now? They didn't think about it. And no one is even talking about it. Like as far as I can see, like, you know, being a part of all this that, but that is now becoming a problem. And actually funny enough, I was thinking about this like three weeks back and I got like, I had three conversations this week itself, where there are 3PLs like e-commerce doing great 5,000 orders a day. Like, oh no, but like, we really need to do B2B now. We are also shipping to Costco. We are doing this. Like, and we are not able to manage it. We don't know how to build it. Like, you know, so it's very interesting thing, like to kind of see like how things change, I think goes back to the same thing. How's your, like, what are you seeing like around that part?

Jim Tompkins Guest

The one that's going to be the successful 3PL is the one that's the most agile. The one that's going to fail is the one when the client calls up and says, Hey, our volumes, our forecasts were wrong. And we had them backwards. We said, there's a hundred of these and 10 of these. It's actually going to be 90 of these and 40 of these. And so you need to respond. The 3PL that says we can't handle that is not going to be in business. The 3PL that says, okay, that's a hard one, but we're going to make it happen. So agility and speed and responsiveness and those things are really, really critical so we can keep up with this moving target. Because the target, what it says in the contract, that ain't happening. That was just, that was nice thing to agree on some pricing, but now it's the real world. What do we really need to do next month? And that's a challenge.

Vikrant Host

Just last year in December, around the holiday season, we scaled up our systems to support X amount of orders. And we got 7X in one day. And, but we were still able to support it, which was kind of a pressure test of our system, but like we all could not sleep all night, like thinking that, oh, what will happen now? And, and same thing. That means if we got hit by that volume, our 3PLs got hit by that too. Like imagine what, like their SLA is getting delabored. Like, are you training more people? And I think this goes back to like one of the conversations you and I had in Atlanta as well, like about workforce, you know, a lot of people, yes, they are training the damn people, but are you training enough?

Jim Tompkins Guest

Right on. Yeah, absolutely. And that's a, that's a critical selling point. In fact, when we look at organizations now we say, you know, they want to do the network and optimize the network. Well, do you want to optimize it for January, February, March? Or do you want to optimize it for October, November, December? Because those are totally different networks. How do you do that? Well, you use 3PL.

Vikrant Host

Absolutely. Absolutely. And same way, like 3PLs should rely on similar methods too.

Jim Tompkins Guest

Huge, huge. In fact, that gets back down to the basic issue. What is a company's core competency? And is it a core competency that they do their own logistics?

Vikrant Host

Especially when we look at like, you know, these small to mid-size companies in general, and, but specifically right now today talking about like 3PLs or ones in supply chain leadership. And like, you know, you have written a whole book on it. So I'll like just probably ask you to summarize a few things out of that. And maybe what's the gap that you most often see between like operators who are great at doing their work versus like leading. Because a lot of these smaller companies come out of, oh, I'm a warehouse manager and 10 years down the line, like I'm, I'm starting a 3PL because this customer loves me, let me do it. And that's how most of these smaller companies are made. So what are your thoughts on that?

Jim Tompkins Guest

Well, number one, I need to admit that I've read your book on leadership as well. So if I steal some of your material, since I said it on this show, it's mine now, it's no longer yours, but no. I would have stolen it from you anyway. Well, you know, I think the thing that's interesting is there's an inherent difference in people. Some people, oftentimes engineers, are awesome operators. And what they love to do is they love to solve problems. And we should, we should honor those people. That's amazing that they want to, and they have the ability to solve these problems. To the contrary, leaders don't solve problems. Leaders teach people how to solve problems. Okay. And so there's a, there's a different type of makeup. And so great operators solve problems. Great leaders build people who solve problems. Great operators get promoted because they do a great job at solving problems. And they should, you know, they should remain in the director and in the vice president roles. But then the leaders, they are on the other side of the house. And what they're doing is on focusing on developing others. So are you focusing on developing others? Are you focusing on solving problems? Is the question.

Vikrant Host

The hardest shift in this whole leadership thing, and many of us go through it. I started to be an operator, and then I became a leader. And what I need to do is I had to go from, I'll fix that to, I'll teach someone how to fix that. Three years back when I hired the first salesperson in Leanify, like the sales slowed down, like for three months, even four months. But I had to bear that. That is why I can sit here and talk to you now today. So I had to bear loss for that time, etc. to be able to do that. I think that's one of the things which I've seen at the biggest payment. And also, like you said in the beginning that operators love to solve problems. So sometimes when they're not solving problems, they're feeling like, oh, I'm not doing anything.

Jim Tompkins Guest

Yes. Yes. Yes.

Vikrant Host

Kind of the same thing. Do you think leadership is teachable? Or is it something either you have or you don't have?

Jim Tompkins Guest

There's some people that say, you know, you're born a leader. And so what their stereotype is, this guy's six foot five. He's got a strong jaw. You know, he's got, you know, and then what you find out is the greatest leader in the company is this guy that's five foot two. He's bald. You know, he's got big ears. And you kind of go, wait a minute. That's not the, you know, the Brad Pitt leader that I wanted. And so leadership absolutely is a skill and it absolutely is teachable. Leadership is not a personality trait. Now, you'll find some people that instill enthusiasm in people because they're enthusiastic. You'll find other people instill enthusiasm in people and they're quiet and very controlled, but people get excited about working with them. So there are some natural tendencies that come into play, but if you don't have those natural tendencies, you can learn them. Okay. And so what does it make to be a great leader? Well, you got to be a good speaker. You got to be a good listener. You got to have enthusiasm. You got to have accountability. You got to be honest. You have to have integrity. You need to be able to make decisions. You need to have insight about what's going on around you. You need to be able to create a vision. You need to get people aligned with that vision. And then what you have to do is you have to work hard.

Vikrant Host

Totally agree with that. So most important question of the entire session. So 50 years and I know a lot about you, but a lot of people may or may not know. So what is one mistake you made in the leadership scenarios over your career? And how would you have handled that scenario differently?

Jim Tompkins Guest

Early in my career, I equated speed with effectiveness. And so I was very interested in moving fast, in making decisions fast, and I expected people around me to stay up. What I learned is that speed without alignment creates chaos. And so the speed at which you can carry a team forward depends upon that ability of that team to understand where they're heading. If they don't know where they're going, if they're not aligned, they're not going to be successful. So now I try to slow down long enough to bring people with me, to explain to people why we are doing what we're doing, and to build a shared understanding of how we can all move together. And that we can move together faster in the long run when people agree with the journey you're on.

Vikrant Host

I love it. I love it. And there is like a lot you have given me to think over the weekend. I am also going to think about speed and alignment and vision and make sure my team is aligned. So thank you for sharing that. So when a company is scaling fast, what's the leadership crack which tends to show up? I think one of that which you mentioned that if the team is not aligned with you versus maybe the vision, how to carry with them. So what are some other examples which you can think of?

Jim Tompkins Guest

Sometimes this is not easy to detect, but the first crack is communications. Because when we were a smaller company, we all knew what we were doing. We all sat at the same lunch table. We sat together. We talked about what we were doing. And we communicated where we were heading. And so communications was just happening on a real time basis. Well, then when we grew, what we found is that the people were not communicating as clearly. And they assumed people knew what was happening. And so what happened is individuals kind of shifted their thinking. Teams started shifting what they were doing. And what we found is we had a lack of focus. Instead of us all pulling the rope north, we had some people pulling northeast, some people pulling northwest. We had some people pulling the rope southwest because they think we had to straighten up the people that were going northeast. And so we were losing the strength of us moving where we were heading. Now, as you point out, the second crack that comes from the first crack, when communications fall off and we don't have a clear understanding of where we're heading, the next thing that happens is that we start misunderstanding our role. So I thought you were going to do this, Vikram. And Charlie, I thought you were going to do this. And Barbara, I thought you were going to do this. Barbara says, no, no, no, I'm not doing that. Vikram's doing that. And I said, no, no, Vikram. And so now we don't understand the roles. And so now what we find is because of bad communications, we have role assignments which are broken and therefore that breaks the company's alignment.

Vikrant Host

Wonderful. That's probably like, you know, the highlight of the session and probably we'll start with the video editing with that line. Thanks for the punchline. And thank you so much, Jim, for your time today. I really appreciate it. And for the audience, thank you for listening. And if you got to this part, that means you would enjoy the next episode, which will be released about two weeks after this episode comes up. So thank you, everyone. And thank you so much. I enjoyed it. Thank you.