Chris Caplice has deep knowledge of supply chain management: he’s the executive director of the MIT Center for Transportation and Logistics, chief scientist for DAT Freight and Analytics, and a Silver Family Research Fellow.
To kick off the second season of Unboxing Logistics, Chris uses his wealth of experience to predict what 2024 has in store for the supply chain industry.
In the old days, building business relationships involved taking someone to dinner or a sports game. Now, Chris says, the focus has shifted. The best way to establish great relationships with partners? Help them solve their business problems. “You need to have trust on both sides. And trust is only earned with repeated success.”
Geopolitical tensions have the potential to cause major supply chain disruptions, and they’re on the rise. As a result, Chris has seen organizations becoming more cautious when it comes to global trade.
“The US and other Western countries have woken up to the idea that they need to be a little more self-sufficient. I don't think global trade is going away … but I think we're being more strategic there.”
In the world of logistics, a million things can go wrong—how can you prepare? Chris suggests using a technique called scenario planning.
While he goes into more detail in the episode, here’s the in-a-nutshell version: “You envision three to four worlds, the way the future can be … and then say, if this was the future, what should I be doing now to prepare? By doing that, you're preparing the organization to be flexible.”
Lori Boyer 00:00
Welcome back everyone to Unboxing Logistics. You know the drill. This is the podcast from EasyPost where we dive into all of the latest trends and happenings in the logistics and supply chain industry. You guys, you made it! It's 2024, another peak season in the books. I am, you know me, I'm Lori Boyer, I'm the host, and I am such a nerd who loves all the data and I cannot wait to get my hands on all of the latest info of what happened, what went well, what didn't but until that, I have brought in Dr. Chris Caplice. He is here today to talk to us about what the most important things for 2024 are. What are the things that you should be paying attention to? What are the trends? I'm sure many of you have heard of Chris, but I am just so excited to have him here. He, the reason I've picked him for this podcast today is because he knows so much.
He is the Executive Director of the MIT Center for Transportation and Logistics. He's a senior research scientist, a Silver Family Research Fellow. I'm going to get all of these. You're the director of the MicroMasters Credential Program, the founder and director of the MIT Freight Lab. You are the chief scientist for DAT Freight and Analytics.
You probably win the award for your mother's favorite son.
Chris Caplice 01:29
Well, I don't know. I don't know.
Lori Boyer 01:32
So say hi, Chris. Tell us a little bit about yourself beyond what I've shared.
Chris Caplice 01:38
Well, you pretty much hit everything, the highlights. So we can wrap it up now, I guess. But my name is Chris Caplice. And so I've been at MIT now as part of the Center for Transportation Logistics for about 20 years. Actually, exactly 20 years this year. Prior to that, I was in software with a company that was called Logistics.com, which is eventually got blended into Manhattan Associates. And prior to that, I was in the military for five years stationed in Germany.
I did my undergrad at Virginia Military Institute. Masters at UT Austin and my PhD here at MIT in 1996. And so right now I'm based in in Massachusetts. Also live in New Hampshire with my wife and our two dogs.
Lori Boyer 02:18
Love it. I am so glad to have you here. And so today there's a couple of things that I want to start with. First of all, I like us to start with just three quick takeaways. One to three, you can pick. Anytime that we have our podcast. I want to make sure that people actually have, you know, actionable things that they can go and do. So we're gonna start with that and we'll hit back on them. So take it away Chris. What what are three things that you want people to take away from today's session?
Chris Caplice 02:47
Yeah, so this is a little different. It's not just on logistics It's something that we've been grappling with and I've been grappling with professionally as well as academically for this and it's the role of the interface of the humans and computers Because it's becoming even more relevant.
And so my first takeaway is that I hope everyone to borrow from Ted Lasso is they should be curious about AI, machine learning. If you haven't used ChatGPT to write a letter, if you haven't used Bard to write a paragraph on something, you need to. Be curious about the applications that are out there because if you're not, you're gonna be steamrolled.
So my first takeaway is play with it. Experiment. Even if it seems stupid, but spend a couple hours a week just playing with it to become conversant because it'll help you understand how it can be used. So that's my first takeaway.
Lori Boyer 03:35
Love it. Love it. What else do you have for us? Yep.
Chris Caplice 03:38
I got, I got three because you said to have three.
So the second one is to ignore the hype. On both sides, you have some people who think it's the end of the world, right? That, you know, human life is, is going to be dead because of AI. And other people think it's going to be a utopia. They're always wrong, right? So you got to ignore the hype as it comes in now.
And, and just accept that we don't know. But the extremes are probably not happening. And it always reminds me of Amara's Law, which is that we tend to overestimate the effect of technology the short run and underestimate it in the long run, and if you look at this, this is the typical thing that happens.
We think it's going to be this massive thing up front. Think of RFID, think of all these different technologies that come out, but the effect is much later on and is usually in a different area. Think, think about air conditioning, which was originally started to make sure that in a printing press, the ink wouldn't run. And now it's led to population in areas that we wouldn't have been living in a hundred years ago.
Lori Boyer 04:33
Chris Caplice 04:33
So that's the second one.
Lori Boyer 04:35
I say, I had to pause because I absolutely love what you said We tend to overestimate technology in the front end, in the short run, and underestimate in the long. I, that is brilliant. I absolutely love that and agree with.
Chris Caplice 04:51
Not my quote, not my quote. It's Amara's Law.
Lori Boyer 04:54
I love that. I think that that is so true. So great insight. Number three, let's hear it Chris.
Chris Caplice 05:00
Number three is that when, as you are playing with these things and ignoring the hype that you read about and hear about on, on podcasts and everything, is focus on the human interface.
Humans are not leaving. We're not going anywhere. And so the question is, where do you fit? Where do we fit in the automation process? Because we've been, we've been automating things forever, right? And so the question is, are these new tools, whether it's AI, machine learning, neural nets, large language models, whatever.
Is it going to move the bar a little bit so that I can have more complex things now I can automate. Because all that this is doing is making it so I can focus on some things that are more complex. Let the robots handle the simple stuff. And we've been doing this for decades. And so that's the, the third thing.
Is find where the human interface is and how this, these things can be tools for us to augment what we do, not replace what we do. So it's not about supply chain specifically. It's about everything. But I see, I mainly focus in freight transportation. And I see this happening all the time. You don't need to make phone calls now back and forth with someone to get a truck for your load.
For certain steady state ones, you set it up and it's just automatic. And so the question what we want to look at, how can I push that line further and further so I can focus on the really interesting things that move the needle?
Lori Boyer 06:19
I love that so much. I am completely aligned with that. And so I can't wait to dive into that more. But first, one of the things that our audience really loves is getting to know you just a little bit. So we're going to come back to all of these topics, things that you think need to be front of mind and dive into them a little more. But first, I have a couple of questions I'm asking this season on the podcast.
So number one, tell us what Chris was like as a teenager or in high school.
Chris Caplice 06:47
I was a deadhead.
Lori Boyer 06:48
Okay. What does that mean?
Chris Caplice 06:51
I, I listened to the Grateful Dead. I was very enamored with the Grateful Dead in high school.
Lori Boyer 06:56
Okay, so cool.
Chris Caplice 06:58
Typical teenager in the 70s.
Lori Boyer 07:01
I love it. Did you work a job? Did you, like, you know, have?
Chris Caplice 07:07
I scooped ice cream at Friendly's.
Lori Boyer 07:09
We don't have Friendly's here.
Chris Caplice 07:11
It's a restaurant chain mainly in the Eastern part of the United States.
Lori Boyer 07:15
Okay, did you get good grades? Were you, or, or were you, you know, skipping class?
Chris Caplice 07:21
I tended to get okay grades. I didn't take high school too seriously, but I did okay. Nothing, nothing, no valedictorian.
Lori Boyer 07:31
No valedictorian. It's so fun talking with people throughout the industry. We have every type of person, you know, from people who dropped out of high school to people who were the head cheerleader to people, you know, dead heads and, and we're all still here in the, in the same industry.
So I love it. Okay. Second question, Chris, if you were going to win the lottery today. What would your life look like? How is it going to be different or the same?
Chris Caplice 07:55
It wouldn't be different. It wouldn't be different. I I love what I do. So I split my time between MIT, where I help run the center, which is an amazing center of 100 plus people, in addition to about 100 students.
We've been around for 50 years. And we do really interesting work with companies trying to push the boundaries of supply chain management. Additionally, as you said in the introduction, I'm the chief scientist at DAT Freight and Analytics, which has been around for a little over 40 years. And what they do is really innovating the data side of freight transportation. And so I, I wouldn't do anything different. I love doing what I'm doing and I would probably continue the same.
Lori Boyer 08:37
You are one lucky man. I mean, that's when you see you've hit the lottery when hitting the lottery wouldn't make a difference in your life. I mean, that's amazing, incredible. Awesome life. So, okay, great to get to know you.
Let's go ahead and dive into our topics for today then. What are the top things? So we've got in our audience, you know, a variety of logistics professionals from 3PLs to warehouses to ecommerce, carriers, you know, we have a variety of people who are listening. What do you feel like are the most important things for them to focus on in this upcoming year?
Chris Caplice 09:15
Oh boy, that's a, so, let me focus on transportation, freight transportation, because for the last 18 months we've been in a very strange situation in the U. S., domestic trucking or surface transportation. Where the spot rates, or the one off transactional rates, have, are lower than contractual rates. Usually that's not the case.
So when you have an inverted market like this, it's very soft. You have more capacity than you have demand. And usually that only lasts about six months, seven months. It's been going on for 18 months. And depending when this airs, it might still be going on. So the biggest challenge that people are asking or trying to figure out is when will the market flip?
Because anyone who's been in this industry knows that the market moves. It's not going to be steady state. That's a short sighted view. So if you go back to deregulation in 1980, for the last 40 years, it's constant cycles. And it's a business cycle. It's not perfectly aligned, but it's usually about three to four years.
And so the question is, when will the market flip? And there's two ways that it can flip and it's, does enough capacity leave the market so that there is, it's now equal or more demand come in such that it will meet what the capacity that's there. And it's an open question. And whether it'll be H2 or later. So we're trying to figure that out.
Lori Boyer 10:26
I was going to say I was reading up myself trying to figure that out. I read a couple of different experts were predicting Q2. But I, how do you recommend people take advantage of the market right now?
Chris Caplice 10:39
Well, it's a tale of two cities, right? It depends who you are and where you sit. If you look at freight transportation, You've got three main entities shippers who are moving stuff, the carriers who move it for them, right? The, the Swifts, the J.B. Hunts, the Schneiders. And then you've got brokers in the middle. And the brokers don't handle all moves, they handle what, 20, 30 percent? And those are the C.H. Robinsons, the Coyotes, the Uber Freights, all that. And so, if you're a shipper right now, this is an awesome market. Awesome. Because you're getting, your rates are finally coming down. Go back three years in the pandemic, it was a horrible time to be a shipper. The rates went up by a hundred percent.
Lori Boyer 11:15
So Chris, would you recommend in this shippers market that they lock in long term rates or that they take advantage of some of these, you know, short term great deals? It's the, there's a little bit of a debate there.
Chris Caplice 11:27
Yeah, and so you have to decide when, when is enough, right? Because if you lock in, if you lock in rates, let's say 12, in nine months ago, right, then you're, you're losing because the rates continue to drop. Right. And so it's, it's a balancing act and that's what people are trying to decide now.
We've had this before. 2019 was another soft market. And so the question that shippers are making is how, when do I lock in? When do I keep riding the market? And I'm what I'm finding out in the end, like, 4th quarter, 3rd, 3rd, 4th quarter. Of this year is that they're starting to lock in with the core carriers that they work with and then not go out to, because a lot of times shippers will go out to a wide range of carriers to try to find the lowest rate and they're starting to get away from that.
So, it's, the time to fix your roof is when it's sun is shining and the sun is shining. So they're starting to lock it in, but you're exactly right, Lori. When do you time that? And I'm seeing they're starting to do it now, but another trend that's been happening is shorter contract lengths. So maybe I can do a six month because the way the business is just so everyone's level set. For the last 30 years, people, shippers run an annual bid.
They say, here's all the business I'm gonna have next year based on their forecast and then carriers bid on it. And then the shipper does some optimization to what carriers, get what lanes, and it's totally reliant on the forecast. And so no shipper can really accurately forecast now, for 12 months from now, what the volume will be on every lane.
But that's what the bid is doing. And so what people are starting to realize is you have to embrace this uncertainty and variability. It's a fallacy. It's like Linus's blanket to hang on that you're going to have, know everything and nothing is going to change. So we're seeing shorter contract lengths, we're seeing dynamic pricing, things that make more sense knowing that the situation the markets going to change.
Lori Boyer 13:22
Okay so if you were a shipper, if you were out there, let's say you had an ecommerce business or something. Would you then, would that be your goal, hit for a six month contract? Or You know, I guess I see the allure of going longer and locking them in at a low rate in six months if the market flips. You know, are you going to have a worse contract? I guess I'm wanting to know what what would you do, Chris?
Chris Caplice 13:47
It depends who I am, right? If you're like a Walmart, a Target, you can't just ride the market. You've got too much volume out there. If I'm a smaller shipper, I'm probably using a broker anyway. If you're really small, if you're doing a couple loads a week or a day it's not worth you investing the time there.
But as you get bigger, you can't just play the market. There's too much there. And it gets to another point that most, more shippers are going to realize. Is that every lane shouldn't be procured the same way. So you've got a continuum, right? And this is something that we've done up here at research at MIT and we've reinforced it at DAT.
You've got some lanes that are high volume and balanced, which means you could keep a truck moving between three points constantly. And that goes to dedicated. Then at the other extreme, you've got some lanes that you might have one load a year. Five loads a year and it's it, don't even bother contracting it because it's so irregular. In fact, we found that 50 percent of for a shipper 50 percent of their lanes that had one load or less than six loads a year didn't even materialize the next year.
So it's it's just not even worth doing. And then you've got the stuff in the middle. And that's where you set up contracts. But what people, what shippers have done historically is they do everything that is not dedicated, set up a contract for it. Get that because it's like I've got a contract right in my back pocket knowing that it's going to fail.
And so what we're finding is segmentation and using a relationship, a transportation portfolio relationship engine to determine, okay, what lane should I go dedicated, what should go contract, what should I leave for dynamic or spot? Because shippers are loath to have spot out there planning for that strategically because that means my budget isn't certain. When in fact, it's not certain anyway.
Lori Boyer 15:30
It really isn't. I love, I heard you once say savvy shippers are using continuous procurement. Not just once a year I love that whole idea. I think that a lot of shippers it's easier for them to maybe just kind of jump in once a year, but anyway.
Chris Caplice 15:45
There's a, there's actually a great quote by a Philip Dick, the author, that's about reality because a lot of times people will do this bid and the CFO will say, okay, this is my budget. We've set all the lanes, the contract rates are there and then it fails. And so you're going to have uncertainty no matter what. And so the Philip quote, Dick quote is reality is that thing which still happens when you stop believing in it, right? It's still happening. You'll have uncertainty. So you can either plan for it or be surprised for it.
And that's what we've been arguing is that maybe you know it's going to happen, identify where it's going to happen. And put some guardrails around it ahead of time. Don't just think that if you have a contract rate that it's going to work because it won't.
Lori Boyer 16:26
It's not Linus's blanket, but I love that analogy. That's great. What about if you're a carrier, what, what, what recommendations do you have for you in this market?
Chris Caplice 16:35
Tighten up your costs. I mean, it's, it's a tough market for a carrier, right? And so there, but they're starting to, it depends on the type of carrier. And so during the pandemic, the biggest growth happened in the owner operators.
And, and this is the individual, you know, one truck, one driver that just increased dramatically. I'm going to say it doubled. I'd have to check the numbers, but it went dramatically up. And then at the other extreme, the really large carriers, plus 500 truck fleets grew about four to 5%. The ones in the middle didn't, they, it's tough.
So what I'm seeing is this market is really bifurcating. And so you're seeing the mega carriers, which have a lot of economies of scale in terms of procurement, hiring, cost of capital, all that stuff. But they don't have as much flexibility. And then the owner operators, small guys, fleets less than 10, they have, there's so much flexibility, right?
They might have higher costs, but they, they're able to fill into niches and they can survive better. I think the middle, small to medium sized fleets are the ones that are at risk. And so that's why we're seeing a lot of the smaller ones get bought. And and kind of consolidate up. I don't think the trucking industry will consolidate because you've got too many owner operators.
There's such a low barrier to entry to exit for a truck driver for an owner operator. It's, that's, that long tail is not going away.
Lori Boyer 17:51
Okay, so what about, I guess what would you recommend for them in terms of relationships? I found that this is kind of a relationship heavy industry in some ways. We were talking. I love the data. So we were talking at the very beginning about automation and data and all of that, running those numbers to cut costs. However, there's also sort of this human element. What do you recommend for carriers or whatnot? I guess, how important do you feel like those relationship building and human element is in a time when, you know, when it's not your market.
Chris Caplice 18:24
No, I, I agree 100%. This is very much a relationship business, but it's a different kind of relationship than it was when I got in this industry, which was in the 1990s. Back then the relationship was, I'm taking you out to dinner. We're going to a game. We're going to go golfing. And so it was more about what can I do for you personally?
It wasn't bribing, but it was, it was that kind of soft sale stuff. That, that's kind of gone out the window. Some of it's there, but I think if you look at the, try to buy someone from Walmart, a drink, you can't do it. So the, that the standard has changed, but it's still relationship. The relationship is as a carrier to a shipper, what can I do to help you?
And so I see that as being very helpful and that's changed dramatically. And the pandemic might've helped with this. Because if you can't physically travel there to go out to dinner or do whatever, it's a Zoom call. And on a Zoom call, you can help them or you figure out the problems, you try to figure that out.
So I see much more that there is, it is a relationship business because you need to have trust on both sides. And trust is only earned for repeated success. Right? So you have to constantly show this over and over again. So I agree 100%. Relationship business, but it's, the relationship is how can I help you solve your business problems? Does that make sense?
Lori Boyer 19:40
Yeah. Absolutely. Where in the past it used to be the perks and the, yeah, you can, you can send me a gift card. That's great. But what I really want is, you know, a better rate or I, I really want maybe some, you know, additional lanes or something. I think for shippers as well. I mean, it brings up a point to me that, you know, while this is your market right now, take advantage of those relationships and build them now so that when it flips back, as you pointed out, it will flip back. You've built a relationship with somebody and, and you've got some of that.
Chris Caplice 20:14
But you're, you're raising the idea of reciprocity. And so we know the market's going to change and it's a buyer's market, seller's market, buyer's market, seller's market. The question is. Does it matter? Is there reciprocity?
So we did a research a doctoral student of mine, Angela Acocella, and myself and Yossi Sheffi wrote a paper. And the question was it's called goldfish or elephants. And so the question is, are carriers goldfish or elephants? And a goldfish has a memory of about two seconds, elephants remember forever.
So what we tried to understand, and this was in the 2018 to 2019 cycle. So it was very tight market. And then a loose market. And we tried to understand if a shipper treated a carrier poorly in the soft market, would that carrier retaliate in the tight market? And so what do you think, Lori?
Lori Boyer 21:04
I, I, I mean my natural guess is gonna be that they're elephants.
Chris Caplice 21:09
It's, they're total goldfish. Total goldfish. And it's, and, and I think it makes sense if you think about it in terms of they, they're selling, they can't afford to not sell, you know? Right. They, they're, they're not the customer. And now we're doing a, a parallel to that are shippers, elephants or goldfish.
And my initial thought is that they're more elephant. Because they can afford to be. Right. If you're selling your trucking company and you know, let's say a large retailer doesn't treat you right, you can't just suddenly ignore them. So you're kind of forced because in this environment. But it was kind of funny and it was surprising because most carriers say, no, no, we're elephants. We remember. Yeah, the data shows differently.
Lori Boyer 21:50
Interesting. Okay. I absolutely love data that surprises me. So I'm gonna have to check out that study for sure. That's really interesting. Okay. Anything else on this? So point number one for us for sure out there, we know the market we're in right now.
We've got a shipper's market going. We know it's going to flip at some point. If you're a shipper, be taking advantage. If you're, if you're smaller, you know, play the field out there, get those six month contract. If you're a carrier, you got to be cutting costs, you know, focus on your relationships, see what kind of incentives you can offer, do what you can and just know that it's going to come around. What, what else do you think is important for our audience to pay attention to in 2024?
Chris Caplice 22:32
Well, the geopolitics is always critical right now, and we have some really interesting things going on. We saw when you Russia invaded Ukraine you know, that you saw the fuel spike and that had ramifications.
Now we see what's happening in the Middle East. And the question, will that run, run its course and change the availability of oil there as well with the Abraham Accords fall. So these things ripple. Is it empowering China? Is situation with Taiwan? So there's a lot of geopolitical things that have been quiet for the previous two decades, really.
And now we're starting to see that it's geopolitics is rearing its ugly head. So there's been a lot of move to move away from China for some of your suppliers, and that's easier said than done. A lot of people have moved operations to say Vietnam, which is awesome, but usually it's being supplied by plants in China.
Anything with batteries, you're touching China. So it's, it, I think it's, the US and other Western countries have woken up to the idea that they need to be a little more self sufficient. I don't think global trade is going away because things are moving further distant miles than they ever have, but I think we're being more strategic there.
So I, I would urge everyone to pay attention to the geopolitical things because they might affect you, maybe not immediately, but influences what, what your supply chain.
Lori Boyer 23:54
And what, what are some things that they can do right now to kind of maybe prepare, get a preparedness plan or something in, in place that if fuel prices spike or, you know, I guess, what is it that they can put into place to be prepared now while they're just keeping an eye on it so when it happens, they're not just left in, in trouble.
Chris Caplice 24:16
There's there's a science called scenario planning. It's a technique, a methodology, been around for a long time. Shell used it a lot in the 70s and they used it to protect themselves when OPEC oil crisis back in the mid 70s. But anyway, what scenario planning does, it says it the hypothesis is you can't predict the events in the future.
You just can't and you're subject to those things. However, what you can do is prepare yourself for different events. And so for scenario planning, what you do is you envision three to four worlds, the way the future can be. And we did a large study up at MIT with the Department of Transportation, trying to understand for state freight infrastructure investments for 2035, I want to say, and this was in 2010. And so we came up with four scenarios, and each of these scenarios are what you'd see for the world at that point in time. And one was, for example, was NAFTA STIC, and that was the world where there were trading blocks. Mercosur got bigger. NAFTA got bigger.
And there was more trading within the blocks, like the EU, than within the blocks. And then we had another one called technology what was it called? The moment it's a free world, so where there's no borders pretty much, but you come with these extreme solutions, right, worlds that can be and then say, okay, if this was the future, what should I be doing now to prepare?
And you come with different, very different solutions for this. And so by doing that. You're preparing the organization to be flexible, to think about how they would react. So you're not planning for a specific future, what you're doing is training them, the organization to have that capability to be flexible.
Because what we've found, and others have found, if I prepare for one kind of disaster, that makes me more prepared for another disaster. It doesn't have to be the same one. Because what you're doing is exercising the corporate muscle. To respond to something. So my, my, this is a long winded answer to get to it.
Companies need to be more flexible. To be more flexible, you have to practice being more flexible. So let me give you an example. A trucking company in the fall of 2019 decided to do some contingency planning, scenario planning, and they focused in on one type of contingency they're worried about, which was the the shooter at the workplace, someone coming in and just being off kilter. And so they said, okay, what would we do differently? They set up the communication plan. They shut up the the war room and how they would do all this. Well, six months later COVID hit. And so what they were able to do, all of those neural paths that they created, communication channels, they could just replicate now for that.
And so you don't have to train for every possible outcome. The whole idea is, understand how you would set up for these different outcomes and then you're getting the organization trained to be able to react.
Lori Boyer 27:01
Completely makes sense. It's something I've done even in you know, I am a mom. I have seven kids Chris. And one of the things that I would do when they were little is you know if I wanted to teach them something we would practice before a big deal. So, you know if our rule was if you scream and cry in the car, we're not going. You know, so let's say that my kids have been having a fit in the car.
We're driving and I say, okay, we're gonna go get ice cream, and they're screaming. Then I say, oh no ice cream. I practiced that a bunch before I say that for Disneyland. You know, because it, they just are learning from their previous experience and they can bring it over. So then hopefully we don't have to miss out on Disneyland because they're screaming and having a fit.
And I think that being able to get those kind of practice down. Get your, you're ready to go. I love that idea because we don't just have geopolitical issues. I mean, we got weather climate change problems, we've got strikes and, and so there, I love that idea of preparing for disaster, figuring out different plans. And you can do this no matter how small your company is to how big your company is. And so I think that is fantastic. I love that.
Chris Caplice 28:15
So, so another way to think about this is because there's so many possible things that can happen. You can't plan for all of them. And so the scenario planning lets you shift from predicting an event to preparing for effects.
And so what I mean by that. Is if if I'm a company and let's say you know, China imposes a high tariff, that means I probably can't import things from there. But there are many other events that can happen to have the same effect on me as a company. Could be a pandemic happens, it could be a trade war, it could be actual war.
There are many different events that trigger the same effect. And when you boil it down, there's only a handful of effects on my company. I can't source from somewhere. I can't deliver to somewhere. I can't follow a certain path. My volume might change or the value density might change. Maybe a couple more.
But if you narrow it down to effects on my organization, and so you plan for this, saying for, let's say I can't source from China, that means I need to start looking for multiple dual sourcing elsewhere. And it could be for many different reasons, but having that flexibility. So the whole idea is preparing for effects and thinking hard about what are the things that affect my organization, not the potential random events that can happen.
Lori Boyer 29:28
Yes, and I love the idea of planning for it because I think sometimes, you know, we want to put our head in the sand and just hope for the best. And, and especially it kind of is making me think back to the beginning where you talked about AI. You know, some people are scared of AI. They don't want to dive in.
They're afraid it's going to take their jobs. They're afraid it's going to, I don't know what it is. So they just pretend it's not even happening, or they just speak badly of it. Planning and preparing and getting used to it is a way of embracing. And in that, in that example, you know, with geopolitical and whatnot, it's sort of embracing chaos and embracing the fact that there's going to be problems and hiccups that come.
Chris Caplice 30:15
But there's a challenge. There's a challenge there. Yeah, it's really good point But the person who carries an umbrella on a sunny day is seen as an idiot, right? And so it's insurance and so the you might have the best plan in the world and if, which is great of something it's built for if something happens. But if nothing happens people will say why'd I spend that money?
And so it's it's a challenge. It's like insurance. And so there's always a trade off for how much do I invest in resilience, because that's what we've been talking here, versus letting it go.
Lori Boyer 30:46
And I, what I guess are, are some maybe cost effective ways to do that. There've got to be some ways that you can invest in resilience that aren't too expensive. iN order to get a little bit, maybe your umbrella's not giant. Maybe it's not covering everybody in the whole neighborhood.
Chris Caplice 31:04
But if you look at, look at resilience, there's, there's two ways you can do it, right? One, I can be flexible. So continuing the umbrella example, I, if I know there's, I can buy an umbrella along the way.
And so I know I'll pay more for it cause I'm buying it off the street, but that's flexibility. And the other is I always carry one around with me and that's redundancy. And so between flexibility and redundancy, that's how you can become more resilient. So think about any kind of supply chain. If I have more inventory, I'm redundant.
If I have dual suppliers, I'm more flexible. And so flexibility costs a little upfront, but less in the long run, redundancy has its own benefits. And so the mix of flexibility, redundancy kind of defines a resilient solution.
Lori Boyer 31:47
Oh, man. Invent, I, what you said is spot on. It made me think of the inventory challenges where we have had so many shortages and then a bunch of companies have over bought now and do have, you know, redundant supply.
And so, yeah, I mean, everything is a little bit of a game, a little bit of even going back to your first point of you know, when to lock in rates and whatnot. A lot of it's just, you've got to, to play the game and figure out how much risk do you put versus how much, you know, Linus Blanket security that you need?
So I also want to make sure we hit on AI and talk about that's, you know, what everybody has in their, in their mind right now. So what, what else should our audience pay attention to?
Chris Caplice 32:32
I would just go straight to AI. I think that's fine. If you're paying attention to, you know, what's happening in the global situation.
And you're also paying attention to the local market, the US domestic market. Those are two big things. So the next thing you can pay attention to is the changes in technology, trends that are coming in. And the biggest one is, you know, artificial intelligence, mainly through these large language models or the generative AI that it's really, it's only been a year that they really got introduced.
It's been out there for a while and there are papers and all that stuff, but it really exploded when ChatGPT was released in November of 2022.
Lori Boyer 33:09
It's my personality, but all of the AI, the ChatGPT, all of that gets me really excited. And I'm tend to be the type who wants to dive in and try it all and create my own models, do everything I can because I think that's fun. But I have some friends and family who maybe are a little more hesitant as well. What are you and, and how do you recommend our audience kind of approaches it?
Chris Caplice 33:33
So we, we have this problem in every college and academic institution has this problem now in that you have a tool that can be used to answer questions.
And there was a professor out of Wharton who did a really interesting study. He had ChatGPT take his midterm for operations management and it did okay. It got a B and it did certain things well, certain things poorly, but it's only going to get better. And so for the education side, since one of the things I do up here at MIT, I'm the director of the MicroMasters credential in supply chain management. We've been, we launched in 2015, we've had over a million people register for one of our five courses. And so we have this whole online ecosystem with you know, 196 countries represented. And if someone can just use AI to cheat, that scares the bejesus out of us.
So we've got to figure out how do I prevent it, but on the same token we have to figure out, well, how can they leverage it? You can't hide it. You can't put it under a rock. We're not Luddites, so it's a trade off. How are we trying to figure out? Because if you think back, I was of the age where I didn't have to learn on a slide rule.
That was the year before me. I, my, my, when I went into high school in 77, calculators were just showing up. But prior to that, you had slide rules. And so the question is, should we not use calculators? Because slide rules mean you really understand it. So we have to embrace it, but we have to figure out where does it make sense and where does it not make sense.
And what we've done up at MIT in our classes, we've decided two things. You've got two types of AI right now. You have things like QuillBot what's the other one that does Grammarly, Grammarly Go that help you write. So you write something and you can say, you know, it makes recommendations, not just spell check.
It's kind of like a next version. And that's great. We highly encourage that everyone does that because we're up, up at MIT. We have a lot of international students. English is not their first language, so that's really helping them be better. But then you've got generative AI. And generative AI, what we say it's, to me it's like the next step of Wikipedia.
It's a good place to start, but you never want to finish there. So I use, I use Bard. I really like Bard more than ChatGPT for some reason. That's the Google version. And so I will put something in there. If I have a top up, something I have to write about and ask for five points, 10 points, give me some ideas. And it's a good place to start.
And so it gets you thinking. So that's how I use generative AI right now, for brainstorming. And at the upfront of the process. Never should you use it for the end process, especially now, because it still hallucinates, it'll make things up. And it's just because all it's not smart. It's it doesn't understand anything. It's just doing pattern matching, but it's very clever. And so I use it to get started on things. Also, it generates, I had one, one last anecdote. I was asked. We had a we do a bunch of classes for Walmart where they come through and do online and they put over 700 people through this shorter program.
And we always have a live event at the end and I was asking them, you know, I was talking about ChatGPT and generative AI and asking for examples of what people have done. And one of the guys said what he does at home, he uses the generate bedtime stories for his kids. So you give it a, say, I want to know about dragons, go whatever, whatever, and it'll come up with a five minute story.
Lori Boyer 36:54
I love it. I know. I love it. I totally use AI as well and in exactly the same way as you. It's like a brainstorming partner. I will say things like I like this idea, but you know, it seems a little harsh and they'll come up with other ideas or suggestions. As you said, it can have a few points to start you with and then to spur on things.
But completely agree that it's end. It's not an end product yet. I have three, three of my kids are in college right now. So it is really interesting to see all their different professors grappling with it. And some, I have a daughter who's an English major. She's a senior, you know, and that's a tricky one with the writing.
And one of her professors is, I want you to use ChatGPT. I want you to explain how you've used it. I want you to talk about the processes you went through. And some who have completely just outlawed it. But I think it goes back to your first point of be curious. Because the way you and I and everyone else is learning about the limitations and and the possibilities of it is by simply getting in and trying.
By using things like doing a bedtime story or whatever you want to do with it you learn how to access it. So I absolutely loved your point of being curious about it. What you talked a little bit about, let's see what it was to ignore the hype on both sides of AI. Can you dive into that a little bit more?
Chris Caplice 38:22
Yeah, I think that's just like with anything. There's always hype on these things, and it can be more detrimental than helpful. Just after being curious, you know, you're gonna make your own decisions for this. And so the loudest voices are usually all the extremes, but try to try to winnow out the discussion.
There's more interesting discussion in the mainstream trying to figure out, okay, it's not, you know, it's not solving everything. It's not sending us to hell. You know, what is what are the more moderate voices? So I would encourage to avoid the extreme yelling on those things and focusing on, like, the Economist is a really good source because they tend to be more level headed.
I would, I would go there before I would go to the Guardian, for example. You know? So it's one of those things, try to find out what, what makes sense for you to make, to try to make up your own decisions.
Lori Boyer 39:14
And as our audience starts implementing or trying to use AI, I guess, where do you see in the future having the most impact in the supply chain and kind of logistics world?
Chris Caplice 39:26
Well, I, my first point I'd make is we have no clue. We have no clue. You know, think of the first computers, they were counting machines, right? I don't think, no one really envisioned what we're doing or this happening. So it's so far out there. You don't know what jobs are going to be created or anything like that.
But initially we're seeing it in a lot of demand planning. We're seeing models there for understanding to have different factors influence the demand signals. We're finding it in fraud detection. One of the big things in the transportation space is brokerage fraud there. And so it's been very helpful in identifying patterns, implicit patterns in behavior that trigger that it's probably fraud happening.
This, credit cards are doing this as well. So we're seeing a lot of AI there. We're seeing a lot in chatbots, smarter chatbots. You're, you're probably finding it's less frequent where you have to press one for something, press two for something. Now it's becoming more natural language, and we're going to be used to that in a little while. So I think those things are starting to come in, but the short answer is we have no clue.
Lori Boyer 40:28
And I love it. I mean, that's what makes it so exciting to me, is that it's as we're experimenting, it's as we're being curious, it's as we're finding implementations and ways to use it, that its future is being written right before us. So.
Chris Caplice 40:44
All of us of a certain age, we have history. And so we're seeing through that lens. People come after us, like look at the the pure digitals who came in after internet was, was, say after 2000, born after 2007 even when the iPhone was first put into place, they have a very different view of things because they're not tethered down to their history before. So they have a wide open way of thinking of things and they use technology different. So I I always say, and people my age will say this. Thank God there wasn't social media when I was in college, right. But I think this generation is finally learning how to deal with it. I think it was a short term, oh, my God, people are doing really stupid things. And now people are moderating it. And so it's just society has to learn. It takes time. It takes time to figure this to figure this out. There's a lot of history of innovation being incorporated into things, and it doesn't happen right away.
Lori Boyer 41:40
I love it. I, we are, we're out of time about, but I have one final question and this is totally curious for Lori because I am just a nerd.
But how have you seen teaching shift over the last 5, 10 years in the supply chain space? This is what you do. This is your, your baby, your bread and butter there. You know, what are you, are you seeing differences in the people coming into the field? Are the things that you're teaching vastly different? I'm just curious about that.
Chris Caplice 42:11
Yeah, it, it, it has, I'd say over the last 20 years, 25 years, it's changed. One thing we're seeing more women, to be honest, it's a very attractive field for women because it's not, you're not in a warehouse moving heavy things, you know, or driving trucks that's there, but there's a lot more people skills. And so what we're finding is the thing about supply chain is that it's, it's an applied science. So you have the hardcore math and those kinds of things, but you're dealing with people. So we have the phrase, you need to know the correlations, the math, but you also need to know how to work the corridors because so many most large scale projects and supply chain, if they fail, they fail because of the human element.
The wrong VP wasn't brought on board. They didn't align things. It wasn't that the math was wrong. The math is the easy part. The, the, the, the idea that soft skills are the hard skills is common here. And so what we're finding is that there's, in my opinion, more focus on those softer skills as well, with the given that the hard numbers happen, because the hard numbers are easy to get.
And you'll always have a more sophisticated forecasting method, right? So now we have students who do neural nets and do all these things that weren't even invented when I was taking these classes. But the process of incorporating that, that forecast into an organization hasn't changed. So I see that yes, the math has gotten really interesting and everything, but the hard part still is implementation, change management. That'll continue to be the challenge.
Lori Boyer 43:38
I absolutely love that's one of the reasons this industry is so challenging And also so interesting and so fun because it really encompasses everything. It's not going to be just straight math, there's soft skills, you know, there's the data.
There's the processes there's Everything in the world that's impacting it. Outside forces. And so it's just so awesome. Okay, Chris If our audience wants to follow you, if they want to learn more about you, you know, are you on LinkedIn, where, where should people be able to learn more from the brilliance of, of Chris?
Chris Caplice 44:13
I'm all over LinkedIn, and then also you can just go to MIT, just Google me, Chris Caplice at MIT, firstname.lastname@example.org.
Lori Boyer 44:21
You can probably even ask Bard.
Chris Caplice 44:24
Yeah, yeah, you can ask, I don't know if I show up in Bard, I don't know.
Lori Boyer 44:27
Thank you again everyone for being here and especially thanks to Dr. Chris Caplice. It has been incredible. 2024, we're here, we got it, and we will see you guys next time.
Chris Caplice 44:40