Supply chains, pandemics and planning - some learnings from Echo Global Logistics

Profile picture for user brianssommer By Brian Sommer July 19, 2021
Summary:
Consumers are a demanding lot. They expect instant gratification but rarely consider the effort required to plan, transport and fulfill those desires. Echo Global Logistics provided a glimpse into the supply chain and planning challenges it and its customers have dealt with this last year-and-a-half.

CHAIN

Over the past 18 months, diginomica has covered a number of firms that experienced technology, people and financial challenges as a consequence of the pandemic.

Some of those stories have focused on what was needed for Work From Home (WFH) to succeed. Some focused on how certain verticals, like hospitality, were materially affected. Some dealt with the shortcomings of existing software that companies were using. Some stories focused on the new omni-channel challenges some firms now faced. Some stories even focused on the relationship between tech vendors and customers re: support and pricing relief for those customers most impacted financially during the pandemic.

Supply chain disruptions have gotten some press and we’ve covered stories around:

  • Laptop and other shortages for new WFH users.
  • Chip shortages for automobiles and other electronic products.
  • Etc.

But recent supply chain challenges indicate that we need to take a deeper dive into this aspect of the pandemic as fluidity here is far from over.

I recently spoke with Brett Lukowicz, VP of Finance at Echo Global Logistics. We discussed a number of supply chain issues that are affecting businesses and individual consumers globally.

Echo is a 3PL that provides technology-enabled transportation management services. The company matches the transportation needs of over 35,000 clients with the available capacity of their network of 50,000+ carriers.  About 90% of transactions are truck freight deals within the US. The remainder are in Canada and Mexico with small amount of ocean and air freight. Echo has revenues of about $2.5 Billion annually.

Not surprisingly, Echo’s business has been affected by the COVID pandemic. And Echo has had a front row seat in viewing the supply chain ups and downs of late.

Timeline of supply chain challenges

Brett provided a historical view of the last 18 months or so. He highlighted some of the observations their firm noted in the changes in volume and mix of freight shipments.

In the March/April 2020 timeframe, as the reality of a prolonged lockdown set in, demand for many goods (eg; masks, disinfectants) spiked.  Echo reached out to its customers to learn what might change with each company’s book of business. Some of their customers (eg: a major entertainment firm) were being forced to cease operations and would not need logistics services.  Some Echo customers were not going to utilize the services they had previously contracted for. Other companies were going to need a lot of transportation and logistics support.

Echo saw its business bottom out at the end of April 2020 and a new mix of activity emerged in the May 2020 timeframe. Customers with e-commerce capabilities were experiencing record growth and were moving lots of product. Some sectors, like home improvement, saw a lot of growth as idled workers or new home-based workers had time to improve their homes. Record price increases for lumber are indicative of that increased activity.

Lukowicz also described another supply chain challenge: truck driver shortages. He indicated that some owner operated truckers shut down and stayed shut down. Some of these drivers chose to accept enhanced unemployment benefits and stay home. The effect of this was to constrain available trucking capacity while demand was growing again.

In just 18 months, Lukowicz has seen:

  • Fuel costs initially fall and now are rising materially. A recent ransomware attack on a fuel pipeline provider on the East Coast didn’t help matters.
  • Transaction volumes for his firm growing as much as 70% over recent lows.
  • Average truckload rates rising from around $1700 to $2200.

(We also did a call with a major port shipping executive. He corroborated the trucking shortage issue. He stated that container yards across the country are experiencing real issues getting enough trucks to take containers to customers. Ships can’t unload in a timely manner just because of this. Furthermore, ports are having difficulty getting trucks to return container chassis units to the ports.)

This forthcoming holiday season may be almost a half-year away; however, rebounding demand, product/component shortages, and supply chain challenges may make for lots of unmet holiday gift expectations.

Echo’s planning & forecasting response

Echo’s initial planning and forecasting efforts in the Spring/Summer of 2020 initially focused on staffing, headcount and expected revenues.  With regard to revenue, Echo polled a subset of its 30,000+ client base that represented close to half of its revenue.

The company quickly moved to weekly re-forecasts to better understand the fluidity of the market and its impact on operations and financials. Frequent recasting of plans/forecasts helped it survive and keep investors/Wall Street happy.

The company also stretched its planning software, Anaplan, to do more than just financial planning. For example, the software was used to model potential furloughs. The forecasts also got a lot of tweaking as the company incorporated external and internal data in its processes and plans. Lukowicz indicated that while the plans might seem ‘pretty simple’ they’ve got to be very accurate.

Echo learned some things during this situation. It found out that some of its workforce was not in an ideal environment to do WFH (work from home). Many employees lived in small apartments or condominiums – places where space is at a premium and where it’s hard to work if the residence is also used for home schooling children or caring for elder residents.

The fact that its Planning & Forecasting tool is a multi-tenant cloud application allowed employees to complete, comment, collaborate and review plans anywhere an internet connection existed and made the construction of these plans quite timely.

Today, Lukowicz says Echo is using machine learning technology to examine individual customer deals to help sales reps price contracts. According to an Echo spokesperson:

Echo has really served as a steady and critical partner for companies managing everything from a panic-buying induced freight bubble, to shipping declines and disruptions, to holiday capacity and freight nightmares, and a lot of that is due to the work Brett’s team has done over the past year to mitigate financial risk and keep Echo agile and responsive.

The Echo technology environment

As mentioned previously, Echo uses Anaplan for its planning/forecasting processes.  The Anaplan software currently integrates with a Microsoft Great Plains General Ledger and a number of spreadsheets. The company is now transitioning its financial and HCM solutions to Workday.

Echo also uses Tableau for graphical representation of some of this data.

My take

Supply chain disruptions and dislocations as a result of the pandemic are NOT over. As one part of the economy starts to recover, pent-up demand and thread-bare inventories will continue plague companies’ plans to fully restart.

In the preparation of this piece, the problems at US ports, trucking firms and manufacturers were apparent, common and troubling. Whether your firm is intimately or only tangentially connected to these supply chain concerns, you are, nonetheless, being impacted.

Better planning data and tools remain the order of the day and more frequent planning cycles may be with us for the foreseeable future. Likewise, the role of external data as part of the planning process will continue to grow in importance especially if firms want to understand what is going on across the entirety of the value chain: from the fields, to the plants, to the end-consumers and all those touch points in-between.