 Hey folks, welcome to the podcast. So we're doing a special series of podcasts which I'm recording over Google Hangouts. So we're doing audio and video because for some unknown reason people don't want to come see me face to face right now. But there's always opportunity and the cool thing is I'm able to now podcast with people from all over the world. So we're going to get an amazing, eclectic mix of people from different industries, different perspectives to share their story and tell us their thoughts and feelings on what's going on right now and all of that cool stuff. Hope you enjoy it. Please subscribe in all the usual places and enjoy. Great and we're live. Really, really great to be joined by Wolfgang Lehmacher. Thank you so much for joining me and for those that don't know Wolfgang, Wolfgang is an expert in global supply chain and he kindly agreed to come and give me a good lesson on what's been going on in the world from COVID and everything's supply chain. So Wolfgang, thank you so much and welcome to the show. Thank you, Lewis. Great to be here. And you. So just tell everyone, so where are you based at the moment? I'm in Hong Kong at this point and I think it's a good place to be. We didn't have a true full lockdown. There were 1200 people infected in Hong Kong and six deaths so far and life has been going on. Great, great. And how's it at the moment? So cases have completely died down, stopped. So what's the scenario? As far as I know, I'm not even closely following it but there haven't been new cases for a while. There are people coming in so there are flights arriving and from time to time you have cases and I believe Hong Kong is dealing well with this. The people are very self-disciplined, everybody wears masks, there is sanitizing opportunity all across the city, restaurants and banks do temperature checks. So it's quite a relatively smooth situation. Great. It felt like Hong Kong and Asia more generally has dealt with it a lot better than Europe. I'm in London and culturally here we don't wear masks. So it feels like it's been a bit of a struggle to get people to wear them and now you have to wear them on public transport. That's the key thing. And the track and trace apps haven't taken off here either. No one wants to be traced here and again I think the cultural differences have maybe the Asians dealt with it much better. It's been interesting. Yeah, it should work in the UK. The Asians see the wearing of masks as a way of protecting others but also as a gesture of politeness. Yes, absolutely, absolutely. So how have you seen just kind of on the global supply chain? I think on the face of it, certainly to start with people thought there'd be major supply issues and here in London you walked around the supermarkets just as the lockdown happened and there was no toilet paper, everyone was panic buying and there was a period here of maybe a month where people were just going crazy. What's actually been like? What is the current state of the global supply chain? Despite all the hurdles put in the way of supply chain professionals, I think they managed the situation very well. It is very hard to deal with peaks and we see peaks in the area of personal protection equipment. We see peaks caused by panic buying as you mentioned it. We saw sudden border closings and controls that caused mile long traffic jams and that causes a risk for supply but in general supply chains are pretty robust. Supply chain professionals are problem solvers and even without technology they are able to keep things going for a while. Although with technology it's much easier but at that point the concerns are much less on the supply side. They are on the demand side of things and it started all as a parallel as a simultaneous supply and demand shock. Let's remember that early on in the crisis Microsoft warned that their supply could be affected because they are putting software in China on their computers but at the same time Starbucks warned that they had to close 50% of their stores in China. From the beginning it was demand and supply which had been affected. We have also to know that it fell into the Chinese New Year. Before Chinese New Year usually companies start to increase their inventories and build our buffer stocks. Then we have that delayed supply after the Chinese New Year so we had a very nice buffer and that prevented that we had in fact a lot of disruptions in Europe or the US. The disruption were very different when the production arrived which was not able to be cancelled. For example clothes in Europe after the Chinese New Year the shops were closed and then the disruption was coming in form of shortages of warehouse space to store all the goods could not be sold. Interesting yeah it's funny when we got locked down you kind of you took a step back and you looked at it and I had you know food delivery delivered to my door and we have a Cato here Tesco Sainsbury's they were delivering. The slots took a bit of time to get sometimes but even like the local supermarkets and all the shops were fully stocked. I ordered a new computer during lockdown because my old one broke which was really bad timing and it came from China and it came to me within a week and it tracked it said from the factory to Hong Kong to southern England on the lorry to my house and I thought that was amazing you know in the peak of the pandemic my computer made it within a week to my house which I thought was great so I think the reality for me was very different to what I was reading in the papers and all of the panic that was made up. Yeah I can only agree that I had the same impression that there was a lot of hype and also a lot of unjustified anxiety although we have also to admit that this is a moment of human tragedy and it is emotionally difficult to to go through so it's natural that fears build up but I believe that supply is secured and what is good to hear about the computer is that that also worked because for example the commercial flight cancellations have taken 40 percent of capacity out of the cargo market and to get the computer from China to the UK you need air freight so but still in those days the transport was was conducted without problem. Yeah no no it was great so what's the state now then is it is it really back to normal now? I think it's not back to normal and I'm saying this because my view is that the supply chain is the economy and the economy is a supply chain and we know that the economy is suffering we know that a lot of sectors struggle on the demand side when we think about automotive and closest and furniture etc although also on the other side there are sectors which are booming like medical equipment and grocery stores online delivery services so we are living in a in a time which has a lot of unusual let's say unusual effects or suffering from unusual effects what has in fact started in China with a lockdown moved on to a in fact failed containment and a ripple effect and where we are now I see this then the third phase we have this hesitant reopening the concerns about a second wave and that makes it very hard and the biggest challenge for companies today is the uncertainty. Yeah absolutely have also be found kind of that people have been an issue as well so so in terms of being able to staff warehouses to get enough staff in the social distancing as do you see matters being an issue as well? We have clearly the need for more resources in the area where we see peaks that means that the amazons of this world had to recruit more people and this is always an effort the same with delivery companies I've just spoken with the company in Korea and they saw an explosion of e-commerce volumes and they need to be handled so yeah there are challenges and then we had at the very early stage of the pandemic also the situation that people didn't want to go to work because they felt that they could get infected so that was another challenge we had also the situation in China that people couldn't come to work because they were locked down so not entire China was locked down but the Hubei province is home to many migrant workers so that was the challenge we also saw shortages of workers due to border restrictions along the belt and road some projects were delayed because the workers couldn't come back after the Chinese New Year holidays in the factories we see also constraints because we need the as you mentioned physical distancing that means we can have not the same amount of people working at the same time so we have to work in in more shifts or find other ways or accept that we operate at a lower productivity and that is also the case I would estimate that the physical distancing could cost 25 percent of productivity but at the same time I spoke about the demand shock and there are things fall nicely into place that some don't mind to have a productivity shortcoming because they have also a revenue shortfall but that stuff gives an idea about the overall situation of the workforce and what we went through and are still going through yeah so it's interesting so so overall it's the global supply chain has coped well there's been challenges what if you maybe we look back a little bit and we think about how it's been affected what what have been the major effects do you think on the global supply chain is there anything that that they're now that they've learned and that's really changing I guess technology has been has been quite interesting as well yeah what do you think that the effects have been if we go to the markets can be extremely volatile we knew that before we know about Thanksgiving and we know about Christmas but we haven't seen something like the COVID-19 crisis before so the volatility is a learning which we have to factor into our our practices and also our tools because some tools you spoke about digitization will not be able to deal with such volatility so they failed us and luckily we have experienced supply chain professionals that can fill in and ensure the supply of goods so that's that's one area the other area of impact is the uncertainty or caused by the uncertainty and this leads to the fact that we need to shorten our planning cycles because we don't have visibility over 13 weeks hence we have to plan one week two weeks three weeks four weeks and this is a another first impact and second necessity which comes out of the crisis then it became also clear that those who had shipment monitoring asset tracking in place were better off than those that had not such tools also the 24-7 monitoring of the supply chain ecosystem that means the weather situation the border closings the situation around critical infrastructure etc those who had the data and the analytics around it were better equipped then there is the whole area around remote operating so remote operating for us first triggers the idea of working from home and that's true and it was amazing to see how many people can work from home but also there is a for example remote inventory management that some companies had set themselves up to do the goods count without any human interference and that of course helped here and and this drives my last point I want to mention which is automation the more automated companies are better off but I also would like to remind us that 300 million people work in factories and they work in factories because a lot of things cannot be robotized true that's very true we've we've had a lot here the government have been criticized a lot for the lack of PPE equipment so the protective equipment what have you seen from a I guess a global perspective was there was there really a shortage I guess we never predicted this pandemic so stuff that wasn't made quick enough or was it there and not not able to get to the right places what's kind of underlying all of this there are multiple angles to this topic first I think that this topic is highly emotional because it goes straight to our our fears and and our concerns and it is also a political topic and this is independent from what the real situation is or is not I think there is an exaggeration of the problem clearly we see a hype and we see an enormous surge in needs for PPE yeah on the other hand I believe that first if we had more transparency and more collaboration across the globe and if we had started in January February collectively as a global community to deal with the situation and think about it and put the experts teams teams together the outcome would have been very different I also would like to refer to a many let's say suggestions in this field the suggestion to have buffer stocks the suggestion to bring factories back home I think these are not the full solutions and I can explain that how many buffer stocks do we want to have and what what goods do we want to stock for which problem disruption we are preparing and this comes with high cost I think it's part of the part of the solution so we could think and we'll definitely review our our emergency stock policies but then when it comes to the relocation discussion do we really think that we want or that it is feasible that countries from New Zealand to Nepal from Malawi to Iceland from Canada to let's say Uruguay all have their own capacity of all essential goods and then deep a lot of free capacity to deal with the peak situation which is maybe a 10x demand compared to a normal situation I think that also sounds not as if it were a great solution I believe it is about as I said at the beginning global coordination it is about transparency in the supply so where are the factories I think there we have also learning that we have not enough knowledge about the global supply sources and the two enabler to overcome what what some think was a big challenge is more flexibility is the flexibility to refurbish production lines and we have seen that we have seen in many places that factories that produce shoes can also produce medical equipment right yeah and absolutely and then to deal with the surge in demand this is about fast upscaling so how can I upscale capacity within days yeah there's some also some fabulous stories I did a podcast with a lady called Dr Sophie Cox from University of Birmingham and her team they gave 3d printers to all of the all of their all of the research team when they went home and they designed and the 3d printing the the masks for the nhs and they gave it to their local hospitals fantastic story of local local manufacturing local supply and often gets overlooked you rarely hear those those those great stories and and certainly here in the UK people really pulled together and I thought that was fantastic some really good things going on what do you think now I can only um let's say underline this that uh unfortunately we talk too much about the issues and the challenges we face and not enough about the great things that happening the creativity of the people the initiative and the solidarity which was brought about by the whole situation definitely definitely because we hear a lot about people you know they're at home they're locked down they don't want to get out but when you walk around these cities who are the people out working you know it's the delivery drivers it's the healthcare workers you know these people really holding the countries together and you know they're celebrated but they should be celebrated more and we should hear I wish we'd hear more about these stories because you know we we know that that negative news sales papers so unfortunately most of it's negative but there's so many great stories around that we should be we should be listening to yeah and if we talk about people we also need to think about all the train drivers the pilots the delivery people as you mentioned or also about the 200 000 seafarers which cannot go home because we are missing a global standard for essential workforce and we have 200 000 people sitting at home cannot go to work to replace them now these are the the macro learnings we have to take in and work on yes yes absolutely what you mentioned to talk about China and certainly stories about the over reliance on China for raw materials and finished products what what are you seeing are you seeing are you seeing people wanting to try and reduce their reliance on China how are you seeing that develop there is clearly a reliance on China there is the McKinsey global institute institute China world exposure index and this shows that the exposure that China has to the world peaked in 2007 and declined from from there on but that the exposure the world has in respect to China has increased the reason behind that is the very attractive value proposition of China is the capability of China I spoke about the rapid scaling up if we look into where masks coming coming from today a lot are coming from China because they ramped up very quickly their capacity the the reason why China became so heavy such a heavy weight in the world economy is also the size of its market we have to see that China has probably 30 percent of the automotive market luxury spirits etc so it is a market it's not a factory we speak very often about China as the factory of the world and that's true but it is also the biggest market in many segments so if you want to serve that market you need to be there and then come the all the constraints around manufacturing that you have specialization if we take computer notebooks the the core is the LCD the LCD is produced the screen is is produced in a very few factories in the world so we cannot just distribute it and and summer in China if we take the hard disk hard disk are produced by two manufacturers in the world and they have factories in China Malaysia and Thailand so it is very hard to decompose the the supply chain even if you want it so we have a world where there are a number of manufacturing hubs one is China there is and there are smaller ones like Vietnam Thailand Malaysia and Germany of course Japan US Mexico and these hubs have their competence China is the center for mass production as I mentioned Thailand is known for hard disk we learned that the hard way during the the Thailand flooding and it it will be very difficult to build up new and change also even the shape of these clusters when I think about Germany Germany has a very strong capability in automotive it has a very strong capability in machinery but Germany lost its position in electronics to the Japanese a long time ago and it's very hard and Germany has never succeeded to to grab some supply chains in in other areas so that that's the reality we are we are seeing so how is the way forward I think that because of I think the geopolitical landscape there will be companies building the additional capacity in other than China they will go to Southeast Asia Eastern Europe Mexico as I mentioned and and this is not by chance that what all these areas are close to the biggest market right or part of the biggest market there will be a bit into Turkey which is also close to Europe maybe North Africa so it's the China plus approach and this is also what the the companies or the associations say if if you look at the developments in Japan Japan offered companies that move out of China sport but they made clear statements leaving China no thanks right and what about is it is there a price issue as well here China China used to be used to be cheaper the cheapest let's say to to manufacture and has that changed now that has changed a while ago the rise of for example of the electronics cluster in Vietnam came with Samsung Samsung Samsung about 10 years ago a bit less than 10 years ago started moving production into Vietnam and out of China and this because labor costs were rising in China and this is now almost 10 years back so you can imagine that the situation is is even more different today and this is also in line with the reforms which are on the way in China China is moving up the value chain and we have heard that a lot and China has deliberately with its labor cost policy that means by giving very high wage increases to their workforce with this they have deliberately pushed out lower end manufacturing into Southeast Asia into Cambodia into or into Bangladesh so it is a natural process and that also will change the way China is positioned in the world and it also indicates what the real reason for the US China rivalry is because the battlefield has moved up the value chain it's not a trade battle it's a technology battle and it's a battle in the cloud yeah yeah because I guess when we talk supply chains we're not just talking physical goods anymore if I want to buy my microsoft office it's it's a digital product are you seeing now you know it's more and more digitalization more and more people are buying stuff online digital stuff have you seen that accelerate that's exactly what I meant when I said the battle is kind of moving into the cloud right okay we see we see a few trends in globalization over the last 10 15 years and one trend is that the goods value chains get less labor intense meaning although production is moving out and the output is moving up not moving out moving up we see less of the goods crossing the border then we see also that supply chains are more regionally concentrated so it's the Asian supply chain it's the European supply chain it's a North American supply chain and by the way it's not a change chain it's a network and it becomes Leo when I talk about the platforms because you have one tier one tier n supplier who gets supplied or materials from several sources he supplies then other suppliers they supply to other factories everything is connected it is variable to a certain extent so we are talking about networks but right there another another trend so the first trend that I said is less trade intensive the second trend is more regional concentrated the third is what I spoke about before that only less today less than 20 percent of the supply chains are driven by labor cost arbitrage so the whole labor argument which we hear in the press all the time is in fact not there anymore or to a much lesser extent but the fourth trend I wanted to come to is that the trade of services is growing 60 faster than the trade of goods and in some sectors it can be 100% 200% 300% faster and national statistics attribute 23% of trade to services trade and if we add to this the free services the services we use now every day zoom facebook linked in twitter etc instagram we reach a number slightly above 50 percent which means that the new phase of globalization is in fact digitization and when we look at china and the US and compare this the US is far ahead of china in services trade but china is catching up and that's one of the areas where the competition takes place now very interesting we've I guess that my last question which is interesting to discuss and we've touched on probably a lot of the aspects of the answer anyway but how do you think global supply chains will look like post covid once all said and done have you found that the trends we've discussed have accelerated quicker because of covid what do you what do you think we're going to see I'm saying regularly now that what I have seen in the last five months I expected to see in the next five years and this in terms of adaptation in the in respect to digital products and services it's absolutely right what you're saying lewis we see an acceleration of the pre-covid-19 trends we see probably a bit more faster regionalization of supply chains although there will always be intercontinental traffic as long as people love certain products and as long as not each country has all the resources it needs we will see probably a major a major boost of digital services and in the supply chain we will see more monitoring more remote management of inventories more remote lane or quick lane validation so the whole management of supply chain will be done in a digital way the days are long gone where where the physical good is the center of the supply chain it's now the data the information it's still a relationship-based business but we will see much more digital tools applied I hope that we will see a bit more coordination and a bit more help from the global political institutional community I mentioned the tragedy around the seafarers they are in fact imprisoned in their in their current contract and cannot get out and should go home we also need to rethink our approach to critical infrastructure I think every country over the last 10 20 years has identified critical infrastructure but we need to find out and define how do we deal with critical infrastructure in the situation of a major pandemic yes definitely thank you so much Wolfgang I really appreciate you sharing your your thoughts with us very interesting times ahead a lot of interesting times have just just passed and it's crazy to think that there's still six months left of 2020 as well and so who knows what's going to happen next but yeah thank you very much for joining me and look forward to speaking to you again Lewis thank you very much it has been a great pleasure and it's such an important topic and we have to remain on our toes because as as you're saying we don't know what what the future holds very true thank you so much speak to you soon