May 20, 2020
In this episode, we sit down with Ken Braunbach, VP of Transportation at Walmart to talk about retail, eCommerce transportation, and logistics as well as growth opportunities for the future.
Below is a transcription of the interview:
Santosh Sankar 0:41
Hey ladies and gents Welcome Back to the Future supply chain podcast. I'm your host Santosh Shankar. And joining me today is Ken Braunbach, VP transportation at Walmart. Welcome Ken.
Ken Braunbach 0:51
Thank you. Thank you for having me.
Santosh Sankar 0:54
Absolutely. Ken, you are one of our guests that does not need to introduce the firm you work with. Walmart is certainly a household name. So we'll jump right in. What is the Ken Braunbach story? How did you get into the wonderful world of freight?
Ken Braunbach 1:11
That's a good question. It wasn't my career objective. I had a grandfather that was a plumber and I would work with him periodically and he would say you're going to do a lot of things in life but you're not going to be a plumber. So he thought that the world of finance would be more inclined for my career path and I went to Syracuse University majored in finance and really enjoyed New York City to visit, but I realized I didn't want to live there and I didn't want to necessarily work in finance after visiting a few friends in the industry. So I picked up a second major in supply chain and logistics. I worked briefly for UPS, loading trucks one year, and also had an internship with the Postal Service. So really got introduced to the front lines, if you will, of the supply chain industry and then went to work with a couple trucking companies before Walmart. And I've enjoyed it. It's been very dynamic and interesting industry and career so far.
Santosh Sankar 2:17
Certainly, and we'll jump into that. For our listeners, everybody knows Walmart, what Walmart does, what they might not be as aware of is, we have somebody here who has three decades of experience around transportation, and along with your team and your drivers, you're responsible for getting the majority of Americans what they want or need. Would you be able to give a sense of shape, size, and scale of the organization that you help lead?
Ken Braunbach 2:49
Sure. So we have a supply chain organization, embedded in a very large retail organization. We have an interesting opportunity to watch all of the moving parts, if you will, of those volumes in the merchandise in and out through the supply chain through the store network and the size of our fleet. We have over 9,500 drivers that support distribution centers to stores and clubs, and they do that incredibly well. And then we also have a team that moves literally over $3 billion worth of spend. It's cost efficient spend in all different modes so parcel, LTL, truckload, railroad, ocean carriage, and throughout North America and actually throughout the world, they have oversight for the global logistics team. So a great, great organization, centralized in Arkansas, the corporate headquarters and we move about 40,000 loads a week inbound to our distribution centers. Over 180 distribution centers and then our fleet combined with some third party carriers deliver over 180,000 deliveries to our stores and clubs each week. So a lot of volume. A lot of a lot of work goes into it. It's been an evolution over the last 25 years that we've had our fleet and drivers, they just do an incredible job for us.
Santosh Sankar 4:22
Yeah, yeah. Well, that's, that's kind of unprecedented volume scale. With that, you know, we've kind of been in uncharted territory for the last couple months. I'd be curious, what's your personal take on the current state of transportation broadly put?
Ken Braunbach 4:42
It's been very cyclical over the last two months. We've had a complete cycle, three four year cycle in two months. We had a lot of volume, a lot of compression, and a deficit of capacity and then over the last three weeks we've seen that really loosen up and a lot of carriers with flexibility. And it's been a challenge. You know, it's, it's something, we didn't apply on to this, we reacted to it. Well, our carrier partners did a great job. Unbelievably impressed and grateful for the work that they did over the last two months supporting customers in our store operations to get the merchandise to them. And right now we're kind of in a recovery mode, we've really had a lot of a lot of volume pressure on the stores and clubs. And you know, there's some manufacturing issues, it's been in the press with production and whether it's in the food supply chain, and others that we're seeing some pockets where we don't have the merchandise produced that we need to get and another so we have some pretty fluid supply chain lanes in place with us. So right now it's really each week seems to be little But different than the last one and continue to monitor it and adjust as needed
Santosh Sankar 6:05
As the VP of Transportation how have priorities changed or maybe not changed from the start of the year till today?
Ken Braunbach 6:14
Well we have a traditional plan I would call it coming into the year and in mid February we started see some pressure. Obviously when China erupted with COVID, their supply chain was disrupted. So we had import merchandise that was delayed getting to the United States. And we had to figure out ways to get the most critical through airfreight or other measures...private charters, etc. But really, when it kind of came to the United States and scale with the COVID breakout. The merchandise that was critical to our customers began to change. So obviously, hand sanitizers and disinfectants and paper products really became central to a lot of our customers to purchase and some in bulk. And we put pressure on the supply chain so we had to adjust. They had to speed up certain areas of the supply chain and certainly merchandise and we did. So it just took us a few weeks to get it stabilized. But then when the customer started shopping the stores a little bit differently as people began to work from home and have to homeschool. It really changed the merchandise. People were buying crafts and home office supplies and then it shifted into electronics and then it came back to replenish their perishables. So it's really been an unprecedented month and a half - two months experience just trying to adjust the supply chain to the customers changing buying habits.
Santosh Sankar 7:58
Sure, sure. When we talk about the transportation providers, are you seeing any type of specific pressure from these firms to these individuals, oftentimes, in terms of, the mom and pop trucking firm up through, you know, a more major fleet?
Ken Braunbach 8:15
We haven't seen anything dramatic initially when the breakout took place. Some drivers didn't have personal protective gear. So we were trying to support where we could at our distribution centers and providing mass and things of that nature. But and then there was some absenteeism. Obviously, drivers wanted to go home and take care of their families, in some cases, and then there was areas of the country that because of the outbreak, drivers didn't want to go, which is understandable. And so that was probably the biggest impact that we saw for about three weeks to a month and that's pretty stabilized at this point. The absenteeism i think is recovered and drivers got back to work, they want to work with, you know, one thing I've heard privately, with the amount of auto traffic off the roads, the drivers are really productive. So we're getting more and their hours of service that were extended by the government. So if many cases they can make more money and are more productive during this time than before. So, you know, it's not a cost the networks but I think there's definitely carriers that have benefited from this driver specifically.
Santosh Sankar 9:30
Sure. Sure. That's a really good point. And, you know, we've seen rates trend down, volume is down, is there a bottom to the market anytime soon? What is your perspective around kind of the fundamentals of freight itself?
Ken Braunbach 9:47
The spot market is not in a good place from a carrier perspective. Yeah, but most of the majority of our phase moves on contract rates and we don't break our contracts to two sides. For some type of national disaster, we continue to honor the rates that we have in place and tender to the same carrier. So, you know, there's other folks that I know have taken advantage of the market and payment terms and things of that. But we don't do that. We look at our carriers as partners for the long haul. And, we want to make sure that we're treating everybody fairly because they're taking care of us. So we want to make sure that we're doing something.
Santosh Sankar 10:29
That's right. That's right. That's a really good point. Shifting gears a little bit thinking about the practical logistics of retail in and of itself. People in our audience may not fully appreciate really the difference between eComm and brick and mortar and how that might translate or differ when discussing transportation. Would you be able to give us the quick primer?
Ken Braunbach 10:56
Sure, sure. I spent about five years running our eCommerce transportation team. And they're radically different from supply chain speed, the assortment that you have in inventory. And the biggest thing when I try to explain it to our internal associates, its eCommerce customers have already purchased, they've already transacted with us and we are now promising to deliver the merchandise. So there's a speed component, and there's a precision component that's really, really important. And it's a visibility component where they need to understand where it is getting to their front door. The brick and mortar is important, but we buy more in bulk and we have 120,000 SKUs and then in a store, in any commerce facility, you may have a million. So you have less quantity in an eComm building, more in brick and mortar so you were punished differently. You sell differently to the customer and what's still important regardless is in stocks or in stock from an eCommerce customer, they go online and they see an out of stock. And it's an inconvenience to a brick and mortar customer that's actually committed to buying something or by driving there and they're going to reach on the shelves. And it's not there. That's a whole different level of disappointment. So in-stock is important, it's important for both but the speed, the precision, the sword medic, those are the key differentials between those two retail units.
Santosh Sankar 12:32
Yep, yep. As we've seen consumer behavior shift, where more families have been opting for the eComm channel even for things like groceries that traditionally have been done in store hasn't been handled just as an industry-wide because it's not easy to make these types of changes in the system.
Ken Braunbach 12:56
We went down the journey of extending our pick up with our brick and mortar locations through a digital transaction. So they buy it digitally, they pick it up physically. And that has gone very well. And with the COVID crisis, it expanded even more. But there's still the requirement to deliver to customers from our store outlets and, and we, we launched quick delivery options over the over the last year. And now we have plans to launch our deliveries at over 1000 locations within the within the next few months. So fortunately, for us, we were already in the planning process and in early stages of deployment, and now it just caused us to have to accelerate to meet the customer demands.
Santosh Sankar 13:51
Sure. I'll speak for my family but we are huge users of the grocery pickup. It's embedded into our weekly routine. So I couldn't think of higher praise than that. Shifting gears, I was chatting with one of our portfolio companies and we're talking about how we've observed shippers reevaluating their distribution networks and inventory placement. How does somebody with the transportation background and a transportation lens think through that? Because it's very much multidisciplinary, it's not just the warehousing team, you also need to have the transportation folks at the table.
Ken Braunbach 14:38
We've been a stakeholder in the planning process along the most expensive mile is the last mile of delivery, regardless of whether it's from a store or from an eCommerce fulfillment center. And the inventory distribution needs to be mirrored so that we're not shipping long distances because of a country customers selection in our in our inventory is off in placement. So that's always been constant strategy to get the inventory mirrored, and location placement is close to the customer as possible. With our store for footprint, we have the ability to be very close to the majority of the US population and utilizing our stores as for deployed inventory, so that we can get to the customer within an hour or a few hours in some cases, is really our key strategy. And the so we've really focused on that. We've improved that over the last few years, and we'll continue to develop that going forward.
Santosh Sankar 15:44
Those stores are certainly one of the crown jewels in the broader supply chain you have there. I'd be curious. Over the last five, six years we've seen a spurt of attention in terms of entrepreneurs building technology products, technology businesses centered around various parts of the supply chain. What are your thoughts on digital freight brokers, you've seen a ton of them pop up, the jury's still out on their existing business models. I'd be curious kind of what your take us from your vantage point as a shipper.
Ken Braunbach 16:21
We've had a lot of conversations with different digital brokers, we do business with the traditional brokers and they do a very good job for us. You know, when I look at it, I don't see this, this incredible disruption that was anticipated by AI investing, you know, they're heavily funded by the venture capital groups and heavily focused on technology versus hiring people to do the work, if you will. But we haven't seen this transformational disruption to what a traditional versus a digital can do. And it just comes down to capabilities. Can you actually deliver what you said with the right price with the right service? Because that's at the end of the day, all that matters. And how you do it doesn't necessarily make that big a difference to shippers.
Santosh Sankar 17:15
Yeah, jury's still out then at the end of the day, in the same vein, so we've seen, you know, very concerted efforts around autonomy and the practical conveyance of goods. And one of our portfolio companies Gatik has the privilege of working with Walmart and the grocery team, but kind of away from the middle mile as they would call it. We've seen a lot of attention on over the road practical semi trucks that are automated. What's your opinion on that? Is that going to happen anytime soon?
Ken Braunbach 17:51
My personal opinion is I have a friend that's a pilot in airplanes had been able to take off and land autonomously for over 20 years, and we still have pilots in the planes. I suspect it may look something more like that for a longer period of time where you have an attended vehicle, but there are some autonomy aspects to it where the driver may get to drive longer if they're disengaged from the direct drive and similar to a pilot when it's on autopilot. So, you know, in the long haul, maybe in the western United States where there's more remote driving then, you know, Manhattan or in San Francisco. I think that's a potential play. But there's still a lot of regulation in different municipalities that need to prove that this is gonna work before they allow it to happen on their streets.
Santosh Sankar 18:54
Yeah, no, I think I think it's a very fair assessment and frankly, also I think having that type of driver assistance, robust driver assistance might make driving perhaps more enjoyable, where you start to reverse the trend of people not wanting to take that up as an occupation. And if anything, you, you get to benefit from some of the coolest cutting edge technology. But time will tell. You made a comment earlier about how you heavily focus on contracted lanes. You view that as very important core. What are your thoughts on the future where these contracts are practically enforceable, where they're, you know, locked into a contract, there's more kind of clarity around service quality, and practically for both sides that the shipper obviously gets kind of some assurance around cost capability, but equally carriers can benefit as well. Is that a future you see? Or do you still see you know, over the next decade or so more of a handshake agreement to exist.
Ken Braunbach 20:05
From my carrier days, I remember it being ingrained that we don't guarantee service right? That was always the line we would go to when there was heavy pressure on a certain issue. I did work for a carrier that delivered to the auto business and it did have punitive penalties if you did not deliver the service. So it just depends I think on scale and, and really the sensitivity to the freight. So I look at our pharmaceutical business where that's critically important to get it to the stores on time specifically. So, customers, have the right prescriptions to pick up when they need them. So I look at that and more time-sensitive, and an eCommerce delivery there. It's already been paid for and look promising to deliver the merchandise. If you think about it. staple stocks have merchandise that is going into a warehouse in the area of three weeks of reserves. You know, service is able states carriers need to have high levels of service. That's what we pay them for. And we measure and monitor that. But from an enforceable standpoint, I think it gets into the criticality and the time sensitivity of the merchandise and the scale. If you don't have any leverage as a shipper, you're not going to be able to enforce some type of penalty in your contracts, in my opinion.
Santosh Sankar 21:31
Sure, sure. So kind of the takeaway is, you know, understanding the dynamics between both sides, but equally, different types of freight will have very different dynamics in terms of a enforceable contract.
Ken Braunbach 21:47
Santosh Sankar 21:48
So with that, Ken, I think we've had a great conversation. I want to wrap up with this kind of very general question. Where's their opportunity that founders dreamers should be looking at thinking about in terms of transportation as they look ahead into the future?
Ken Braunbach 22:10
You know, there's been a lot of innovation and technology and different types of service providers. But one area that's underserved in my opinion, if you think about the shift to eCommerce, digital sales is the return and repackaging networks for service providers. If you think about apparel that is bought online, there's a large percentage that's returned and how do you sanitize, repack, and resell it or get it to a retailer? That's a completely underserved area in the entire returns and reverse networks and resell of merchandise that customers returned. Whether it's through our stores or to through the commerce channel, so If I was a just getting into the industry and had some, some funding, that is a great area that many retailers and other folks would take advantage of from the service providers.
Santosh Sankar 23:14
Sure. It's funny you say that we were talking about those points earlier in the week internally. So for all of our founder and entrepreneurial listeners, you have a gem there. But with that can appreciate you taking the time here, sharing your story, sharing your perspective, and I wish you best of luck. Cheers.
Ken Braunbach 23:36
Thank you very much.
Transcribed by Otter