The term “supply chain” can be defined simply, but its complexities bring advantages and vulnerabilities the world over. In this edition of the Tough Things First podcast, Ray Zinn explains why interruptions have such massive ramifications whether a subtle change or a gigantic disruption.
Rob Artigo: You’re listening to the Tough Things First podcast. I’m your guest host, Rob Artigo. Here once again with this great opportunity to sit here and talk with Ray Zinn, with an unmatched level of experience in building business and managing successful profitable organizations in Silicon Valley. It’s great to be back, Ray.
Ray Zinn: Thanks, Rob. It’s always good to have you on because you’re so cheerful.
Rob Artigo: Well, this is a simple concept. I think this podcast is about a big complicated topic, but this is a simple concept. A supply chain is a focus on the core activities within an organization required to convert raw materials or component parts to a finished product or service. Now, another way of looking at that in a bigger picture, right? Is the supply chain is the activities required by the organization to deliver the goods or services to the consumer. And if something goes awry there, it can quickly go off the rails and end up costing the consumer a lot more. So it’s not so simple. Is it Ray?
Ray Zinn: No. I mean, the supply chain is more than just manufacturing the product, is how do you get that product to the consumer.
Rob Artigo: In the modern world that can be ship, that can be train, that can be a plane. And as we’ve talked to other podcasts, there are a myriad of companies now that do door to door delivery, or should I say warehouse to door delivery or store to door delivery. That’s also supply chain right there. And when you have a supply chain crunch, you can have the expense of fuel and everything else, it ends up costing more to deliver the goods, not just more slowly. But, Hey, look, we’ve got war in Eastern Europe, we’ve got COVID, and inflation all contributing here, are any one of those more an impact on the supply chain than others?
Ray Zinn: Well, for example, on the COVID, back a couple years ago, you couldn’t hardly get into the store. I mean, you saw the stores came up with a way you could park out in a per a certain parking space, and they would bring the goods out to you. So you didn’t have to go into the store and that was COVID related. So that is more complicated that caused more disruption supply wise than say the Eastern Europe one because that’s a different phenomena. And it’s not supply chain issues across the board with Eastern Europe problems. It’s more related to how we got the supply chain out of whack to begin with.
For example, many factories across the world had different requirements for COVID. In other words, how close you could be to one another in the factory and then how many days a week you could work together and so they’re limiting personal contact. And that really caused a huge problem because now we couldn’t get the product manufactured in a timely manner. So that caused a major problem. And then if you have a problem like inflation or people believe there’s a shortage of toilet paper or something, they make a big run on the store, clear it out, and then that becomes a supply chain problem because we’re not prepared for that. And so whether it be right now people are filling up their car every hour or two, because they’re afraid the price is going to go up. And for example, I talked to my brother yesterday and he fills his car up every day, even if only needs four or five gallons.
Rob Artigo: Wow. I read that freight train companies have stepped up and in the US anyway and have picked up some of the shipping pace. And I’ve also heard politicians and others that have complained that train operators are making too much money in the process. And I wonder about this because doesn’t it make sense that a shipping company would have to, whether it’s a train or any other shipping company, would have to increase their prices in order to compensate for the increase in fuel costs. I mean, we were just talking about fueling up. Then it’s $2 or $3 more than it was a couple years ago.
Ray Zinn: Well, it’s supply and demand. It’s that too, but it’s not just that because a lot of these lot of these companies actually have contract fuel prices that are based on the future’s market. So they’re not necessarily paying that much more for the fuel. The airlines, for example, they could not operate unless they had contract pricing. And so some the transportation companies do have contract pricing on fuel and are able to keep that fluctuation to a minimum. But it is a supply and demand. I mean, I have a friend who works for a company that manufactured some paint that goes on the bottom of the ships. And I asked him, did you guys raise your prices? And he says, yes. I said why? He says, because we could. And then talking to some of the building contractors around here, even though their prices have gone up on the building materials, they’ve just raised prices anyway because they can. People become panicked and they’re willing to pay whatever it takes to get what they need, especially in the case of a building a home.
And so people are being dishonest. I mean, they’re ripping people off just because they can and people, they don’t want to have to pay those extra prices, higher prices, but they just because they have to keep going, they got to survive, they end up doing that. Fuel is going up 20 to 30 cents a gallon every single week. And so if you just do the math on that, it won’t be long until gas is $10 a gallon. And maybe by the time this broadcast airs, it probably will be $10 a gallon.
Rob Artigo: Yeah.
Ray Zinn: Because people can get away with it. And so it’s all supply and demand. Once you get the supply up high enough, then it’ll meet demand. And so the issue is that if you… Like OPEC does, if you just cut back supply, price goes up. Even though demand doesn’t change, you can start charging more money because you’ve reduced the supply. So again, anytime there’s a supply crunch and no matter what caused, whether it be COVID or Eastern Europe or some other fear or running out a toilet paper, whatever it is, you’re going to have this problem. You’re going to have demand is going to remain the same, but supply is going to be limited. And then that just allows people to jack up the price. And so whether it be meat, you could just look at the meat prices now. A meat has almost doubled in the last a little while, I think March last year. It’s doubled. And in some cases, it’s tripled. Eggs, milk, whatever it is, I mean, they’re able to raise these prices because of the fact that people are focused on inflation and that they just know that’s part of the game and they just raise prices because they can.
Rob Artigo: Well, Ray, I mean, I know that in some cases if you were to, like you said, do the math and you’re looking at your books and you’re trying to figure things out, in some cases, you’re going to need to raise prices and in some cases, like you said, some people choose to take advantage of the situation and sell. Like when California was having all the fires and there was smoke everywhere, people needed air purifiers in their rooms and things like that, you couldn’t find one, but when you did, it was triple the price. And we used to call that gouging. And I guess it still is. As a business operator who may be impacted by these things, what is the ethical business operator doing to navigate these situations to not be drawn in by an opportunist way of jacking up prices and only doing the price increases that you need as part of it, the necessity of doing business?
Ray Zinn: Well, they say what comes around, goes around or what goes around comes around, however, whichever way that goes. And so at some point, as soon as the supply catches up with demand, if you’re being honest and not taking advantage of your customers, then you’re going to succeed. I mean, this goes to that my old adage about the two most important things about a product is quality and service. So if your service is controlling your prices so that you don’t rip off the customers, they’re going to remember that, and you have a good chance of retaining that customer. So I just think being honest and ethical is the way to go. I do know a few contractors in my area that have decided not to raise prices because they don’t like cheating the customer. And so that’s a good way to measure how honest a company is whether or not they’re honest and ethical and not inclined to try to take advantage of this inflation or this supply issue.
Rob Artigo: Yeah. I read a piece on about how some parts of the country where certain aspects of industry are located and we don’t really think about them very much, and they’ve been surprisingly resilient during the crisis. The series of crises we faced recently. And this quote here says, “populists of all stripes,” it says, “who want to tell you that globalized trade is a cosmopolitan conspiracy against the middle of the country are peddling nonsense. Countless high quality American jobs depend on globalization and many of them are located in so-called flyover country. Those of us who live on the coasts would do well to remember the people in Memphis, Louisville, Columbus, New Orleans, and elsewhere who make it possible for Americans to buy and sell products across the globe.” So in light of how hard the supply chain has been hit and is struggling, is globalization like this quote attempts to profess globalization being good, is globalization actually good?
Ray Zinn: Well, it depends upon the product. My wife and I are concerned about buying produce outside the United States because of the controls that we have in the United States are better than they have in some of the other countries that are shipping product in. For example, south of the equator, it’s summertime. And so a lot of your product comes from countries that are below the equator. If that country does not have the best controls for quality and making sure that you’re buying good product, be careful. So you have to go country by country and find out which countries are favorable to do business with and the kind of things you want to buy, whether it be, pharmaceuticals, whether it be produce or meat, especially things that affect our health, be concerned about that.
And I have an example that I use when I’ve talked to students. They’re back in the day when we were having these CD players. In the United States we had a requirement that the CD player had to be good for 10 years. In other words, that it was the technology that we required to meet the standard of the CD drives because the optical pickup has to be tuned periodically because the optics or the diode changes it valued over time. But we call that technology was to make it absolutely good for 10 years, but then other countries said, well, you throw the thing away every two years because the technology changes. So why do you want to make it good for 10 years and people are going to throw away after two years? And so they quit tuning them, they quit putting a tuning circuit in that would increase the diode ability to read the data. And so after two years, you had to throw that CD player away because it just quit working. And so you got to be careful because unless you understand how that country works and how they view compatibility and longevity, you could end up having to throw the product away after a couple of years. So buyer be aware, as you said earlier.
Rob Artigo: This is a subject that’s not going away, and I’m sure we’ll talk more about this as time goes on, and I hope we don’t see $10 a gallon, but who knows? I mean, if we’re not producing our own energy in the quantities that we could, then we’re probably going to see $10 a gallon.
Ray Zinn: Yes.
Rob Artigo: Yeah. And then that affects everything. Just the price of gas will affect the cost of everything because virtually everything uses energy in some form. And at the cost of those, all that energy is going to go up and then it’ll be passed on to the consumer in one way, shape, or form. And so we’re in for some hardships coming up. You’re listening to the Tough Things First podcast. Learn more at toughthingsfirst.com. You’ll find there more of Ray’s blog posts, more podcasts, and social media links. Ray’s Book, Tough Things First is available on Amazon and other book retailers. It has proven to be an indispensable source for entrepreneurs. Check out Ray’s new book, the Zen of Zinn III. If you haven’t found it yet, you will soon. In the meantime, Zen of Zinn I and II are available out there on the shelves. Thanks again, Ray.
Ray Zinn: Thanks, Rob. I appreciate you doing this podcast with me.