E2open Parent Holdings, Inc. (ETWO) Earnings Call Transcript & Summary

Good afternoon. My name is Andrew Obin, and I'm Bank of America's multi-industrial and industrial software analyst. Welcome to our first session of the afternoon, After The Shock, How Corporates are Investing in Supply Chain. And this is a panel. And with us, we have a group of great speakers. So first, we have Michael Farlekas, CEO of E2open. We also have Jarett Janik, who is the CFO of E2open. We have Lora Cecere, Founder and CEO of Supply Chain Insights. And finally, we have Tom Wagner, CEO of Berkshire Grey. So we have a logistics software company, we have an industry expert, and we have a company that's using AI to transform sort of operations inside warehouses. So I think we have the entire supply chain represented.

So let me -- after the introduction, let me start with my question. So the first question is, when U.S.-China tariffs hit, the majority, what -- at least what we've been hearing from our industrial companies, industrial companies have changed nothing. Changing supply chains is difficult and corporate inertia is high. And I know that retail is a special case, and Tom, I'll ask you that -- I'll make a special case of asking about retail. So let me ask sort of Mike and Lora, how much of a catalyst or current supply chain difficulties for investment in new hardware and software solutions?

Yes. I mean it is. But as you said, supply chains are complex and they operate. And companies will want to change them over time. And what we're seeing from our clients and we work with some [ these ] companies in the world, is that they are trying to build in much more agility and resiliency into their supply chains, which primarily means more diversity, meaning I need to not think about my supply chain as static. They come from one region to another region. But dynamic in that, I'll be able to change my supply base on the fly over time. Now that's not a simple transition. That's super complex. And it's just not complex, just in operating in a different mode, just getting to a different mode is also takes time and energy because it implies new supplies, new distribution points, new ways of transporting things, new methods of thinking about your demand/supply balancing. So we think that it’s -- what's really happening is that the senior level C-suite are taking a different view of supply chain, less about efficiency, more about sustainability in terms of making my revenue durable over time. That's what we're seeing. And we think technology is an enabler of that. Because as that happens, things get more complex. As they get more complex, you just need more different types of software to manage that complexity.

So you said it -- my -- your view is just going to take time?

It's happening now. It's just going to take time. And it's going to take time and it will not be a short burst. It will be the way things are done over a 10- to 15- to 20-year horizon. Like those continue piece by piece, step by step, moving much more towards agile supply networks over time. They are much more connected than they are today.

Lora, I know you certainly have views on this as well. So maybe we'll go to you next.

Thank you very much. Over the last decade, we actually lost ground on our ability in the supply chains to manage disruption. And most of the investment was on transactional efficiency, which really made us much better at the world of black and white. But what happened in the pandemic was the world shifted to shades of gray, supply and demand variability increased. When we first started the pandemic, we had 21 more days of inventory than we did at the beginning of the 2007 recession. So we really started ingesting that inventory. The middle of the pandemic, which we've just finished, we're starting to have tremendous shortages as we cannot unload the containers or manage transport across borders. So the design of the supply chain and the education of the executive teams is going to be very painful as we look at Q4 and Q1 earnings. What's going to happen is innovators are going to start to move and mobilize in very different ways. And we're going to see that we'll redefine supply chain technology and we will move forward in learning systems and unified data models and more aggressive investment in technology for sensing, responding and visibility. The supply chain market is 20% innovators, 60% mainstream, and it's become less focused on innovation over the last decade. But I think the hard lessons that will be learned by executive teams will start to accelerate reinvestment in the supply chain and recognition that what we have is primarily legacy.

From your perspective, which industry verticals do you think -- I'm not sure if it's going to be tag or a stick, but which industry vertical will feel the most pain and which industry verticals will be the most open, more transformative approaches?

My view is the -- an automotive sector has to completely rethink, not just their supply chains, but how they think about constrained supply components. So if you think about their world, basically living in an unconstrained supply environment, if I wanted to get more aluminum, we get more aluminum. If I wanted to get more glass, we get more glass. They're going to go through a transition to become much more like the high tech manufacturers who have been living in a constrained supply environment for 20 years. They have to be given that a server is not a server until 100% of the components are available. That's the world the auto manufacturers are rapidly moving into. So for them, that's going to be a rethinking in terms of forward demand and much longer projections of supply needs for critical components. I think for that cohort, they're going to have a lot of work. They're going to -- they're essentially becoming high tech manufacturers in essence, not just because of the embedded technology in cars, but how they have to think about constrained supply in a completely different way than they ever had in the past. That's my kind of view.

In the discrete sectors, in my point of view, we have focused on efficient procurement, which is really about big sticks and not really investing in supplier development and able to work in the world of scarcity. The procurement organization is largely operating in isolation. So all of the discrete industries that Michael is talking about for automotive, automotive aftermarket, A&T are going to have to redefine the procurement organizations and look at source make and deliver together, which is going to be a redefinition of technology. But in addition, what's going to happen is our shelves are going to be bare for Christmas in retail. The 57 containers that are off the port of Long Beach today, we've got 2% of the ocean freight that can't be unloaded. We've got high variability of that ocean freight. We have the inability to manage that inbound allocation and ATP signals. So really the only thing I'm going to be able to get for Christmas are my 2 front teeth because I can 3D print those. And the retail industry as we move into the Christmas holidays will be [ a busy month ].

And that segues basically about empty shelves. That segues us very nicely to Tom and Berkshire Grey. Look, even prepandemic you had e-commerce growth and Amazon effect was strong, right? Clearly, Amazon has done very, very well during pandemic. So what are you seeing? I believe -- I think retail vertical is particularly pertinent for you guys. What are you seeing in terms of retail sector and how do people, a, counter Amazon effect; and b, once again, how did people deal with the fact that not only Amazon has got better and smarter, but also with the fact that you have all these logistical challenges, Tom, what are you seeing?

Sure. Thank you, Andrew. So as you suggested, we're focused on the retail side of things, and we essentially get you your stuff. So if you place an e-commerce order with a mobile device or with your computer, our technologies, our robots are there doing picking and movement of goods inside warehouses. We're also actually handling the packages as they make their way to your homes. So what we have seen -- you mentioned the pandemic -- as you know, the pandemic really accelerated all of our behaviors. I'm sure many of us who are on the call even would say, I'm not really sure I was going to embrace same-day grocery delivery prior to the pandemic. But by the end of the year, better than 50% of the folks in the United States, will be utilizing that as one of the means by which we get food into our homes. So we have seen, due to the pandemic and due to the effects of that, we've seen acceleration in everything from online app-based ordering to increase in consumer expectations. We all expect our goods now. We're grudgingly willing to wait until tomorrow, we're not going to wait 30 days. And those trends, truthfully, were already in place prior to the pandemic. The pandemic accelerated those. And today, what we see is enormous energy on the part of retailers. And by that, I mean, conventional brick-and-mortar retailers, e-commerce companies, grocers and so forth to automate and transform their supply chains to support both the consumer behaviors that we've all learned, e.g. shopping with our mobiles and the online ordering and so forth as well as dealing with the effects of the pandemic, which means labor shortages and so forth. So we've seen enormous energy for transformation. Earlier, I think, Michael, you mentioned the role of senior management and the importance of this being a strategic transformation for the folks in these industries. And certainly in the retail e-commerce grocery space, these are very senior folks who are cognizant of the need to transform. It's a top-down strategic directive. And because everybody is dealing with the challenges, which is I have to get my orders out in order to make my revenue. So Andrew, that's kind of where we are today.

Got you. And maybe Mike and Lora, how do you see -- because Amazon, not just retail, it's sort of -- it tends to be somewhat broader than that. Is Amazon at that an additional consideration for industry outside of retail? Do you feel it's really concentrated…

Lora, go ahead. Why don’t you talk about it first?

Well, I think the Amazon effect has set the expectation about visibility of continued views of on-time delivery and it's heightened the bar for on-time delivery. The issue is going to be, we don't have inventory in this back end of the pandemic. Only 9% of companies actively designed their supply chains, and they're not looking at variability as it ties to design. So we're going to have heightened consumer expectations, and we're going to have extreme supply chain failure, which is going to put a lot of companies on the front page of The Wall Street Journal, scratching their head about what they need to do in the supply chain.

Yes. When you think about the Amazon effect, I think about it from a system perspective and, in my view, what Amazon has done for the end-to-end supply chain is what Walmart had done for logistics. And by that, I mean, Amazon has effectively tied demand signals to their supply and their networks in a dynamic way. So when Amazon has a very perfect view of what future demand is going to be because they can correlate searches to actual orders. And when they do that, they got a much more forward look into what's actually going to be purchased on an ongoing basis. So for -- the best companies in the world have a very, very clear view of what their future demand is going to be by using a lot of data, a lot of algorithms to figure that out. So I think that's a model that companies will start to kind of further embrace. The more perfect you can understand forward demand, the better position and lower probability you're going to have to disruptions because you can think further ahead rather than looking at reacting to disruption. So I think that's kind of, to me, what Amazon was really able to accomplish, which is to be able to be much more proactive in management of their entire supply chain versus reactive kind of going forward. So that's how I see Amazon really changing how supply chain function.

So the next question is just sort of labor costs and how labor costs change customers' investment in automation. Maybe I know that Tom has sort of very explicit clear statement about how he views market and labor costs, so I'll let him go last. But maybe we can start with Mike. How do your customers -- how much room for automation is there? And what is the recent rise in labor costs changed in terms of your customers' investment and the software that you sell? And actually we'll go to Lora and then we'll go to Tom, because I know Tom has a very strong view there as well.

Yes. I mean most companies their cost of goods are highly correlated to labor costs. And companies -- you continue to see companies invest in technologies in all different way, shapes and form to make it more efficient from a labor perspective and that's going to continue. Tom's used it more than anybody because you need labor to do picking and the less labor you can put there, obviously, the better it's going to be. And one of the realizations is that it's not just that you can't file it, people don't want to do this work. I mean it's not very, sort of, working in a lot of cases. So I think this problem around labor shortage is going to be one that's going to be with us for a very long time, especially as our population ages and some of the traditional kind of manually intensive work is not going to be wanted to be done by the population. So I think technology is the way it has to be fulfilled over time.

And for your business, can you take labor out by utilizing more sort of logistics software, better scheduling and -- or that's just not how your customers think about it?

For our particular type of business, they don’t -- it's not extraordinary labor-intensive. They would automate. And a lot of it is and certain things that kind of are repetitive in nature. So I think what we really want to do is take the same people and up, level them in terms of the value-add they bring. So instead of having planners just plan, they want to have actually planners to do more analytics, understanding kind of future trends. So for us, it wouldn't be kind of just labor. For sake of labor, it's more -- how do I get more out of the labor dollars on spending by kind of removing the kind of the mundane day-to-day activity that's kind of repetitive. So I can free up those hours to do things that are much more forward thinking and strategic. So for our customers, which are not so much tied to individuals using software, we're automating things, at this point, how do we get more value out of those labors and actually make the roles much more fulfilling because they're solving hard problems versus just doing the same thing every day.

And for [ individuals who use ] your software, do they have problems sort of finding folks who can actually run your software? Is the -- because it is sort of white collar engineers or...

No. I mean we haven't heard a lot of that over time. Obviously, it's a competitive market and there's great migrations happening now. Everybody is basically getting up from their chairs and moving over to their competitors' chairs. Everybody is kind of seeing that. Well, we don't really particularly hear that issue so much. More it's, how do I create an environment where people can feel like they make an impact and not just getting up and doing the same thing every day. I think they're trying to think through how they can make the job more fulfilling and more challenging over time rather than just doing repetitive kind of analytics test.

Got it. Lora, you sort of have a broader view, how do you look at it, the impact of labor costs in customers' folks [ investment ] in automation? How much room is there? What is there to be done near term?

Well, I think that what we're experiencing is a brain drain and a redefinition of work. So in the pandemic, many 50-, 60-year olds decided that maybe they didn't want to work anymore. Maybe they didn't want to travel the world. So I am seeing a shortage in supply chain planners and data scientists. People come to me looking for talent, and I'm not a recruiter, but I connect people. And the inquiry rate is up tremendously. And the demand for white collar brains to help power the software is high. In addition, we've got issues with transportation on the driver side, 22% to 25% shortage on drivers. And there needs to be a focus on being a good shipper, turning trucks and containers around making sure that people are good shippers to a higher degree than we are really responsible to do right now. So I would say the labor issues are across the supply chain and there are opportunities for digital factories, for becoming better shippers, for us to democratize planning and redefine work. And it's my hope that in that we can make it a better place and really drive a lot of investment in technologies, which have been slowed over the last 5 years.

But do you think we're going to see something near term? Or is it once again, it's just we're tackling such a complex system or is it just going to take time?

The innovators are going to do something near term, particularly in the area of decision support. We're going to redefine supply chain planning to broader decision support, and we're going to start to build bidirectional networks. The innovators, which are 22% of the market are starting to take action. Unfortunately, they don't have a lot of places to go to partner with technologists.

Got you. Tom, as I said, your business is [ direct support ] of labor availability and picking. So how do you see rise -- recent rise in labor costs? Do you see immediate change in customers' investment automation? How do the discussions that you're having with your customers are changing?

Yes. To us, there's 2 aspects to the labor trends. One is in the short run, we have labor shortages that are fairly extreme. There is also a longer running macro, which was also labor shortages and rising costs. So if I go back prior to the pandemic, I would have still been having a conversation with customers around how difficult it is to staff those positions. And sometimes we'll have thousands of open positions and a given location can't fill those positions. Today, it's more pronounced due to the short-run labor issues. But if you consider, and it's really much what you said and what Michael said, if you consider that we're focused on what happens as you place your orders with your phone or your online device. There is a respond in real time, go pick the item, do the warehouse work to pick and pack, do the shipping work to move the item. Those are jobs that have to be filled in order for these companies to satisfy the consumer demand. And when they're not, puts tremendous revenue pressure on these folks. These are also positions much, as I said earlier, where, in some cases, these are jobs where they're difficult and they're hard. And sometimes our customers will run 4-hour shifts against the given function because you can't physically do this shift for an 8-hour run and so forth. So for us, the labor is a factor. We're automating that work. And generally, what this means to our customers is it enables them to have the folks that they're able to have in the buildings and they're able to hire to focus on the functions that are best for people to be doing and for us to do the heavy lift around some of the repetitive items that we're able to automate and produce value with. And also, usually, when you talk about the automating of those activities to many of our customers it represent some increase in capacity. So it's not just that I'm able to one for one improve a thing. It's that now I've got automation, so I could run the equivalent of 2 shifts and so forth, so it represents a more competitive advantage and more capacity.

So the next question, how do you think about the level of inertia for supply chain technology as distinct from just changing suppliers? And maybe, Tom, I'll let you go first, and then Michael and then Lora.

Sure. We see tremendous interest and tremendous pressure on our customers to transform their supply chains. And you asked about Amazon earlier, and it's kind of implicit and all these things I keep saying mobile and online. We've been trained that our orders should come immediately and that shipping is free. And I’m sure you have customers that would tell you, shipping is not free, right? But all those effects combine to make it so that when you're in these industries, you need to adopt and transform. And if you're going to market that you're competing with Amazon, Amazon is using robots and is highly automated. And so if you're not able to respond with a same kind of competitive operational profile that puts lots of pressure on you. So we see lots of energy for transformation around the technology.

Well, I ordered a vacuum back in July, they keep pushing the date. It's now supposed to be delivered this week. So that's -- so yes, I certainly no longer have any expectation [ or we need a ] delivery of things. So Michael, maybe you can talk about [ once again sort ] of technology versus just hires.

Yes. You have a couple of very large trends kind of converging. The first is all the things we talked about in terms of much more disruptive nature of the environment, et cetera. The other is the transformation that needs to come from cloud technologies. So Lora mentioned that very large amount of the infrastructure that runs supply chain is legacy. That's true. It's on-premise solutions that were put in basically from the 2002 era to 2010 era, so mostly runs big companies is implementations of those software packages. They're very disconnected. They're very legacy and very static. Now that's negative. The positive is most companies can get product to shelves maybe not as on time, but they can operate their business. Now they'll never change all of that infrastructure at once. They'll change it sequentially over time, starting with, obviously, they’ll do capital allocation and resource allocation decisions based on risk and opportunity and they'll tackle the things that give them the greatest opportunity at the lower risk first. Because remember, they have to support their current operations as they operate today. They can't just change everything overnight. It is literally impossible. So it's much like how do you replace the engines of an airplane while it's flying. Well, you better do it one at a time, otherwise, you have a big problem. So imagine a very large company that might have 9 different functional areas or 10 different functional areas that all have to go from something that's relatively legacy, relatively static, relatively on-premise to something that's more dynamic, more agile, more connected and in the cloud. That's going to happen sequentially over time for the world's biggest companies. It's the only way it can be done. So the inertia is there. But I don't see any other way of just doing it sequentially because we can never not fill the shelves with product. You always have to be able to ship product to support your revenue growth.

Lora, how do you think about that? Because I know you have strong views there.

Well, I think in the last decade, we've primarily focused with -- we believe, that ERP, or enterprise resource planning, SAP and for Oracle and the extension of those platforms would give us [ a function ] excellence. The wake-up call is that that is not what is going to deliver what we need. I think as people realize that we're not able to manage the first mile, there's a lot of focus on the last mile, but the first mile of reliable shipping and translation of that to orders, there's going to be a wake-up call that the first thing we need to do is active network design, which is going to push us to what-if analysis, the digital twin and the redefinition of supply chain excellence at the Board level. We take our supply chains for granted. We've always assumed transportation is available. We just need to negotiate price. We've always assumed the supply is available. We just need to issue an RFP. Those assumptions are going to really be exposed in Q4 and Q1 earnings. So the first change that's going to happen is the focus on network design. The second change that's going to happen is better supplier collaboration to improve that first mile reliability of inventory. The third change is going to be unified data models and the redefinition of visibility. We've always dabbled on the edges of visibility, but the open source, no [ SQL ] world is going to redefine visibility.

So for -- just we'll continue on this and Lora, I'll have you talk though. If there are going to be changes on supply chain and logistics technology, what do you think it's going to be approach you sort of segmented the industry and others, maybe 20% of the people who are leaders, but then there is like 80% of the industry. What we have been seeing a lot of companies have homegrown solutions and no company wants to do rip and replace. When you do see a more widespread change, what are the reasons. And Lora, maybe I'll start with you, what might be different for a traditional retailer versus a manufacturer versus a logistics company? And then maybe we can go to Tom, and Tom can go specifically about what he's seeing from retailers and logistics company. And I think Michael, we'll finish with you. And then we'll start the next question with Michael.

So I think we're going to see 3 changes. In my research, I find those that have a greater dependency on outsourced logistics are faring less well or more poorly on order reliability. So I think people are going to design logistics with a focus on reliability. Second is, I think the set of technologies that we call transportation planning are going to become legacy because they're assuming the availability of transportation and they're not looking at transportation as a constraint. So things like assurance on first-pass tender, making sure that we can manage not only the first mile, redesign the middle mile and manage the last mile. So we'll see a redefinition of transportation. And we will see that models like distribution requirements, planning and transportation will have to come together for a unified data model. We really do not have end-to-end supply chain processes today. DRP, distribution planning, transportation and procurement are all on different models. So our ability to manage across source make and deliver is horrible and will be redesigned through unified data models at a corporate level to allow us to be able to do bidirectional orchestration and the redefinition of bottlenecks and constraints to improve reliability.

And Tom, I mean, it's just -- I'll go to you next. It's interesting. Your technology sort of uses AI and it seems there is a big leap sort of in technological proficiency versus what you offer to the customers versus manual labor that they use right now. So what's the catalyst? Is the catalyst basically for change for your customers? Is it just pain of competing with Amazon? Is that as simple as that?

Sure. Look, that's a strong element of it because once you're in a marketplace with them, you have to compete with that, right? That is an element of it. But it's really -- it's labor scarcity, labor costs. It is also changing consumer expectations. We and I -- by the way, if you're waiting months for your vacuum cleaner, you need to try a different retailer. I can send you a list of our customers, and you should try them. They...

No. They asked and I said my big takeaway is never to shop with you guys online. That was my big apparent takeaway. Yes.

But so the change in consumer expectations for us is also a huge catalyst is because it's -- supply chain is in the retail space, and by that, I mean e-com grocery that is hugely important today. It's because we can price shop everybody. There's no way to hide any inefficiencies. It all comes down to how quickly can you get me my stuff in an efficient fashion vis-a-vis competitors and so forth. And so it is a paramount importance and is a transformation that our customers are embracing.

And Michael, maybe sort of we -- you can address this because I think you're in the air of a lot of existing [ complex ]. And what are you hearing from your customers? How are they addressing change? And as I said, do you see difference between sort of manufacturers, logistics companies, how do you see it by market vertical?

Yes. I think we started was this is becoming a much more significant boardroom issue because it's not just about making sure I drive efficiencies in my supply chain. And Lora, with nail on the head, like everybody is operating a role unlimited supply and that supply could be actual supply or people or could be transportation services or whatever. Now that's not really the case anymore. It's constrained. So you have to think about the problem completely differently. The complexity for large-scale supply chains comes from the fact that most companies don't do all the things you think they do. They don't really make product themselves. They outsource much of the supply and the manufacturing. They don't ship product as long as said they use trucks for that. They don't store product, they don't sell product towards the retail or channel. So to manage a very complex supply chain, the most important ingredient is data. And that data, more often than not, does not reside in the 4 walls of a brand owner of a major company. So that's increasingly becoming exposed as the essential problem. How do you get data in real time as complete as possible, as accurate as possible and codify that, so AI and machine learning can actually use that data to make better decisions. That's the transformation that is starting, and that transformation will happen over a 20-, 25-year time period. Supply chains are becoming more complex. And if you were learning that they can get much better ROIC by adding complexity into their supply chains by using specialists to do all these different functions. That's kind of what our customers are kind of really waking up to. And Lora hits on those things, supplier collaboration, that all of that is in that name and we feel safe there.

Got you. Maybe the next question is Michael is for you and Lora more than Tom. But are companies reluctant to make changes now given the current supply chain difficulties? And the question is, what are the largest pain point for customers request in your initial discussions? And Michael, I don't even know if that is you -- I think...

It's not that they're reluctant. It's they don't know what to do in many cases. And you also have to look at the world from the brand owners perspective, which has for 50 years built functionally oriented organizations, meaning I’m the Head of Supply, I’m the Head of Manufacturing, I’m the Head of Transportation, I’m the Head of Planning. And all of those functional organizations are optimizing their function. That's been kind of okay. It's been satisfactory, not optimal. And now they have to sense and they know that it's all interrelated. Supply is actually connected to demand. Therefore, my systems have to be connected. And that's why the most forward-thinking companies in the world are starting to have the CLOs of the world, whatever digital offshore of the world step in with much more authority to break the logjam of decision-making because you've got 6 executives, each executive comes to the table because their incentives say so, optimize my thing, and the problem is completely interrelated. So our view is that as companies start thinking about organizational structures and incentives, they'll be faster at operating and changing the business. Our best customers are the ones that look at the end to end at a very senior level and drive decision-making there versus functional decision-making by individual leaders. So companies are having a hard time getting out of our own way in many cases.

So you think it's an -- we've actually heard it, we -- because we do all see a lot of industrial automation. And it seems that sort of the industrial organization itself is one of the biggest sort of roadblocks to efficiency. And it sounds like that's what you're seeing in logistics and the idea is that it gets elevated to more senior level, you actually can have more decisive action.

It's about division of labor, right? So over the -- in the past industrial world, division of labor was very effective by function, and they had enough supply, you can just operate at that level. Now as they add complexity, you have to be much more interoperable. And that's coming into another type of division of labor. So maybe it's not by functional area or by sector or by region where you have much more end-to-end views. Supply is actually connected to demand. Therefore, the systems have to be connected also. Today, they're, by and large, not. That's the biggest transformation that's going to happen over the next, say, I think 20 years. It will be a long conversion. Because companies have to operate today and change today. And those 2 things are kind of hard to do, which means it doesn't happen very quickly, but it happens for a very long time.

Lora, and what do you see in your conversations with your clients? What do you see as sort of the largest pain points for implementation sort of changes. And why would people choose not to do anything in this environment as far as you can tell?

Well, failure is really the mother of invention. And as more and more companies face these upcoming issues on tremendous supply chain shortages, they're going to be asked hard questions. And Michael is right, they're not going to know what to do because traditional supply chains are about functional excellence and functional excellence is not equal to this. And they're also very inside focused on orders and shipments. They're not market sensing. And so the building of outside and processes that can sense and respond and the building of bidirectional orchestration is going to be the next generation. Now the barrier is executive understanding of supply chains and the larger industry learning of supply chains. So folks that have been implementing ERP and traditional planning are going to be scratching their heads. And the innovators are going to be driving forward with newer technologies that since it respond. I'm also helping -- hoping through government intervention that we get authoritative identifiers that will help us with visibility. Authoritative identifier sort of like your social security number. Today, the supply chain is [ blind ]. There is no common nomenclature for a distribution center or manufacturing plant. So the ability to overlay these new architectures really require supply chain modernization at a definitional level.

Great. So maybe in the last part of -- and this is a great panel -- by the way, it was great attendance. Thank you so much. So maybe as we talk about the trends, I'll start with the most obvious trend because we do have a lot of investors who invest broadly. And I definitely want to ask about specific trends, but I'm going to be very selfish and ask about specific trends in the supply chain. As you are hearing them, we recently did a report. And what we are finding, I guess, what the government data shows is that supply chain is not necessarily getting worse, it's just saying consistently bad from July and everybody was expecting that it was going to get better in August and the data shows it's just never gotten better. But it also sort of [ contributes ] what I'm hearing in the channel. So maybe I'll start with Lora, go to Michael. And the question is, do you think supply chain is stable at a really bad level? Do you think it's getting better? Or do you think it's actually getting worse? And what's the biggest lever one way or the other that you're seeing for this development?

I think supply chain performance on order reliability and the first half of the pandemic was buoyed by high inventories. We went through a lull where we got vaccinations and modern trade U.S., Europe. Now we're into the next wave of the pandemic, and we're going to see extreme supply chain failures on the first mile. Our ability to unload containers, our ability to run factories, our shortages and materials are going to have heightened supply chain issues that we have never seen before, short of the shortages that we saw in World War II. That is going to cause us to raise our hand and say, we need to redefine supply chains for business continuity.

So Lora, just to paraphrase you -- to paraphrase the song, the worst is yet to come?

Absolutely. Q4, Q1, Q2 across all industries. Christmas, for retail is going to be very much about empty shelves.

What are you seeing?

Me or Lora?

No, you. What's...

I've always thought of...

Is it getting worse than what it was like?

Yes. Sure. They're going to get worse. There's no question about it -- in the short term. But the supply chain, solving these problems are not necessarily technical in nature. They're organizational in nature. And so Lora is right, is that, as problems arise and people realize there's an organizational problem. And by organizational, I mean, how do I organize my supply chains to be much more resilient, adaptive in real time, Lora's saying is we change my network is on a fly. As it organized and think about how to be much more collaborative across the entire end-to-end supply chain with their partners, these problems will over time be solved. Last piece of the organization has especially in the U.S., you have a lot more of importation and exportation with essentially the same physical plant of ports that you've had for a very long time. So you can build all the ships you want, doesn't matter if you're constrained point of theories constraints is that you only have so many ports of which the containers can go in and out of. So that's an organizational issue that our country is going to have to come in terms with, which is need more port capacity, and that is going to have to be done at federal state and local level. So that issue is not going to get beyond us anytime soon because it require a decision by a lot of people saying we need to make big investments in ports to be able to smooth out a lot of these inefficiencies you see as Lora started out by saying there's a lot of vessels that are sitting outside of ports right now, which is eventually takes capacity and turns out of the capacity of the shipping world.

I'd like to add one more thing, if I could, is the role of corporate social responsibility. People assume resources are available. Let's take, for example, the semiconductor industry. TSMC is a major producer of chips for the automotive industry. The lack of water at Taiwan and the water consumption and chip manufacturing is a major issue there, right? The fires in Japan and the semiconductor industry. So we need to be looking holistically at resources because it's not only the back end of the pandemic, it's the fires in California, it's the hurricanes. We have eightfold the level of disruption from natural sustainability type of causes that we've ever had.

Got you. And I'll go, we have, I think, one last round of questions, and I'll have Tom sort of finish up, express his view, but maybe as he answers that. I guess my next question would be -- and Tom, you can sort of feel free to sort of answer this question, go to this question. Where are we -- what are the technologies coming down the line? Tom, I know you guys, AI is a big part of what you guys are doing. And what else is coming -- sort of coming down the pipe in terms of cost quality curve to reach mainstream adoption over the next 2, 3 years. So Tom, maybe you can sort of finish as to where we are, things getting better, things getting worse, but then also segue into the last section as to what's coming down the pipe in terms of new technology?

Yes, let's even focus on new technology piece. And Lora, I did -- I have a sticky, this is get my Christmas shopping done and you [ suddenly come by ] get another sticky [ this does get ] my Christmas shopping done. And into the -- on the technology front, so for AI, for us, what we do is it enables the robots to understand items well enough to pick them up, do things with them. It enables robots to plan their and schedule their work so they can orchestrate the flows within a distribution center, e.g., what are my truck cut times, what are the orders I have to fill, when do they have to go out, what items need to be in them and so forth. So all of that orchestration is going on inside the warehouses, inside the distribution centers which is new. It enables on our customer and alternative ways to design their networks. And some of those are about strategic plays into the future of how consumers buy things and so forth. But it also introduces different levels of flexibility and responsiveness inside those facilities. And so I think it's a where the value prop is for this technology is both enabling all our up and coming as well as current forms of commerce, but also as we talk about difficulties in the general supply chain, the ability for each node in the network to be more flexible, more dynamic and run at varying capacity levels. It's something that I think you'll see people capitalize on when they do their network design beyond just the question of what's the next generation of the mobile commerce.

Maybe you'll go next. And as I said, you're already SaaS, the industry, the part of the industry you're in has been the early adoption of the software. But what's next for your part of the supply chain and Lora will finish with you, you'll be sort of -- you'll close with your views on what's next. So Michael?

Connectivity and data are extraordinarily important. To solve the problem, you need as perfect this data as you can possibly get, as complete data as you can get, as timely as you can get. And on top of that, you need to have extraordinarily powerful algorithms, machine learning, AI, et cetera, but those algorithms are kind of useless without the data they need to fuel them. So I think the next generation is going to be how do you clarify, harmonize, normalize data across very distributed networks. That's what the transformation that's happening. Now that is what will solve many of these problems. And Lora is right. There is no unified code. There is no way for a company to figure out how to talk to 500 suppliers, each of which have their own disparate nature of software, infrastructure and maturity. That's the big issue. How do you get data from where it is or it changes to the brand owners as completely as possible.

Lora, finish with you. I know you're a big believer in sort of disruptive technology. What do you see maturing? What do you see coming down the pipe that's going to be transformative? And just -- I think it's been a fantastic panel. Thank you to all of you. And Lora, I'll let you finish.

So I think there's going to be a wake-up call because I think that the performance issues in the balance sheet are going to be huge for at least the next 3 quarters for manufacturers and retailers. So there's going to be a questioning of 3D printing and new business models, circular economy and resource definition. So how do I have a stewardship of resources that is better than today, and how does that drive into new business models, number one. Second thing is the movement from a focus on integration of data to interoperability of data and bidirectional orchestration will give rise to new technologies and a new era of decision-making. The barrier there, as Michael pointed out, is the gray matter between most executives there. The third thing that I think is going to happen is this ability to be outside in to use market signals of all types on structured data, streaming data, weather data and to be able to not just focus on transactional data, but to be able to sense. Today, supply chains don't sense, they respond. They respond with latency and they respond in historic ways. And so this ability to sense and respond, I think will give rise to kind of a [ Google ] like player in the market that will redefine networks to sense and respond and transform. So I would encourage everyone in the investment space to stop backing legacy consolidation and try to drive us to new levels to sense and respond and drive bidirectional orchestration.

We are almost on time. This has been a fantastic panel. Lora, Tom, Michael, I can't thank you enough for lending us your time, and we'll talk to you later. Thank you so, so much.

Thank you.

Thank you.