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The Logistics Matters podcast: Colin Yankee of Tractor Supply on how his company has excelled during the pandemic | Season 1 Episode 32

Tractor Supply made changes in its supply chains to meet new customer requirements; some challenges await Covid-19 vaccine distribution; a new building boom for logistics facilities.


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About this week's guest
Colin Yankee

Colin Yankee serves as executive vice president/chief supply chain officer for Tractor Supply Company. He is responsible for the end-to-end supply chain, including merchandise planning, inventory management, vendor operations, and transportation and distribution operations. 

Yankee has broad supply chain experience, previously serving as the vice president of logistics at Neiman Marcus and in a variety of roles at Target Corporation. Prior to joining Target, Yankee was a captain in the United States Army. Yankee graduated from the United States Military Academy, West Point, NY, earned a Master of Science in Supply Chain Management degree from Michigan State University, and advanced management certification from Columbia Business School.

David Maloney, Editorial Director, DC Velocity  00:00

How did one major retailer managed to thrive during the pandemic? There are challenges ahead for Covid-19 vaccine distribution. And a building boom for new logistics facilities.

Pull up a chair and join us as the editors of DC Velocity discuss these stories, as well as news and supply chain trends, on this week's Logistics Matters podcast. Hi, I'm Dave Maloney. I'm the editorial director at DC Velocity. Welcome. 

Logistics Matters is sponsored by DCV-TV. Five channels of streaming video are yours for the viewing on DCV-TV. major improvements have recently been made to the DCV-TV platform to enhance the viewing experience, provide greater search capabilities, and to expand the capacity of the video library well beyond the 3,000-plus videos already in the archive. Be sure to check it all out at DCVTV.com.

As usual, our DC Velocity senior editors Ben Ames and Victoria Kickham will be along to provide their insight into the top stories of this week. But to begin: Tractor Supply has managed not only to hold its own during the pandemic, but to basically thrive. Part of that is due to being an essential business with the kinds of goods that people need. But it is also due to some fast pivoting that the company did to address changes in how consumers make purchases in the midst of a pandemic. Earlier this week, I talked to Colin Yankee of Tractor Supply about what his company has done right during the most challenging year of 2020. Here now is our discussion. Joining me now is Colin Yankee, chief supply chain officer for retailer Tractor Supply.

Welcome Colin. Thanks for joining us.

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  01:43

Hi, David. Thanks for having me.

David Maloney, Editorial Director, DC Velocity  01:45

And while you have many stores around the country, there may be some listeners who are not familiar with Tractor Supply. First of all, your main line of business is not really tractors, is it? Can you tell us more about your company?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  01:57

It is not. Tractor Supply has been operating since 1938, started out as a mail-order tractor-parts company, sending out to small farmers, the parts they needed. But the business has evolved over that 80-plus years, and we operate over 1,900 stores in 49 states today, publicly traded on the NASDAQ as TSCO. We have about $10 billion in revenue this year. And we sell everything people need for what we call the "out here" lifestyle. It's really a lifestyle brand, where we provide product all the way from workwear and footwear for people out on the job site to animal food and feed for people's pets and their livestock, as well as services for for their animals, to truck tool and hardware parts, all the way to make/model-specific parts for a particular piece of equipment they may have. And then seasonal goods that help them support their land, their livestock, their livelihood, and their families. So, while in a couple stores, we actually do sell tractors, we sell basically everything you need to live out in the country and be self-sufficient.

David Maloney, Editorial Director, DC Velocity  03:17

As you mentioned, a lot of your stores are in rural areas, but I live here in the suburbs of Pittsburgh and there's a Tractor Supply about a mile for me that I frequent quite often, so you've also made inroads into a lot of the urban areas as well with your with your stores.

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  03:30

Yeah, we have, part of that is, as the suburbs have moved out into the country, and as our store footprint has increased, that has changed the nature of some of our stores. We have a very localized assortment mix, where, you know, you may be in Texas, and we have a store near oil fields, and so we will cater to that customer. Or you may be in the suburbs in Pittsburgh, and we'll have more of a pet kind of assortment, or garden type of assortment for that customer.

David Maloney, Editorial Director, DC Velocity  04:04

That obviously presents some supply chain challenges to be able to accommodate those different kinds of inventories in all the different stores that you have. 

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  04:13

It does. It means we're—the hyper localization means that we need to be very clear with your, what are, what's assortment level at each store, what the inventory position is [at] each of the distribution centers. There's a highly seasonal nature of our business, very weather-dependent in many cases. So, how much inventory do we have for deployed stores in the DCs moving from our suppliers based upon the time of the year. And so, I think a great example for the listeners of the podcast is, we have a distribution center in Kentucky that services about 290 stores all the way from Ohio down to Louisiana, and obviously, spring happens in different times in different places within that geographic region, and that one DC can be servicing spring goods and winter goods all at the same time.

David Maloney, Editorial Director, DC Velocity  05:10

And beyond that kind of complexity, of course, 2020 has brought us Covid-19, which has added a lot more complexity to supply chains. Like all businesses, you've had to adapt very quickly to a new normal. What major effects did it really have on your company and your supply chain?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  05:27

We've been fortunate to be an essential retailer throughout this entire experience, and for us, we started monitoring the whole Covid phenomena and pandemic when it was still contained over in China, because of our direct import product. And we were looking at mostly from an operational perspective on how is it impacting the flow of our goods into the United States for your spring- and summer-selling-type of seasons. 

But then it was really March where things really hit home here in the U.S., I think, for everybody who'd be listening to this. And, you know, for us, that meant decentralizing our workforce, but while being an essential retailer, navigating through the various local requirements to continue our operations, because we were selling animal food and feed and pharmaceuticals and items that people were really stocking up on in those early kind of days. That had a ripple effect through our supply chain, just as we've seen in many other kind[s] of staple[s] in commodity categories, so you had to be very responsive with replenishing those kind of commodity products that people had stocked up on.

But then as your customers were spending more time at home, in their backyards, and having the focus of you know, improving their homes, improving their landscape, instead of traveling or going on different experiences, we saw the spring and summer goods really kind of take off, and that meant we had to support that increased volume. We've had two consecutive quarters of plus 30%, sales increases. That's obviously a big drain on our distribution center network, having to step up that volume, big strain on our supplier base, having to step up to that, and to do so while taking care of the health and safety of their team members. So that has just really tried to increase our collaboration for our supply chain from an [word unclear] perspective,

David Maloney, Editorial Director, DC Velocity  07:35

Very definitely have to be adaptable to be able to handle that kind of an increase in volumes, as well as all the other changes that went with it. So, let's break this down a little bit. You mentioned about China, and your direct shipments from there. Did you have to change any of your product sourcing as you went along because of where goods were manufactured?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  07:54

We have. So, I think this experience really exercised some muscles that already existed, and just really kind of traded on some of our existing processes. So, we do our product assortment reviews, we're consistently reevaluating our sourcing. And Covid is really just a new chapter in what's been a pretty active couple of years. 

For context, we adopted total landed cost view when we evaluate our assortments, so that includes product cost, where we source from, freight terms, [word unclear] miles, packaging—all those things, through the DC ultimately to the store to the customer's doorstep. And we, because we have a highly seasonal business, we've been adapting our supply chain over the last few years to look at, do we source imported goods for the initial set of [word unclear] product and then replenish from a more domestic type of supply base, so you can be a lot more nimble with replenishment based on sales?

And then, in 2018, with tariffs on steel and aluminum, that forced us to change some of our sourcing as we looked at materials and goods that had a lot of those kinds of inputs into it. Not only just things that we sell, but also things like our racking, material handling equipment, and items that went into new DC construction. And then the Section 301 tariffs shifted some production sources, either still being imported, but just not from China, or we moved some production here to the U.S. and into Mexico. And we ran many of those same evaluations for response to Covid. But it wasn't just through the lens of cost, it was through the lens of reliability and supply chain resilience.

I think in the in the near term, for us, it's been about shifting sourcing to help our suppliers as they've adjusted workplace hygiene protocols and labor availability and kind of the transportation disruption that we're experiencing over the last six months. And that cycle hasn't really stopped. We're here in November 2020, and there's immense disruption in the ocean transportation market right now. So, we're looking at a product sourcing and flow for 2021 and adapting what is imported and what's domestic based on those trends.

David Maloney, Editorial Director, DC Velocity  10:09

Data is obviously very important with the complex supply chain that you have, and you've done very well with leveraging that data from your stores from point of sale, as well as throughout the supply chain. Can you tell us a little bit about how Covid may have affected some of how you process and use that data?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  10:25

Sure. We use both structured and unstructured data in adjusting our operations. So, that can include information from stores and online sales, credit card and loyalty program information, insights from our call center, from our call volume that's coming from our customers and from our stores. Then we take that, and we integrate it with your town-hall discussions that we have from our team members in our stores, sales meeting feedback that we have every week from our regional leaders that are out there interacting with customers, our suppliers, and then we combine that with market intelligence from economists, and then other kinds of customer feedback. And that data impacts everything from our store staffing—so, how much do we staff a store, what hours of operations—to refining our product assortment, to shifting our customer communications from print media to TV or digital.

From a supply chain perspective, our big focus has been on applying data to coordinate activities across the value chain, so from our planning team, to our suppliers, to our carriers, through the DCs into the stores. And for us, we've really been trying to use data to solve a couple of problems. First is getting earlier visibility to vendor production and transportation issues and using that information as a leading indicator, then applying those leading indicators to be more proactive with how do we allocate inventory, shift our transportation plans, adjust our DC labor plans and our daily kind of staffing, based upon demand. And then how do we use that information to communicate across the organization? So how do we share with our merchants about any type of in-stock issues? How do we share that with our space planning team, in case we're going to need to adjust our store layouts based upon adjustments? And how do we communicate that to our finance organization so that we can really kind of forecast what the sales and operating margin impacts will be? And ultimately, how do we use that to be the best supplier for our customers?

David Maloney, Editorial Director, DC Velocity  12:42

Like all retailers, your business focus has adjusted quite a bit with people staying at home, or at least not venturing into stores as much as they had before. So, you talked about [how] some of your sales have increased, and I imagine a large portion of that has been your online business. How has that changed the way your DCs operate, and how are you working to fulfill those orders? Are they all coming from the DC, are you doing a lot of ship from store, or exactly what are you doing now?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  13:08

Sure. So, we've been on a multiyear journey to activate inventory everywhere, and as a multichannel retailer, we have our stores and our DCs. And that's been a multiple-year effort to activate buy online, pick up in store in every one of our stores. Each of our distribution centers not only supports store replenishment, but also can fulfill directly to the customer, and so that, we have that opportunity use inventory wherever it sits in a variety of kind of ways.

What we saw with Covid was the acceleration of trends that we thought were going to take two or three years for customer adoption, they got compressed down to like two or three weeks in some cases, where customers started leveraging buy online, pickup in store a lot more, to reserve inventory and to have that kind of contactless experience. We had already had curbside pickup in all of our stores, but that volume definitely picked up. And then, customers have been using our same-day delivery options out of all of our stores much more actively as well. At the same time, our distribution centers, we've seen about a three-x increase in the daily volume for our direct fulfillment out of our DCs. And the DCs have handled that very well. That's meant we've had to hire and staff more, both in our stores and in our DCs, to support that shift towards the digital fulfillment.

And looking forward, you know, as many operators know, it's not the daily volume that's the challenge, it's the peak jump that we're going to experience during the fall period that is the big challenge. So that's what we're really focused on now, is how do we get as much throughput through our DCs as possible? How do we staff and prepare for that? How do we have product prepackaged so that it moves very quickly? And how do we have inventory position in the right place, either in our stores or in our DCs, to best meet what we think is going to be the customer engagement method?

David Maloney, Editorial Director, DC Velocity  15:25

Colin, what are some of the trends that you're seeing that you're tracking that will help you carry through to the end of the pandemic and 2021?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  15:34

Absolutely. We think that the trends we have seen so far through 2020 around customers engaging more digitally, and spending time on their homes and with their families is going to continue through 2021. So, we are preparing for that.

We are seeing a lot of disruption in the import market right now with imbalances of equipment for the kind of international trade from Asia into the U.S. So we're tracking that very carefully and looking at, how do we adjust our ordering patterns in support of that, and our shift in sourcing.

We also see the continued trend for online fulfillment, so we're continuing to invest in our fulfillment capabilities out of our DCs and expanding our ship-from-store capabilities. And that is going to be, I think, the trend that's going to stick with us for 2021, 2022, and beyond, with the continuing increase in direct customer fulfillment.

I think the evolution of stores with more services and fulfillment methods, and the focus on resilience that stores give you with meeting customer demand, it's going to put a challenge on, how do you forecast inventory positioning? And that is going to be, I think, a big investment in talent and tools for figuring out, where's the best place to position inventory? Is it in a DC? Is it in a store? And how's the customer going to want to interact with that inventory? Are they gonna want to buy them and have it fulfilled from a store, buy and have it fulfilled from a DC to their home, are they going to want to pick it up themselves, are they going to have it delivered? And then, the type of product that is, whether it's something that's easily moved through the small-package network, or if it's something that is a larger, kind of bulkier item that customers are getting much more comfortable with having delivered directly their home. And so that's going to change inventory planning immensely.

David Maloney, Editorial Director, DC Velocity  17:50

So those are going to be some huge shifts. Colin, you mentioned recently at the Gartner supply chain conference that every company should be looking at industry leaders to help show the way. Who, for you, is that industry leader that you look to?

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  18:06

David, I don't think there's one for us. One thing I love about supply chain is that there's an openness to sharing in the profession. And I think professionals in this area understand that the success of the supply chain—their supply chain in particular—is the combination of all their capabilities, not just one tool or system or piece of automation. And because of that, there isn't one leader that we look to track our supply when we're looking to benchmark. When we're looking to improve an existing capability, mature our operations, or try something new, we use our network across retail, our carriers, their customers, our suppliers, our software providers, our automation providers and their customers, and their extended network to find great reference points.

So, for example, in the last couple of months, we've had conversations with a pure apparel retailer to discuss order-management system logic for fulfillment. We've done some compare-and-contrast and organizational design with a company in the beauty space. We've shared our perspective on transportation visibility in sales and operations planning with a food and beverage company that was looking at us as a benchmark. So, I think imitation may be the sincerest form of flattery, but it would be a terrible method to pull from just one example as you're looking to benchmark in your supply chain. I think we have something we can learn from everybody. And something we can teach everybody, and that's one of the great things about the openness of the supply chain profession.

David Maloney, Editorial Director, DC Velocity  19:41

I like that answer, Colin, because that's why we exist, to be able to share these good ideas and help everyone improve their supply chains. 

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  19:48

Yeah.

David Maloney, Editorial Director, DC Velocity  19:49

We've been talking to Colin Yankee, chief supply chain officer at Tractor Supply. Thank you, Colin, for being with us today. 

Colin Yankee, Chief Supply Chain Officer, Tractor Supply Co.  19:55

Thank you, David. 

David Maloney, Editorial Director, DC Velocity  19:57

Now let's take a look at some of the other supply chain news from the Week. Victoria, you reported on some of the logistical concerns for distributing Covid-19 vaccines once they're ready. Could you tell us more?

Victoria Kickham, Senior Editor, DC Velocity  20:09

Sure, Dave. Thanks. This issue came up earlier this week as I was attending portions of the Coalition [of] New England Companies for Trade, their 2020 Northeast Cargo Symposium. They're also known as CONECT—C-O-N-E-C-T. They represent New England companies involved in international trade. And this meeting covered a range of topics. But top of mind, of course, was the recent election and what issues may dominate the legislative agenda in Washington in the months ahead.

Their D.C.-based legal counsel, Peter Friedmann, in a couple of presentations emphasized that, of course, Covid-19 will continue to dominate the economic landscape, especially in logistics, where as you say, concerns over distribution of the Covid-19 vaccine loom large. And that's because early vaccines by pharmaceutical companies—Pfizer, which we heard a lot about this week, and Moderna—they have to be transported at ultra-low temperatures, as low as minus 94 degrees Fahrenheit. And essentially, the cold chain has limited to no capacity to handle that, at this point, which is going to cause a lot of distribution challenges. Essentially, the distribution of this is going to look probably very different than we're accustomed to when vaccines come out. The good news is that vaccines expected early in 2021—there are some that we're expecting in the February-to-March timeframe—will have less stringent freezer requirements, or different requirements, and that'll make it much easier to distribute. So, there's a lot to be worked out along this, around this, and certainly, it's one thing that we're going to pay a lot of attention to.

Another issue that came up was trade. And Friedmann mentioned that business leaders should expect the tariffs on Chinese imports to remain intact at least through the fall of 2021, under an anticipated new administration. And that's because, he said, there's been little opposition to those tariffs in Congress over the past three and a half years, and he said there's actually probably a lot of Democratic support for them. So those that's another issue that we'll want to watch.

David Maloney, Editorial Director, DC Velocity  22:00

Victoria, what other legislative issues should logistics professionals watch?

Victoria Kickham, Senior Editor, DC Velocity  22:05

Well, a big one on many minds, of course, is infrastructure. But in the sessions that I sat in on, they said, you know, that's likely to continue to take a backseat to the more pressing concerns of the pandemic. And that's because they both require a lot of spending. And again, Covid-19 is the most pressing issue right now.

Other issues include climate change and emission standards and a potential $15-an-hour federal minimum wage. But those things largely depend on how things are going to play out in Congress. As we all know, there are runoff elections in Georgia slated for January, that will likely determine who controls the Senate. And on top of that, Democrat losses in the house have narrowed the party's majority and will likely modify its progressive wing. So essentially, there are a lot of questions that need to be answered before we can tell how some of these other issues are going to play out. So, a lot to keep an eye on.

David Maloney, Editorial Director, DC Velocity  22:51

Yeah, we'll definitely keep our eyes, certainly, on Washington focusing on Washington as well as Georgia during the next couple of months. Thank you, Victoria.

Victoria Kickham, Senior Editor, DC Velocity  22:58

Thank you. Yeah, you're welcome.

David Maloney, Editorial Director, DC Velocity  23:00

And, Ben, you reported this week on a bit of a building boom when it comes to investments in the construction of new logistics facilities. Why is this happening now, considering the uneven economy we're experiencing?

Ben Ames, Senior News Editor, DC Velocity  23:12

That's exactly right Dave. And "uneven" is, it's an understatement of the year for the economy that the sector has been surviving so far this year.

The short answer is e-commerce, of course, and to put some context around this, the construction sector nationwide, between 2009 and 2019—so, for the previous decade, had gone through a tremendous boom. That's counting all kinds of buildings. That's, you know, single-family housing and institutional buildings and manufacturing plants and the whole works.

But when coronavirus arrived, it stopped that trend abruptly, so the overall construction market went into a steep decline—has gone into it this year so far, forecast to drop 14%, after all that rising over the past decade. And all these statistics are from a New Jersey-based group called Dodge Data and Analytics, who's a market forecasting firm in commercial construction.

But one exception stands out from all that red ink, and that's warehouse starts. In fact, I also heard another report this week from Jones Lang LaSalle, which is another real estate firm that some of our readers may be familiar with, saying that demand for logistics space has bounced back sharply over the past quarter—that would be the second quarter of 2020—hitting record or near-record levels. And that's even in the depths of, you know, stay-at-home orders and lock downs. And that was particularly led by e-commerce companies. They had some sort of specialty development[s] that were going on to drive that growth, and that was an increase in last-mile logistics facilities, as online retailing grows. Another one was the conversion of retail facilities into logistics facilities in dense urban areas. And a third one was rising demand for cold storage—for food and beverage, and also for life sciences, to touch on some of what Victoria was talking about, with the pending concern about vaccine distribution. So, back to Dodge's numbers, that kind of thing is expected to resume heading into 2021, which is right around the corner, of course. And a lot of those projects are led by Amazon, in particular, who's been building a fast-rising number of mega-warehouses, where each of them is bigger than a million square feet. So, it's really interesting to see what some of the growth areas are. 

David Maloney, Editorial Director, DC Velocity  25:40

Yeah, it is. Did those reports make any forecasts about when we can expect to see the rest of the economy also start to recover?

Ben Ames, Senior News Editor, DC Velocity  25:49

Well, they did. And, you know, the answer is "It's complicated." Victoria touched on several of the reasons there: Because of how recent election results turned out, it seems that most likely the federal government is on track, to have a mixture of leaderships between what looks to be a Democratic White House and House of Representatives, and probably a Republican Senate. So that may moderate what some of the federal spending is to get the fuller economy back on its feet.

Our listeners will probably remember that that kind of federal funding made a big difference to the economy back in the spring, when Congress passed the stimulus acts—the CARES Act in March, and that included the Paycheck Protection Program—the PPP. But that effect has worn off pretty quickly, since the CARES Act largely expired in July and the PPP in August. And since then, Congress hasn't been able to agree on passing a second round of stimulus funding, which is really one of the levers, according to the Dodge forecast, that the fuller economy is going to need to progress.

So, right now, Dodge is forecasting that it might take until the first quarter of 2021 until we see more stimulus funds. And if that comes to be, then that could help the economy return to stronger growth by the second quarter of 2021.

David Maloney, Editorial Director, DC Velocity  27:11

And it can't happen too soon for most of us. Thanks, Ben.

Ben Ames, Senior News Editor, DC Velocity  27:15

Sure thing,

David Maloney, Editorial Director, DC Velocity  27:16

We encourage listeners to go to DCVelocity.com for more on these and other supply chain stories. Go there to check it all out.

Thanks, Ben and Victoria, for sharing Highlights of the news this week.

Ben Ames, Senior News Editor, DC Velocity  27:26

Glad to be here.

Victoria Kickham, Senior Editor, DC Velocity  27:28

Yes, glad to be here. Thanks, Dave.

David Maloney, Editorial Director, DC Velocity  27:31

And again, our thanks to Colin Yankee of Tractor Supply for being with us today. We encourage your comments on this topic and our other stories. You could email us at podcast@dcvelocity.com.

We also encourage you to rate this podcast if your podcast platform allows for that. We appreciate your feedback.

DC Velocity also has a special offer for our listeners: You can get a complimentary copy of this year's State of the Retail Supply Chain report. This annual review of retail supply chains is a result of research collaboration between Auburn University's Center for Supply Chain Innovation, the Retail Industry Leaders Association, also known as RILA, and DC Velocity. This ninth installment of the study covers the hyper-speed omnichannel retail environment and its pandemic-fed acceleration. Download your free copy today by going to DCVelocity.com/retail.

We encourage you to subscribe to Logistics Matters on Apple, Google, Spotify, Stitcher, Amazon Music, or wherever you get your podcasts. Just search for "logistics matters" to find us. Our new episodes are uploaded each Friday.

We'll be back again next week with another edition of Logistics Matters, so be sure to join us. Until then, please stay safe and have a great week.

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