Robots in the (ware)house

Intro 0:00
Welcome to the ‘How We Innovate’ podcast presented by Applandeo hosted by me, Wiola and my co-host, Bryan. On this podcast, we talk with leading innovators, pull back the curtain on their industry, and get to know how they use technology to achieve success, as well as share the story behind them and their businesses.

Host – Bryan 0:23
Welcome to the How We Innovate podcast. Today we have a very special guest, Neil Shelton, Chief Strategy Officer at GXO Logistics. Neil, thank you so much for being with us today.

Guest – Neil 0:35
It’s been an absolute pleasure to be invited, and thank you so much for hosting GXO.

Host – Bryan 0:40
Awesome. So maybe get a little more about for your personal side before we get to GXO. Right. So you have 25+ years experience in the financial industry. Right? So what made you maybe pivot to logistics? And why did you feel that GXO was the right spot for you?

Guest – Neil 0:59
Well, Bryan, quite simply, GXO is an exciting growth story. It is delivering phenomenal growth, has been gaining market share and in industry, that itself is very exciting. And the opportunity to work with companies like GXO, don’t come around particularly often. This is an exciting business. It’s got some phenomenal leaders within it. But it also really kind of sits at the nexus of what is exciting. In logistics, it’s deploying automation. And technology is solving problems for customers, notably in the direct to consumer channel, which is complexity. And this was a great opportunity to join the company just as it was being spun out of XPO. And to leverage many things that I find personally very exciting.

Host – Bryan 1:48
Yeah. And so you know, on our podcasts, you know, we usually have CEOs, CTOs. Right? So you are first Chief Strategy Officer, right? So what is the day to day operations of what you do? What are your response and so forth.

Guest – Neil 2:03
As a company, Bryan, we’re very focused on trying to deliver as much shareholder value as possible. And as you highlighted, that got a high degree of kind of financial market experience. And that’s the key focus for me is interacting with investors, helping to drive the message for GXO, we’re a very new company, we perhaps less well understood as we span out of XPO, to help understanding and to drive relations with shareholders, but also to look at the opportunities that the group has in front of us, we’ve got numerous growth channels ahead of us, and to do and to help kind of craft a message that will really drive an improved share price performance, and indeed shareholder value from the opportunities we have in front of us.

Host – Wiola 2:51
Neil, so I’ll just touching base a little bit on this spinoff. So what was the strategic decision behind it? How did it go?

Guest – Neil 3:01
Okay, so XPO announced that it was to spin off its supply chain business, the company now known as GXO. And we span out of the XPO group in early August 2021. One of the key reasons for XPO to undertake that spin was to try to unlock as they saw, trapped shareholder value. GXO was not really the key driver of the XPO share price, the most of the rest of the group was very transportation focused, more transactional. And within that you had GXO, which has a very long duration, contractual growth type business, that wasn’t given much airtime. So there’s been a really allowed GXO to engage with the investment community, to help craft our own story, and to really highlight what an attractive long term growth opportunity, the GXO is. And that process really helped to unlock shareholder value. On the operational side, too, we became our own if you like activity, we have a single CEO, a single CFO that have the opportunity to drive as much value for our investors as possible by making the best decisions for GXO, that’s not always possible when you’re part of a bigger conglomerate. And since that’s spin with accelerated organic revenue growth, a strong outlook that we recently highlighted at our investor day, we would argue that this is an exciting journey for investors going forward.

Host – Wiola 4:33
Also, so you’re offering warehousing to your customers and as we know, invested a lot in technology automations. And as I understand the warehousing is actually the the biggest area of your operations. And so can you share a bit more about it and also, what are the key innovations that GXO offers?

Guest – Neil 4:59
Sure, it’s a multi part question there, Wioletta.

Host – Wiola 5:02
I know, sorry [laugh]

Guest – Neil 5:05
Let’s start with what we do. So we operate just under 1000 warehouses across 27 countries, for just over 1000 different customers. And you’re absolutely correct -warehousing is where we choose to focus. And our customers work with us because we can deliver tremendous value to them. In fact, an outsized benefit from taking over their warehouse operations, relative to GXO costs. If you look at the economics of warehousing, it’s, it’s typically 2-6% of total product cost and is therefore, GXO at his margin is significantly less than 1% of our customers revenues or our customers costs. But through the deployment of technology, robotics automation, we can drive a benefit that is many multiples of the size of the implicit cost of GXO. That’s what we seek to focus. Our growth has been pretty robust. Over the past couple of years, we’ve delivered around 15%, organic revenue growth. And that’s really driven by kind of trends. One of the big trends is customers really looking to outsource their warehouse activities to us, partly because they need to kind of start on the root of the digital environment within the warehouse, this industry, not particularly automated, if you look across the industry as a whole. It’s a single digit percentage automated GXO is running north of 30%. And we continue to lead the industry in the deployment of technology. It’s those technologies that can drive huge efficiency benefits, we have numerous sites that have reduced the variable cost per unit, by 50%, or even more. It’s automation that has helped to drive up the velocity of a warehouse to reduce overstocking to allow our customers a better control of their inventory. And to allow them to make more full price sales, which is always critical to our customers. Is automation that’s driven, improved safety within the warehouse environment, always important given where a substantial employer across the 27 countries that we’re operating. And it’s also helped to drive up tremendous accuracy. So to reduce waste to reduce an excessive environmental burden for our customers activities. That’s what we do. We are very focused within the warehouse, we have we operate around 200 million square feet of warehousing, we’ve got about 130,000 employees across the 27 countries that we work with. We lead the industry in the deployment of technology to really solve problems for our customers. And it’s a real partnership. So the just over 1000 customers we work with over half our revenues come through from customers that have given us more than one site. And indeed over half our revenues come through from customers where we operate in more than one country. So it’s adding value across their network.

Host – Bryan 8:18
Sunil, I think you’ve touched on it. And you know, especially when we did research, right prior to this, a lot of things you mentioned, were around like 5% of global warehouses are automated, right? So why do you think maybe the industry as a whole has been resistant to automation at this point? Is it just maybe cost? And will it eventually get to the point where these warehouses that aren’t automated will it be sort of like an ‘adapt or die’ situation where they’re going to have to eventually do it? Because this is just the way the industry is going?

Guest – Neil 8:50
What are the key reasons Bryan that the industry is kind of less well automated is because broadly, two thirds of the industry is done in house, ie within customers own operations. So it’s been a little bit less focused on trying to develop technologies to drive digitalization. One of the key benefits of GXO scale from those nearly 1000 sites that we operate in is that we are able to pilot drive a business use case for many different technologies to deploy around all of our customer sites where we find a business use case, we have a cycle of continuous improvement that really differentiates us within the industry. If you’re a very large company, let’s say in the UK, you might have a single warehouse. So your ability to test pilot integrate different technologies to drive a solution for your customer is radically different to GXO with our nearly 1000 warehouses. That’s one of the key elements historically, automation robotics seen as a little bit scary for companies. Now , however, given you’ve had challenges over the availability of labor, notably through the kind of the second half of 2021, labor inflation, which has become more pervasive, certainly through 2022, we find that customers, the number one thing that they’re thinking about is to digitize the where environment, to drive efficiency, to drive accuracy, to drive a safer working environment, and to better utilize their own resources, the inventory that is within the warehouse. And that’s why GXO has been gaining share within the industry, which is a very fragmented industry, where the largest player with only a 5% share of what is currently outsourced. And through automation, through the deployment of technology, and through the processes and skills we’ve developed with our customers will continue to outpace the growth of what is an attractive industry going forward.

Host – Wiola 10:59
You invest a lot in e-commerce, I mean, you focus a lot in on e-commerce in this industry, which is a rapidly growing market. And then as it grows, I understand it’s becoming much more complex, in terms of dealing with warehousing processes, even like comparing to other models like wholesale or brick and mortar, from your experience, could you give us some, like, share some real experience of like, you know, what is the profile of your customers? And what are the biggest challenge challenges they are going through?

Guest – Neil 11:33
You’re absolutely right. As the retail sector moves from wholesale and retail, more into direct to consumer, it means, in essence, more most of activity that would have been done in store now gets pulled into the warehouse. And typically the amount of work per unit in a direct to consumer e-commerce sale is about three times that of a wholesale or retail activity, you’re dealing with individual units, with 2-3-4 skews leaving a warehouse, as opposed to a large box or a pallet being shipped to a retailer or a wholesaler. So a lot more complexity, typically to requires a lot more velocity. We as consumers we’re quite impatient, we all expect our product to arrive tomorrow if we order –

Host – Wiola 12:24
– Today.

Host – Bryan 12:26
Yeah, even today, not even tomorrow (laugh)

Guest – Neil 12:29
As you can imagine that all the products have got to arrive at the packing station in an incredibly short order to make that delivery cut off time, just to ensure that we as consumers are pleased. So that’s the first element. The second element is is that in a world of direct to consumer e-commerce, we expect to have a wider variety and a wider assortment. So we’ve got sites which have significantly more than half a million skews available for the consumer to order from. So you’re you’re you’re picking and packing from very large assortment of products, which is many multiple times more than you would ever be able to find in a single store. Your product has got to be delivered on time packed. But also, we as consumers, we expect great packaging, we expect great labeling, we expect everything to be entirely correct. Otherwise, it’s being sent back. One of the issues too, you also find in the world of direct to consumer, we were really working very closely with and we see phenomenal growth opportunities with is naturally in an e-commerce environment, the rate of returns is about three times that of what you’ve seen in a retail environment, about 30% of goods typically returned back to the warehouse. Because the customer is unsure of sizing might order a pair of trainers and size 9,10 and 11. And two of those come back. So one of the key focuses for us in working with our customers is really to ensure that we turn around those products in an incredibly short time, take any repairs remediation work to get them into a perfect sellable condition, so that we can achieve a full price sale for our customer because that’s important that dramatically impacts their gross margin. Furthermore, where we’re able to take that returned in venturi, which is growing as the direct to my channel share grows too, what we can also do is we can drive a significant environmental benefit for our customers. It reduces the need for over manufacture. So if you’ve ordered those three trainers in size 9,10 and 11, we know that two of those are likely to come back because you’ve ordered the same model you bought at the same color you’re just trying them on for size. We can stop over manufacture, we can have those ready for resale within a matter of hours. And that helps to reduce the environmental impact for an awful lot of our customers typically, around 80% of the carbon footprint for our product is in its manufacture and ship to destination market. So significant number of environmental impact effectively moved away, as a result from a more effective treatment of returns. So it’s good for the environment, but it’s also very healthy for our customers profit margin. And it’s interesting, Wioletta, if you speak to a number of our kind of leading brands that we work with, that will planning for a lot more direct to consumer on e-commerce channel share. So most of them are somewhere around kind of 20 to 25%. There on the whole, planning for 50 to 80%, direct to consumer on e-commerce channel share. And the reason for that is that we can drive a higher profit per unit for them in that channel. Firstly, they’re not paying away a wholesale or retail margin to somebody else. Secondly, we control their inventory, we can drive the velocity of the inventory, we can drive up the proportion of full price sales, there’s no end of season discounting required for inventory stuck in somebody else’s channel. And then also too, we can help them with a phenomenal consumer proposition, which allows more full price sales are you go to their website, you go to their app, you’re not seeing their product benchmarked against somebody else’s, which may be on discount. So all of this is why our customers continue to plan for a much greater proportion of direct consumer or e-commerce sales going forward, it really helps their profitability.

Host – Wiola 16:50
Okay, let me switch to technology a little bit because this is like the most exciting part as we are the technology company. So like we were discussing it before, we have so many questions here we are going to add, ask just a few of them. If you can share something more about this cool stuff you have in your warehouses as we’ve seen those videos and pictures of robots and machines and a huge large scale automated activities.

Host – Bryan 17:21
Yeah, so Neil, anytime we see some videos, it feels like we’re watching like some sci-fi document or something, it’s you know, it’s just very cutting edge. Right? So from your perspective, like, again, how cool is it to work in such an innovative, and companies such as GXO?

Guest – Neil 17:37
It’s, it’s fantastically rewarding. I mean, to put it in context, we are an incredibly innovative company, we drive a cycle of continuous improvement for our customers and partner with them, which really differentiates us in the industry. To give you some idea as to how we’re innovating, Bryan, today, we’ve got over 200 pieces of new technology, in pilot across our 1000 sites, where we drive a business use case where it drives a good return on investment, we will look to deploy those across as many other sites as is possible. That comes from over 100 different suppliers. So this is a very fragmented industry in terms of technology supply, into warehouses and look, our scale here gives us tremendous benefit relative to our peers in deploying this cutting edge technology. And Bryan, as you highlighted, some of it is truly fantastic. I was assigned at a site last week, which had a fleet of 500 collaborative robots. For a consumer goods company, that fleet of robots helping both on the inbound and the outbound has driven basically a six times multiplier, in picking efficiency within that site, this is a huge site, kind of million plus square foot. So as you can imagine moving moving around that site, it takes some time. The robotics take all the strain, the robotics do all the heavy lifting, and it allows our teammates, to and associates to really focus on driving, if you like, a better environment with which they can work, less walking less heavy lifting, less repetitive activities, and that 6x improvement is really valuable for our customer. We are seeing phenomenal demand for robotics and automation from our customers last year, we increased the number of pieces of adaptive technology, smaller technologies by over 100%. We’re running at around 8000 pieces at year end, over 30% of our revenues come through from what we would classify highly automated sites and that compares to an industry there isn’t a single digit percentage and the benefits really go back to more efficiency, reduced training time, working with collaborative robots can reduce training time by around 80% for staff, improved accuracy, so less wastage, less returns, which is important for our customers, but also improved predictability, especially on the speed so that you and I, as consumers, we get our order when we when we expect to. If you look, we continue to expect to accelerate the deployment of technologies going forward.

Host – Bryan 20:27
Yeah, and like, so how much more can you automate? Right? So how much more could these robots do?

Guest – Neil 20:34
It was there was an awful lot that robotics can do to improve and optimize a warehouse environment, maybe let me give you one example. So we’ve deployed 1000s of collaborative robots, in kind of e-commerce and consumer packaged goods type type environments. And when it’s a new small light products, we’re now deploying many hundreds of these in what you would kind of say is heavy and large scale environments. So food and beverage, wholesale food and beverage deliveries to supermarkets, etc. And these are these collaborative robots take away the strain, they take away equipment that could potentially be dangerous for workers, they take away walk time. And, again, they can drive a tremendous efficiency within the solution. We have examples where these collaborative, collaborative robots, as I call them, collaborative robots on steroids, scale, can drive 100%, or more improvement in operations within the warehouse. And that’s important. So it’s another vertical that is increasing technology. Historically, in food and beverage, it’s been less of a technology focus, certainly relative to e-commerce. But because of that labor inflation, the issues over labor availability we’ve seen globally, through the last kind of 24 months or so we’re seeing more and more verticals, looking to embrace technology. And for GXO, that’s a phenomenal opportunity to highlight the value we’ve achieved for different customers in different segments to grow. And interestingly, as different verticals become more automated, our market share goes up. And that’s just a factor of the tremendous value we can drive to our customer.

Host – Bryan 22:27
Yeah, maybe also to highlight maybe the differences between some of your automated sites in Europe versus the US, right? Are there? Is there like a different attitude maybe by the worker with like maybe working with robots and other automated machines that maybe Americans are more receptive and Europeans are maybe less receptive? Or what are some maybe the key differences that you’ve seen in these automated sites between the States and Europe?

Guest – Neil 22:55
And the honest answer is in terms of worker attitude, and worker feedback from working with technology is ubiquitously causative. Everybody enjoys working with robots, was that recently, all of the collaborative robots all 500 of them have a name, for example. So there’s great engagement with that, and we see that across all of our footprint, it empowers workers, it helps them to add more value, to think about improving the solutions, and takes away repetitive or heavy activities, which is always a positive. If you look at the differences between the US and Europe, in terms of Warehouse Solutions, and warehouse design, to kind of overgeneralize in Europe, we tend to have smaller footprint warehouses, but at all. So we have a site just outside of London, that’s 35 meters tall, for example. And that we use every inch of that keep that we possibly can to serve as the customers in the US, there’s more space, they also have tornadoes, and hurricanes tend to be wider and flatter. So quite often, the technologies we’re deploying in Europe in the US can be quite different. To deal with kind of high, high storage or opportunities, we tend to use a lot more rigid or fixed automation stuff that’s bolted to the floor. Whereas in the US, you tend to see a little bit more on modular, collaborative or goods to person systems, because using that vertical cube is is less of a focus. That said, we’re taking technologies that we’ve worked with vendors in the US, especially on the collaborative robot side and the goods to person side, and helping those vendors to make them more suitable for a European warehouse, which hasn’t been a number of mezzanine floors. So yes, some of the technologies are different, but increasingly, the gap between them is being reduced. As we’re seeking to take the best in the US and to Europe and vice versa.

Host – Wiola 25:02
Speaking of this warehousing – are there in warehouses you’re especially proud of?

Guest – Neil 25:08
There are many, many warehouses Wioletta that we’re incredibly proud of. And ultimately each works as its own individual ecosystem. And some of them have delivered phenomenal results to our customers, and also been a really significant positive impact for the local environment. And when we were in many regions, and areas are a very significant employer. And so having the relations with the local environment is really important. And let me give you one example. We have a very automated site, which is one of our centers for innovation. So we test out a number of new technologies, be at robotics be automation, and increasingly more software to drive an opportunity are taking those technologies and deploying it across our existing 1000s. Also sites. This warehouse, when it opened, it delivered a tremendous benefit for our customer, big global blue chip brand. It reduced the operating cost per unit for our customer, by around 60%. Really importantly to it dramatically reduced our customers waste, we work with a company that’s very environmentally focused, the site has a 99.9999% order precision ratio.

Host – Bryan 26:40
That’s it? Where’s that extra 0.0001? (laugh)

Guest – Neil 26:43
Right. We never stand still, we’re gonna focus on improving, which has helped our customer to reduce wastage by in excess of 60% and delighted our customers, customer, or customer, our customers customers. If you want to win this site opened up, it delivered a tremendous improvement. Since then, they’ve not stood still, they’ve continued to drive further efficiencies, deploy further technologies to drive up a cycle of continuous improvement that I don’t think many others within the industry would be able to do. We’ve deployed artificial intelligence that has allowed at an extra 90 minutes of operation per day for an awful lot of the robotic packing arms that we operate. And 90 minutes over a 24 hour period is a significant improvement for our customers. We’ve helped them to deliver further environmental savings by rainwater harvesting, by using technologies that reduces truck idling around the site. So this is one of the sites that that we are particularly proud of. But I’m going to be very honest here, Wioletta, when, whenever you visit one of our sites, you come back incredibly confused about what each is achieving for the customer. As a business, that’s what really differentiates us, we’re solely focused on the warehouse, and trying to delight our customers, it goes back to the our greatest opportunity. This is an industry that is largely in house. As we delight our customers, we get the opportunity of working with them across more and more of this of their footprint and of their sites. It’s a great, each of these ecosystems is phenomenal to go and visit. And I’d love to show one off to you at some stage.

Host – Bryan 28:42
Yeah, awesome! Thank you for the invitation.

Host – Wiola 28:46
What’s the one closest to Poland?

Guest – Neil 28:49
We have a site in, we have a number of sites in Poland.

Host – Bryan 28:55
So you can visit us, there we go.

Guest – Neil 28:57
Absolutely. One of which actually was our second busiest site globally on Black Friday. It is a tremendous automated site, phenomenal customer in the kind of fast fashion environment. And he’s an absolute joy to visit and I’d be delighted to show it off to you.

Host – Bryan 29:21
Awesome. And maybe so Neil also, I think maybe for our we have maybe one more technical question. And then I guess we could get into market trends and stuff like that. Right. So from our perspective as a software development company, right, we are we’re also big in the logistics space. Right? So you know, we speak to clients potential clients all the time, about IoT and RFID in the warehouse and the supply chain, right. So maybe how is GXO utilizing these technologies and like, where do you see the future of these technologies?

Guest – Neil 29:51
Sure. So efficient tech is increasingly important within the warehouse. We talked a little bit about reverse logistics, taking away some of those repetitive efforts and we deploy a lot of vision technology to reduce those repetitive tasks in terms of scanning, labeling and activities. We have some sites that employ RFID as a way of tracking. But but it’s not particularly high number of sites. One of the limitations so far is that where you’re storing a large volume of products, and let’s say a high bay warehouse RFID doesn’t necessarily allow you to kind of track everything beyond the first couple of parcels. So, as a business, we’ve been very focusing focused on improving vision technology, using the equipment for that to drive further benefits, using what would historically be a scan to actually see if there’s any damage to boxes, taking away mobile vision equipment and replacing with more static, that we can also use to help build boxes better and reduce packaging excess. So there are many different technologies, some of which are pretty exciting in terms of tracking the movement of a product through the warehouse, I don’t think the industry is always is fully there yet in terms of the current technology that and that’s why we’re increasingly using more and more division tech side, where we can then override that with software to ensure that the products are being recognized, scanned and moved efficiently through the warehouse.

Host – Wiola 31:41
We know that like GXO is setting up the carbon negative warehouses as well, which was pretty cool. And so we have those, like on the website, I think we found those numbers and goals. So can you elaborate on those numbers and lead or what is your plan to achieve them?

Guest – Neil 32:05
So working is doing great business in a kind of great fashion is important to GXO, we talked about the fact that we have over 100,000 workers across our footprint, doing great business in an environmentally sound way is very important to our teammates. But also it’s really important for our customers, most of the an awful lot of our customers are global consumer focused brands. So being seemed to do a good fit a good thing for the environment is very positive. And that’s led to an awful lot of growth in elements of of activities such as reverse logistics. If you look across the industry is a holding robust logistics. About 25% of all returned products goes to landfill. In consumer electronics, it’s significantly higher than that. Last year, all of the all the return products we received, we managed to resell 96%. And the vast majority of the rest went to charity so we’re not contributing to landfill. There are many things that we can do, especially in this environment where we’ve seen higher energy costs to help not only drive more profit and value from our solutions, but also an improved environmental footprint LED lighting can reduce warehouse energy consumption by 70%. In with these higher energy costs, the payback for such an investment is now very, very short. We’re working with our landlords to increasingly deploy that. And as we highlighted at our investor day, we’re well on track to our 80% goal by 2025. If you look at other targets that we call it and other environmental initiatives, you mentioned the carbon negative warehouse. And increasingly, we are deploying more PV panels across our footprint, we have 200 million square foot of warehousing most of which points directly up the opportunity of driving of using that and working with animals to drive an environmental impact reduction is very significant. And again, even higher energy costs, the payback and the returns you can generate from such activities are vastly improved to what they were only two years ago. And working with our customers in order to help reduce their environmental impact is really important, too. One of the key things that we can help them to achieve is to reduce overstocking within the warehouse, okay. Stocking can be a significant problem and most retailers at the end of each season run somewhere between 30 and 40% overstock, so they’re either discounting that or scrapping that product in order to make way for the new season. We work with a higher velocity, lower inventory holding per SKU to drive up higher full price sales, heavily reduced that overstocking in some instances by 50% or more. So, again, driving down the need for over manufacture, having a predictable solution allows our customers to run their business in a much more environmentally friendly fashion. And that’s critical. And it’s only to accelerate globally. As we as we look forward is one of the key reasons why we have been gaining market share, using tech deploying technologies to drive a financial and needles doing environmental benefit. And that will continue. As we turn it is one of our GXO differences.

Host – Wiola 35:46
Yeah. So thank you for that. Yeah. And it’s really amazing. And it’s really important to actually build that awareness. And especially in you know, today, when, obviously, like, logistics is a big part of our life.

Guest – Neil 36:04
There’s lots of great technologies that can help. I mean, I was at a site in France, just before Christmas. And we have developed with a manufacturer, a machine that builds packaging around a product. So historically, products have been put on a on a within a pre made box, okay? What box there is kind of made for around that sort of Apple, the impact of us using a machine that builds around the product means you’ve got less excess packaging materials. But also, the other element of that is that for one of our e-commerce customers, we have helped them to increase the density of shipping, we now achieve around 75 units per pallet before the inflect machine was implemented, that was 60 units per pallet. In the six months we’ve operated that, that’s already saved over 190 truck rolls, so big trucks saved around 3000 kilos of co2 equivalent, and also for our customer reduced their transportation costs by around 27%. So great for their bottom line, but really good for the environment, too. And we’ve got a number of new technologies that will help to reduce the environmental impact our customers business going forward.

Host – Bryan 37:27
Yeah, so Neil, obviously GXO was born in 2021. So right in the middle of the pandemic, right. And it seemed like anytime you were opening the news, you were hearing about constraints in the supply chain or ports are backed up for months. Right. So from your perspective, what other weaknesses did the pandemic highlight in maybe in terms of the supply chain and logistics industry?

Guest – Neil 37:55
Really good question. Right. GXO was kind of born in August 2021, spun out of XPO at that time. And yes, we were kind of living in a world that was still being impacted by COVID. What has COVID effectively shown within supply chains. Firstly, the need for a direct to consumer model and an efficient direct to consumer model. One that works one that doesn’t, doesn’t have overstocking. And we have seen good growth and great opportunities with our partners to really deploy automation to drive an improvement in our in the direct to consumer business. Let me give you one example. We worked with a retailer historically very brick and mortar focused. We helped them through that COVID period drive up a very significant proportion of online sales by taking the Warehouse Solutions, making them more agile. We took up the e-commerce velocity prep now up by a factor of just over six times, helped them to grow substantially into the into that channel, but also delivered it efficiently. Previously, they were servicing their e-commerce in house, the cost to serve a unit was just over $1. We’ve took that down to around 37 helped them in that channel drove tremendous efficiencies for them. So that was the first element, then Bryan, you’re absolutely right. It highlighted some fragility within the global supply chain, as different regions shut down at different times, and certainly too COVID also impacted the availability of labor in some markets and exacerbating certain bottlenecks or stoppages. What we’re seeing as a business is very much our customers focusing on greater resiliency, and that’s showing through in a number of different trends that we’re seeing, a trend towards nearshoring without question, we can see that from certain segments, certain verticals and customers, and we think it’s going to become more pervasive over time. Where are we seeing it right now, in US technology in high tech industries, there’s certainly been a great focus on reshoring semiconductor manufacturing, semi cap equipment manufacturing, to it to the US, we’ve seen a higher level of activity as a result of that. We’ve also seen a number of other customers take activities previously done late stage within the warehouse, and move that closer to their larger consumer markets. So personalization, monogramming, special editions, detailing badges, labeling, laces, that sort of activity. And I think we’re gonna see more of that late stage activity kind of drifted toward because markets over time. And then without question two, you’ve seen a number of companies move a little bit less just in time to a little bit more just in case. So improving the resiliency of their supply chains. And clearly, that does help drive up warehousing demand, too. So what’s COVID done is it’s led to an awful lot of companies, rephrasing their direct to consumer strategy, and e-commerce strategy. And it’s proven that it can be a very profitable channel, a more profitable channel for many customers, and they will push it. And it has also led to a much greater focus on supply chain resiliency. Within that GXO was the warehouse operator. Without question, we are seeing great opportunities to continue to solve problems for customers. Because as you change the supply chain, it becomes more complex. And that’s essentially what we aim to solve for.

Host – Wiola 41:47
So and speaking of the challenges of this year, how are you adjusting the potential recession? And are you dealing with inflation? Or do you see any tendency of like how it impacts your clients?

Guest – Neil 42:01
Sure. So let’s start off with inflation first. We have about half of our revenues is is paid to labor so is wages, okay? And without question, you have seen wage inflation globally, or they’re actually parallel. If you look around the US, wage inflation is relatively benign. It’s it’s in Europe, we still see high levels of wage inflation. You mentioned earlier, you’re in Poland, Poland has seen double digit wage inflation, okay, it’s one of the kind of the faster growing markets are around Europe. But on the whole, you continue to see that the reaction from customers in that inflationary environment is to require more automation to drive down the cost to serve for their activities. So if you go back to that fleet of collaborative robots, that drove up warehouse efficiency by a multiple of about six, as you can imagine, in a high wage environment at high wage inflation environment, we see huge demand for that. And our customers are looking for us to help them on that digitalization journey going forward. The second thing is, is we’ve got to provide agility for our customers. So we’re seeing changes in consumer buying patterns, changes in consumer activity. So we’ve got to ensure that we can flex up and flex down to meet our customers needs. And that’s one of the great benefits of GXO. So we do that every year, we have about 30% of our workforce coming through from the staffing agencies that we work very closely with to properly resource our customer solution. So to put that in context, VWioletta, if you look at the fourth quarter peak season, some of our customer order volumes more than double on a weekly basis compared to normal activity, we’ve got to be able to flex up to be able to serve that. And then as we head into January, the customer order levels go back into kind of a normal pattern. So this is one thing that we’re kind of used, as our CFO often says, ‘Yeah, we have a recession every year. It’s called January’, relative. So that’s again, one of the key reasons why our customers work with us is that we have this agility to be able to match their demand or customer and clearly what you’re seeing right now is a focus from companies to scrutinize more closely their cost base. Okay, two thirds of our industry is in a house. So for some industries, that warehouse has been a sacred cow not to be outsourced, however, in the need for digitalization, the need to deliver costs, that cost savings, we’ve got a number of customers that are seeking to reinvest back into pricing to help the consumer that’s given us great outsourcing opportunities and quite often a bit of a downturn and can be the catalyst for those outsourcing opportunities.

Host – Bryan 44:56
So Neil, unfortunately, it seems like we could talk about this for hours, your passion. Unfortunately, we’re constrained within an hour. So this is usually the part where we just ask some rapid fire questions of our guests just to get a little bit more about them. Right. So we’ll start with what’s your favorite cocktail?

Guest – Neil 45:14
Oh, that’s a really good question. And probably Mohito, but it has to be in a warm environment.

Host – Wiola 45:20
What is your favorite place to travel?

Guest – Neil 45:27
The honest answer, I’m not sure I’ve actually got one favorite place. I’m a real foodie. I love traveling. And it’s something different types of foods. So yes, kind of spending a bit of time in Italy or in the Mediterranean area was always great. And I’ll be I’ll be brutally honest, anywhere that you can sit down, enjoy a great meal with your family in a nice environment. I’m perfectly happy that it doesn’t have to be any any one area.

Host – Bryan 45:53
Cool. And I think we can wrap up on this one. As you know, Neil, you’ve just been in so many different industries, you have a lot of experience in a lot of amazing companies, obviously. So what’s the best piece of advice you’ve ever received?

Guest – Neil 46:06
The honest answer is persevere and always work hard. You have to have an awful lot of enthusiasm in everything that you do. If you don’t care and really want to try to achieve something, then I think, then you’re going to have any career will be slightly difficult. So show, not only show enthusiasm, be enthusiastic, try to make a change, try to make a difference within whatever you you try to do. And always approach everything with as much energy as you possibly can. I think that was the best piece of advice that I’d ever been given.

Host – Bryan 46:44
Awesome. All right. Well, that was Neil Shelton, a Chief Strategy Officer a GXO Logistics. Neil, again. Thank you so much for joining us today!

Guest – Neil 46:52
It’s been a pleasure. Thank you again for hosting GXO and myself. I’ve really enjoyed it. It’s been a pleasure speaking with you both.

Host – Bryan 46:58
Awesome.

Host – Wiola 46:58
Thank you, Neil.

Ending 46:58
Thank you for listening to ‘How We Innovate’, a podcast by Applandeo. Get your apps and web apps built today by visiting applandeo.com. We’re Applandeo!