In this episode of Be EPIC, Matt Waller is joined by Matt McLelland to discuss his career in sustainability and innovation at Covenant. McLelland has recently been promoted to VP of sustainability and innovation where he continues to thrive in innovation and conceptualizing the future of the trucking industry. McLelland explores his ideas for the future and how COVID-19 has sped up innovation.
0:00:08.3 Matt Waller: Hi, I'm Matt Waller, Dean of the Sam M. Walton College of Business. Welcome to Be EPIC, the podcast where we explore excellence, professionalism, innovation and collegiality, and what those values mean in business, education and your life today.
0:00:28.3 Matt Waller: I have with me today, Matt McLelland, who's the Innovation Strategist for Covenant Transport Services, and in this role, Matt has direct line to the President of Covenant Transport Services, and it's a way for the company to really be thinking about strategic topics. And Matt is in this role because he has a strategic mind. And so today, we're gonna talk about innovation and we're gonna talk a little bit about sustainability as well, 'cause that's a big topic. Matt, thank you so much for joining me today, I appreciate it.
0:01:11.0 Matt McLelland: Hey, thanks. Great to be here.
0:01:12.9 Matt Waller: As I've said, Matt, I really like your title. You have a very unconventional role in a company but it's something that's so needed because when you talk about things like innovation, and of course, you're the innovation strategist, they say that one of the best ways to think strategically is to consider trends and to think about how those trends affect your company and your industry. But then you can't just think about it, you've gotta come up with a strategy to be able to implement it. So would you mind telling me just a little bit about your job?
0:01:50.9 Matt McLelland: Sure, absolutely. So I started with Covenant about three years ago and actually, Matt, I had gotten out of logistics altogether. I'm roughly 50 years old, I've been in IT for a while, I've mostly worked for logistics and transportation companies but Covenant called me and said, "Hey, we'd like to talk to you." And to make a long story short, I was offered a job they've never had before. Their board of directors and their leadership felt strongly that so much was happening in our industry and really, we'll just say we're a trucking company but we're also a warehousing company. We're deep inside of all aspects of the supply chain. Because it was an industry that I knew, it was an industry that I really enjoyed, they made a really great offer. My job, Matt, is to get up, go to work, and to not have any day-to-day responsibilities but to think about the future.
0:02:43.8 Matt McLelland: And so there's so much going on in our space right now and everybody else at the company, they come to work and they think about keeping the trucks filled, keeping the warehouses filled, they have sales responsibilities, they have responsibilities keeping trucks on the road, keeping them filled, recruiting, hiring, IT problems, but everybody's too busy to really think about the future. I get to start every day doing everything from reading the Wall Street Journal to transport topics, to scrolling through Twitter feeds, looking at freight waves, to networking with my competitors, I guess, for lack of a better word. Rising tide floats all boats, you've heard the expression before, and so I have contacts at other companies that do exactly what we do and we're constantly bouncing ideas back and forth.
0:03:29.8 Matt McLelland: I get to spend a lot of time looking at things like battery electric technology or the decarbonization of freight. I get to think about and look at, and talk to autonomous truck startups or to two kids out of Stanford, just to give you an example, that a year ago, I met at a trade show event that have an idea that just got $20 million in funding, and they didn't know anything about logistics a year ago and now they know almost as much as I do, it seems like. And so I have a long runway to think about the future and to bring some of those best ideas directly to corporate leadership for consideration.
0:04:07.1 Matt Waller: You know, I give credit to whoever came up with the idea of hiring you for this job. It seems like something... And as you say, it's not a typical job but it seems like something every company needs to some degree. But I'd like to talk to you... Just to dig in a little bit, you mentioned a long list of things, I've been really interested in this topic of hydrogen fuel cells versus electric battery approaches and it's funny, I find myself reading something like, "Oh, hydrogen fuel cells, that's the way to go." And then I read something else like, "Well, there's a lot of trade-offs there." And then you read something on batteries and... I imagine there's multiple solutions to this problem but what are your thoughts on it?
0:04:57.3 Matt McLelland: Wow, we could talk a long time about that, Matt, but generally speaking, our industry, the trucking industry... And we're not the biggest trucking company, we have about 2700 trucks on the road. Our friends right there in your neck of the woods, JB Hunt, they have significantly more than that. But as an industry, we put a lot of carbon in the air and we do a lot of polluting, and so when you think about what I'd like to call the decarbonization of freight, it's the idea that all of us need to do a better job at figuring out alternatives to diesel fuel. Diesel is dirty. It is really the ultimate fuel cell. It's portable, it's inexpensive, you can move it around, which is why you have fuel stations all over the country. It's really... In fact, the first vehicles in our country were electric cars that just... We didn't have battery technology that would make them go more than a block and a half before they ran out of energy, which is why ultimately, gasoline and petroleum won out as the ultimate fuel cell.
0:05:58.0 Matt McLelland: But as a group, we pollute a lot and I think anybody, Matt, out there listening to the podcast will have seen Gavin Newsom in California who has said that by 2035, all cars that are sold need to be basically non-fuel-based, battery, electric, hydrogen-powered. We have people in your backyard like Walmart, they're making big initiatives to have X percentage of their fleet. I think it's 60% carbon neutral by 2040. All companies are starting to make some gestures here and we're certainly part of that.
0:06:30.6 Matt McLelland: When you look at the technologies that are available today, in the market that we're in, the long-haul market, driving for 500, 600, 700 miles in between stops, your options are limited. You mentioned hydrogen. Hydrogen is a great solution but like you said, there's an upside and downside. It's very clean on the upside, it's very expensive to produce on the downside. A hydrogen truck, as you know, is an electric truck. It has a smaller battery and the energy is produced on demand. We're also looking at battery electric but right now, the biggest problem for those of us in the long-haul market, is there's some charging stations? I think if you'd look at the average truck stop in the middle of nowhere in Nebraska, if you had 10 trucks charging, that'd be probably brownout the town because there's just not a lot of electricity in the grid.
0:07:21.7 Matt McLelland: So there are a lot of changes that are gonna have to happen before we see this be more mainstream but I think where you're gonna see the first real impact are UPS, FedEx, people driving under 100 miles a day, people doing the last mile delivery, people that are not in Class 8 trucks. Class 8, for those of your listeners that are not in the know, it's the largest truck. It's the 53-foot trailers and the big cem mix that people see driving down the road. I cannot wait until my UPS driver pulls up in electric truck one day. I look forward to the day. So there's so much going on in that space. It's an area that I get a lot of interest in when our customers ask us, "What's the biggest thing you see, the biggest thing that potentially is gonna be disruptive?" I would have to say the areas that we're talking about right now.
0:08:10.4 Matt Waller: Of course, there's innovation that occurs in the technologies, hydrogen fuel cells, batteries, there's innovation that occurs in how to apply it to the delivery vehicles and so forth, but innovation in general is really an interesting topic. And I know you have a model that you talk about where you look at continuous improvement is about doing the same things better, innovation is about doing new things, and disruption is about making things that make the old things obsolete.
0:08:47.4 Matt McLelland: You must have been looking at my LinkedIn page. [chuckle]
0:08:49.0 Matt Waller: You bet. That's how I did it. [chuckle] So when you think about hydrogen fuel cells and battery-powered electric vehicles, and so forth, like I said, there's innovation in the technologies themselves but there's also gotta be a lot of innovation in how they're actually implemented from a practical perspective. And then your model made me think about it from a disruption perspective because certainly, it's gonna have an impact on combustion engines and so forth but how much of an impact it has is probably... It's probably a portfolio. There's probably still gonna be some vehicles that are traditional gas-powered motors and there are some that are gonna be hydrogen fuel cells, and there are some that are going to be battery, electric. So the disruption is going to occur for sure but it's a degree to which... I kind of think of this as being somewhere between innovation and disruption but I'm not sure about that. What are your thoughts on that?
0:09:54.5 Matt McLelland: Gosh! So many thoughts there. So you talked about a slide, and I know this is a podcast and it's hard to be visual in a podcast, but if you look at disruption on the right-hand side of the spectrum and continuous improvement on the other end, I think that customers always expect us to get better. We always expect for our new version of the iPhone or the Android to get a little bit better or Taco Bell to come out with a new form of combining the same 12 ingredients together in a different way. That's continuous improvement. On the other end, when you have disruption, those are what changing the way markets work. Examples of that are, now, nobody buys CDs anymore, they download music, they subscribe to Spotify or Apple Music, or some of these other services. Or maybe you can think about Airbnb, the way that we do vacation rentals now. The idea of not staying in hotels but staying in people's homes. Those are disruptions.
0:10:57.4 Matt McLelland: And so here in the middle, innovation in this space, especially as it relates to some of the technologies you've talked about, the evolution from a diesel truck to an electric truck is not really all that complicated. The first electric trucks are gonna be trucks that are built on the same chassis that just... Instead of an engine, it has a giant battery pack and instead of axles, it has electric motors. And so we're going to start seeing implementations of those electric trucks. We're already seeing it in California and states that are very progressive, but these types of things we're gonna see on the road in the next couple of years.
0:11:32.5 Matt McLelland: What's really sort of edgy and more disruptive are some of these technologies. Hydrogen, in my opinion, is probably a little bit more disruptive than something like pure battery electric just because the production of fuel is gonna be something that's so different from the way the nation is used to procuring fuel, both for consumer cars and for trucks. And then of course, real disruption in freight delivery is gonna be when we actually figure out a way to do it on something other than a truck, something like 3D printers close to where a product is actually gonna be consumed, where instead of making the product, shipping the product by boat, putting it on a truck, delivering it to a distribution center, putting it on the shelf and then moving it again ultimately into the hand of the consumer, you actually produce the product maybe within a mile of where that customer lives. That's really gonna be what the disruption is.
0:12:24.8 Matt McLelland: The invention of the shipping container in the early '50s was probably one of the most disruptive things that supply chain had ever seen, and it's so simple. It was just a standardized crate with ways to stack them on top of each other. And since then we've had a lot of innovations but right now we're really starting to see... This is an exciting time to be in this industry because there is so much going on. I know you're interviewing me on your podcast but I almost like throw it out to you. You get to see so much in your role.
0:12:57.9 Matt Waller: I do. I agree and I think that you see it in technology, like we've been talking about, but also in processes. I think COVID allowed for lots of experimentation with new processes. One thing that I think about is omnichannel retail. Players like Walmart were already making a lot of progress on things like pick-up but COVID caused everyone to really jump ahead on that. I don't know how many years ahead we are now because of this one year of COVID, so you have a lot of innovation in how to execute things like pick-up, delivery to home, and how do you manage the logistics and supply chain of a store when it's not just for products that people are coming in and picking up but they're ordering it online, picking up, having it delivered to their home or delivered into their home. Those processes change how a distribution center works, which affects transportation, but the one I think that is really going to have a big effect is more on the software side and that is, traditionally, most of our solutions, planning and execution solutions in supply chain, have been very much dependent on looking at historical data and coming up with a plan and then executing against that.
0:14:30.2 Matt Waller: So for example, inventory management solutions, trying to forecast what demand will be in the future, trying to forecast how much uncertainty there is around that demand, which then plays into how much safety stock you should have. And similarly, looking at historical lead times, historical lead time uncertainty, then they'd incorporate all of that in to try to figure out when orders should be placed and for how much. This is one of those things that people don't talk about in supply chain but it affects transportation, it affects warehousing, it affects stockouts on a shelf. But this didn't work during COVID and actually, it was becoming less effective over the years because things are so dynamic, demand is highly uncertain, product life cycles, in some cases, we're very shorter, they have different demand characteristics.
0:15:29.9 Matt Waller: I think that the new solutions that are going to replace the old planning solutions will be more empirically based and kind of like experiments. In other words, you might use a planning tool to set your initial order up to level or re-order level, or order quantity but then as you start executing going forward, the solution would look at it as a real-time experiment where you're constantly testing hypotheses by looking at the changes in transportation cost, inventory cost, stock out cost, etcetera, service levels, and then adjusting the parameters based on what you're actually observing. Another problem that that overcomes is this notion of execution because all those planning models that we see assume execution is done well but as we know, things don't always get executed, whether it's in transportation or warehousing, or network design, or forecasting, or inventory management. All those things have that weak link.
0:16:38.0 Matt McLelland: You know what's interesting about that? Something happened to me last week that has never happened before in all of the thousands of orders that I have made from Amazon, me and my family have made, over the last, I don't know what? 10 years, 15 years, 20 years. I got something in my box that I didn't order and I looked at this... It was this glass bluebird. In fact, it's sitting here on my desk. I wish you could see it. I looked at this thing, it was like... I got my order and had all this stuff, and I'm like, "What is this?" And it was the first time they ever messed up and I just thought about that for a minute because that's really never happened before. I ordered something from another vendor a few weeks ago that the item never showed up. The UPS tracking number said that it was in Chattanooga where I live but nobody could find it and eventually, they talked about visibility, product visibility, which is another interesting thing to talk about as it relates to technology, but it was the first time in a long time when something just didn't make it here. And you think about COVID and how shipping volumes are through the roof 'cause people don't wanna shop but my personal experience as an individual consumer, it generally works pretty well.
0:17:48.0 Matt McLelland: I agree with you, it is hard to demand and forecast and the Suez Canal gets blocked, and then all of a sudden the supply chain gets disruptive and the pizza restaurant can't get their secret ingredient and they have to pivot and start making something else, it actually happened here in Chattanooga a few weeks ago, but there's more parts of this that do work and don't work. What really... Another thing that scares me as a consumer is, I was down in Wyoming with my son on spring break, I'm skiing, and all of a sudden, in the social media feeds that I get, all these products and goods related to what I'm doing start showing up, [chuckle] restaurants, places to eat, things to buy, skis to look at, and you've got technology that's driving my consumer behavior, what I choose to buy, what I choose to put into my shopping cart. I think that is also an area that's really interesting right now. What I choose to purchase is different now because technology is pushing things in my direction; sometimes subtly and sometimes much more direct.
0:18:48.2 Matt McLelland: My son, who's 15... We got an old car the other day that had a manual crank window, it wasn't powered windows, and he looked at and he said, "Dad, what's that?" [chuckle] I said, "What do you mean?" And he said, "What's that thing?" I was like, "That's what makes the window go up and down," and he just laughed at me. He's like, "No, it doesn't." I said, "Go and try it out." And it took him a minute to figure out. Eventually, he got it to work. Our children will never know what it's like not to order something and have it show up in two days. It's a really an interesting time to be alive and be in the supply chain business and understand how things work at all levels.
0:19:21.8 Matt Waller: Absolutely. We've been talking about innovation in technology, innovation in logistics, but probably one of the biggest areas of change that we're facing is work. What are you all thinking in terms of the future of work?
0:19:41.5 Matt McLelland: So I just did a presentation to our board of directors a few weeks ago, the five biggest trends that I felt like we needed to be on top of. I talked about some of the things you and I have already spoken about, about the decarbonization of freight, and I talked about autonomous vehicles, but one of the things I talked about was the future of work. Now, I know that when your listeners are thinking like, "Oh, he's talking about working from home," and yes, but it's really bigger than that. I'm not talking about living in Little Rock, Arkansas and working at home and my office is a few miles away, I'm talking about working for a company in Little Rock, Arkansas and now that COVID has proven that we can do our jobs remotely, at least if you're in that white-collar world, you can move to another state, you can move to another country.
0:20:27.3 Matt McLelland: You know, Matt, I am working on our company's first corporate social responsibility report and I needed a designer, and I'm really big into the van life movement, camping outdoors, that kind of thing. There's this whole group of people called digital nomads. They travel around in vans and RVs, and I follow a guy and his wife who live in an RV or live in a van and he's a graphic designer. And I knew he did that, and so I just reached out to him on his YouTube page, just sent him a message and said, "Hey, I work for a publicly traded company and I need a designer. I would like to see an example of your work." And to make a long story short, that guy is helping me now write our first corporate social responsibility report. He's on YouTube and Instagram, they have a pretty decent following, but he's a digital nomad.
0:21:12.0 Matt McLelland: But the future of work is really interesting because it's about working remotely, and some of the things that we did in our company when we really didn't have any idea how long this was gonna last was we started doing things like telling people, "This two hours that you've lost every day in a commute, you should exercise, you should be your coach in your kid's baseball team, you should spend that time being more productive in other areas," and our experience has been fantastic. Now, you have to figure out pretty quickly, for example, measuring performance is very different. I think that one of the things that has been a real impact to us is our travel cost have dropped significantly, trade shows, customer visits, and so we've actually seen a little bit of a bump in some of our budgets because of this. So I think the future of work, and I think that your students that might be listening to this podcast, it might be one of those scenarios where the idea of actually living in the same time where you have your first job is just not anything that's really all that important. It's harder to do mentorship, it's harder to have some of those interactions and meetings remotely but I think it's gonna be a different world as a result of all this.
0:22:30.4 Matt Waller: Matt, I've heard you talk about corporate social responsibility. It's a somewhat nebulous topic but everyone's interested in it right now. What is your company doing with respect to CSR?
0:22:44.7 Matt McLelland: So I think companies sometimes get a bad rap because the assumption is it's all about the bottom line and they're just trying to be profitable. The more our company start peeling back the layers and looking back, those two things aren't necessarily mutually exclusive and a good rock-solid CSR plan that has been vetted from the top and pushed down across the entire organization will tell you that you can be thoughtful and sensitive to the environment. Not all companies are the same. So for example, a trucking company like us, we're gonna have a lot of impact on the environment. We're putting a lot of effort into the sustainability piece of it, so it's the environment, the community, and your people. So those are the three legs that ours is built on. And so people, you think about culture, you think about diversity and inclusion, you think about volunteerism and things that your company can get involved with.
0:23:40.8 Matt McLelland: What's interesting, Matt, is when you look at CSR and you look at the reasons why you do it. Sometimes people will criticize you just like, "Well, you're only doing it to check a box, you're only doing it because it's good marketing, you're only doing it because you think customers want you to go down that path," and for some people, that's probably the motivation behind it. For us, ever since we were founded in 1986, we've been very passionate about giving, we've been very passionate about having our employees be connected to the community. So for us, it's always been a part of who we are. We may not have always called it corporate social responsibility, Matt, but it's something that we always did. And so most companies that I come across have elements of CSR already baked into the way they do business, they just don't necessarily call it that. Does that make sense?
0:24:31.9 Matt Waller: Yeah, absolutely.
0:24:33.2 Matt McLelland: So if you watch our website, over the next couple of months, we'll be producing our first version of it and it basically explains what we think it is and how it's part of who we are as a culture. We're starting to have customers contact us directly and be willing to pay more money if we can step up and help them provide things that also benefit their CSR plans. I'll give you an example. We've got a large customer right now. They're really encouraging us to introduce a battery electric truck into the duty cycle, into the project that we have with them, and they're willing to pay the premium in order to offset that cost. That's something we've never seen before. These are things that are important to customers, it's important to their customers. For me, personally, as somebody that's very much into the environment and the outdoors, it's something that's just very near and dear to my heart. My role will be changing pretty soon, and I can't really talk much about it 'cause it hasn't happened yet, but there'll be some formal sustainability roles and responsibilities in the job that I have in providing our leadership with new ideas and things that we can be doing that we're not doing today.
0:25:42.8 Matt Waller: Thanks for listening to today's episode of the Be EPIC podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcast. Be sure to subscribe and rate us. You can find current and past episodes by searching, beepicpodcast, one word, that's B-E-E-P-I-C podcast. And now, be epic!