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Gonzalo Benedit, GM of EMEA, Aera Technology interviews Ingo Schröter, Vice President, Kearney, and the two discuss the importance and the challenges with de-risking supply chains, and how technology can help.
Gonzalo Benedit:
A lot has been said and written about supply chain resilience, but actually, what's happening in the market? What is it that companies are doing to gain that required agility and flexibility? Today, we have, with us, Ingo Schröter from Kearney. Vice president at Kearney. Running the supply chain community for central Europe. Ingo, good morning. Thank you for joining us today.
Ingo Schröter:
Good morning, Gonzalo. Nice to be there.
Gonzalo Benedit:
Excellent. Ingo, to start with, what are companies typically looking at to de-risk supply chains?
Ingo Schröter:
Well, I mean, resiliency. The de-risking is a big topic right now. Basically, every conversation I have with any supply chain. If it's not the core topic, it at least touches that topic. It's just very hot these days, right? Even though you see some differences across industries, it is hot on the agenda. I guess, a lot of supply chain executives have a lot of presence at the top level as well, right? These days. Where they got asked of, "How are we prepared?" Or actually, even worse, having to explain how they deal with the challenges at hand. So, it is a really important topic, and it has come to a lot more attention than probably in the past. I mean, you can also see some differences in industries. If you look at pharma, where I work a lot, for example, there has in the past, or it be a higher awareness of that risk. De-risking supply is a big priority.
Versus, if you look at automotive, where it was always around being very cost efficient, very lean. Probably that de-risking topic had a priority, but not as high, probably, like in the pharma industry. That's what we see. I think, in general, I have to say that resilience or de-risking supply chain is a bit of a challenging business case, right? Because, if you look at it, it's always a probabilistic topic. It can happen, right? And then you have a problem. But it can also not happen, then you have spent investment money for something that didn't occur, which is a bit of a challenge for some of these cases. But, the awareness now is much higher with events like recently Suez, ice storms in the US. The whole Corona environment with the ups and downs of demand. There's a lot going on, and a lot of challenges happen. I think the awareness is there now, and a lot of companies are looking into starting to act upon the topic.
Gonzalo Benedit:
Yeah, absolutely. So many significant disruptions lately on supply chains, and it's interesting. It reminds me of one of our customers — a very large company within the consumer good space. Well, they say it's significantly less about forecasting and it's more about agility. How do you embed agility into your supply chain to be able to adjust to those disruptions, to be able to adjust to whatever changes in demand or supply you might face? Ingo, you've raised an interesting topic around trade offs, right? So, the trade offs that you have to make between maybe costs, working capital and service level. How would this evolve throughout time, while investing into building that resilience? How will you manage those trade offs in the future?
Ingo Schröter:
Yeah. I mean, trade offs are there, right? There's always the classical approaches to tackle resilience and be more able to react to disruptions, which are levers like any buffering or backups that you build into your supply chain. Be that safety stocks, be that additional production, capacities, be that dual sourcing strategies. They all might have a cost to them, right? But I guess the thing to think about is really, how can you think about this investment differently? Basically, what are additional positive effects of such investments? Take the example of strategic stock.
You put strategic stock with the priority to directly risk your supply chain, to be more reactive to a certain disruptive event, but you could also say, "Well, I could probably position that strategic stock closer to my customers, thus reduce the lead time and, in the best case, monetize that. Get higher prices, or at least have some competitive differentiation and, probably, gain more market share. So I think it's really about thinking through the trade offs, yes, but also, what else can I achieve by investing in that? Not just have that probabilistic risk case, which might not happen, and then you spend money for nothing.
Gonzalo Benedit:
Yeah, absolutely. Absolutely. On that, one thing we see there, Ingo, is the fact that... Actually, through technology, right? That would enable you to make the right decision, at the right time, and therefore, very often, you would actually not need to go through those trade offs, right? Because you are a lot more agile in making decisions. That would allow you to drive more accuracy, more frequency, more granularity, more automation, and more coverage in the way you make your decisions. You could actually cover the long tail of those decisions to optimize your supply chain that, often, cannot be covered by humans, right? Because of just the natural limitations of humans. That's where, again, we believe that, potentially, the combination of humans and technology would allow you to take some of those trade offs down. At Kearney, you refer often to sense and pivot, and this is a framework precisely to achieve resilience and agility. Ingo, can you share with us some customer experience you might have on this approach?
Ingo Schröter:
Yeah. I mean, sense and pivot is a concept that indeed embeds this whole topic of being more agile and more flexible. Obviously, if you're agile, you also have an element of resilience ability. And so, it's touching both topics, both on the downside. On the risk side, as well as on the up side. Sense and pivot, essentially, is three building blocks. It talks about sensing, so the ability of companies to, as early as possible, recognize changes in their environment. That could be demand-sided changes, but it could also be supply-sided changes, right? The second pillar is around the, "What do I do with this insight?" Sorry. "What do I do if I know that demand is suddenly spiking, or if a supply situation is coming up?' I need to indeed be able to evaluate what does it do to my supply chain, first of all, and then also to play through scenarios and options. Quickly evaluate those to conclude what's the best possible reaction.
In global complex supply chain that often spread across multiple companies, right? This can be a very complicated task, even more if you want to do that in a very quick pace, right? So having that done by people that are cascading it through organizations, multiple organizations. Internally, outside. It is really challenging. That's the second pillar. How can you better do that? And then, the third is really about two things. We call it a "pivoting operating model". So, how do you build an organization that's as flexible and fast as possible, on the one side, and then the other also, how can I tweak my physical supply chain in a way that it allows me more flex, right? It's really thinking through these three dimensions that we do. Just to give you an example: I was working for a pharma company in the early days of COVID. They had nearly got a stop of production completely, because they were missing a pretty cheap glass bottle, which was used for QC testing.
In pharma, every product that moves out of your plant towards the market has to go through QC testing. Basically, they were nearly shut down on the production, just because of an Italian supplier. We all know where COVID break downs in the beginning, in Europe. He was basically announcing that he had to shut down his plant for two weeks, and they were single sourced, right? What we did is, we basically thought, "How can you actually bring COVID outbreak data?" That was widely available, I would say, from March, April on last year. How can you bring that in? Constantly monitoring that. And then, a map that to your supply chain and, and see what are potential risk areas that you have. And then, you can look into that and see how you can mitigate some of those risks, but simple solutions like that often didn't exist and still don't today, so a lot of companies are looking in these spaces as well, nowadays.
Gonzalo Benedit:
Yeah, absolutely. As we said, right? Disruptions definitely continue. That's a fascinating business concept, right? So, new business concept. How do you see technology enabling this new concept?
Yeah. Technology is an enabler. I mean, this idea of collecting data real time. In larger amounts, right? Not only from your ERP system or systems, but beyond that. Out in the whole social media world, or out in different supplier platforms. There's so much data out there that you can use, and if you're intelligent, evaluate that. It can trigger a lot of insights, right? To get that together, and then also to do these evaluations of, where does it hit my supply chain? What are the option, and evaluate that. Not only from a volume, but from a also financial perspective. Nowadays, sustainability is a big topic from a CO2 perspective. There's so many dimensions and variables. If you try to do it with the human brain, even if you have many of those, it is just impossible, right? So technology is a key enabler. I guess that's also the reason why we know each other, Gonzalo. It goes together, right? Technology is a must have if you want to implement those concepts.
Yeah, yeah. Well, we fully agree with that, right? What we are seeing precisely is that many companies, not just within supply chain, but across multiple divisions. In an enterprise, right? Humans are not able longer to cope with this increasing complexity. These massive data volumes, right? Because ultimately, you do need to rely on all that data, and on all the right data, to make an optimal decision, right? To either de-risk your business, de-risk your supply chain, or capture an opportunity. We look at this as a new way of working truly, right? It's less relying on the hard of the human, and actually, it's more relying on the human brain to guide the machines, to guide the technology, to come up with a decision.
It's also about gaining that ability of quantifying the decision-making process, right? Very often, in many companies, I'm sure you can see as well, Ingo, there is this reliance on super experts, right? That have been in business for a while, right? That truly understand how to come up with the optimal decision to address the situation. Well, that's actually not truly sustainable, and not scalable, right? Basically, the new way of working would be, how can you leverage technology? How can you leverage so all of these new tools, data sources that are available to change the way you make your decisions in your business? Right? Yeah. We see, as well, technology being this very unique enabler to drive this transformation on the way companies run their supply chains.
Ingo Schröter:
Yeah. Maybe just to add one thing here. I mean, you mentioned an interesting topic. Nowadays, often, decisions are made based on experience of human beings. If that's a very experienced person, that is perfectly fine. However, it's an imminent risk in your supply chain, because first of all, that person might not be there forever, right? The second is, you might not have this clever person at each node in your chain, right? In some places you have the clever person, others who doesn't. The last thing is, are these clever persons really connected, or are they optimizers and they're optimizing their side of it? There's a lot of these things. Alone, the fact that you codify that experience and bring that together, which is only possible by technology, right? Is something that alone, in itself, de-risks the supply chain.
Gonzalo Benedit:
Yeah, absolutely. Ingo, one more on how to leverage the existing data, right? One thing that I often discuss with companies is, look, some of these technologies, these tools, these platforms are great to look into the past, and based on that, predict the future, but the reality is a lot more complex than that, right? Again, we've seen it quite a few times lately. How do you cope with these, let's say, unforeseen disruptions? The things that, actually, you cannot predict based on the history.
Ingo Schröter:
Yeah, you're fully right. I mean, to go to companies now, also in our business, and tell them, "You should have foreseen that crisis." You sound a little bit stupid, to be honest. Yeah. I mean, in some cases, I do think you could have foreseen it in a better way. But, I mean, if I would be able to foresee the future, I wouldn't do consulting, right? I would make a lot of money with oil deals, or whatsoever. I think there is an element of foreseeing. I would say, it's even more important to see it as early as possible, right? Even if you don't foresee, but you see it coming and you can start thinking what would happen, if it happens. But I think, as you said, the there's another aspect which is very important for resiliency. That is, how do I actually handle a situation? A disruption when it occurs, right?
There's also lots that you can do in supply chain. Just to give you an example: We are currently working in the pharma industry, and one of the big challenges this industry has right now is that this whole wave of COVID vaccination created an immense surge in demand for vaccination doses. All the production of vaccines is currently facing shortages. The demand went up, I think, 30 to 50%, depending on what forecast you look at, but it's huge, right? If you look at it. The one big topic is the biomaterials, the bio-process materials, like filters, like all these tubes and liner bags that are used in production. They're just short. They was very few companies out in the market who are specialized in this type of equipment, and value chains behind partly have clean room requirements, so to ramp up the facilities here is really challenging.
They're in a constant firefighting mode. Both pharma companies, material managers, as well as on the other side, the suppliers, are constantly have to deal with, "Okay. I have to cancel the OPO. I have to cut your volume." Then have to look at, how do we actually react to that? Can we shift stuff in our production? Do we have stocks in other places? Can we relocate these stocks? What does it cost? Is that a good idea, or do we rather postpone? Or, do we probably tell our supplier, "Okay. Instead of cutting this, which is running on the same asset, can I cut something else, which I need a bit later?" These decisions, it's all manual, right? These people are saying on email, thousands of emails and phone, in order to resolve situations, and they usually need to do that in very narrow time windows. So, you can expect that there are some decisions that are taken are not optimal and really evaluated across all dimensions of performance.
This is a big topic. Here again, right? The solution is codifying some of this, right? Codifying, what would I do if I see a certain situation? How would I actually run through a workflow of checking whether I rather postpone production, or whether I relocate stock, or whether I switch a lot with a supplier? That is all possible, right? You can codify that, right? This is something we are working on, and this is a way of how to manage a disruption rather than trying to be the crystal ball and see it in glass.
Gonzalo Benedit:
You're absolutely right. We see it exactly the same way. Yeah. It goes back to the agility, right? Being able to bring that agility to your way of running the business. Ingo, what would be your recommendation to a supply chain executive that is looking into how to get started? Any tips?
Ingo Schröter:
I mean, one of the interesting things is that the supply chain executives get a lot of management detention right now. You can say that's annoying, right? To be called by your boss and say, "Hey, what is happening? Why are you not you able to deliver? Could we have prevented that situation." So on and so forth. It's painful for sure, but I always think, as well, never let a good crisis go without a benefit, right? This is the time you get a lot of publicity. It's really like the celebrities, right? Bad publicity is better than nothing. You get to manage attention, so you have to use it, right? So bring forth some of those things you always wanted to do. Bring forth the ideas of how you can do de-risking. On the back end of it, think about opportunities.
Like I mentioned in the beginning, not only the risk case, but also what can I benefit from it? So if you, for example, look at this idea of having more visibility in your tier chain to foresee risks earlier, right? You could also say, "Let's leverage that for this whole trend of sustainability." So, if I anyway do supply-based monitoring, can I not also integrate some of the ESG elements, right? So the whole topic around sustainability, [inaudible 00:19:00], because it's all those things. To put it all together, right? Because you have to do it anyway. Now is the time to position these cases in front of the management, and ask for the necessary and resources to drive it forward. That, for me, would be the core recommendations for any supply chain exec.
Gonzalo Benedit:
Excellent. No, fully agree. I would probably add a couple of angles. One is around taking an agile approach, right? You don't need to boil the ocean, right? Today, there are lots of solutions and approaches that would allow you to very quickly, right? So in a matter of weeks or months, right? So make a difference, right? Bring that resiliency, that agility, into your supply chain, right? Again, you don't need to boil the ocean. The second one, and I go back to the decisions, which is, focus on the decisions, on the needs for you to make. For the company, for your enterprise, for your supply chain to make better and smarter decisions, right? So, the right decision at the right time. Versus, focus on the process, or focus on the task. I think, in the past, we've seen a lot of companies focusing too much on optimizing a certain process or a task, but it's really, now, about making the right decision. It's building that ability. Ingo, thank you very much for this great discussion. Thank you for your insights. Always a great pleasure.
Ingo Schröter:
Thanks a lot, Gonzalo. It was a pleasure on my side as well.
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