IFS Supply Chain CollABorative - Think Tank Session - Improving Supply Chain Resilience
Date of Meeting: 20 April 2023 10:00 AM US Eastern Time
In this session, the group discussion is centered around this article: https://www.mckinsey.com/capabilities/operations/our-insights/supply-chains-to-build-resilience-manage-proactively
Discussion:
- Q: If you're talking about innovation it's sort of this sense of we need to be thinking about, what does the business need in the short term? But you can't do so at the expense of thinking a little bit further down the road, so one of the questions that I wanted to ask you is, this article was talking about disruption caused by Covid and then also disruption caused by the war in the Ukraine. So, have those things impacted your businesses? Are there hurdles that you're still facing today that are a result of those things? Or do you feel like you've kind of overcome any challenges that surfaced because of those events?
A: Covid is not much of an issue anymore and we have a big setup in China, of course that was the last area where it still was an issue. And some of the long term transport disturbances were caused by Covid, but those are also coming more or less the back to normal. So, not so much.
Ukraine. Yes, indeed in Europe. Europe is not our largest market. So it's quite a striking difference here. Europe, it's hard. Well while the rest of the world are more or less totally unaffected by it, so it varies quite a bit.
A: Covid actually impacted from a few angles. One is related to the shortages on certain type of materials, especially the semiconductors. I'm leading the spare parts distribution operation and we are buying a lot of parts from different suppliers like Rockwell, Siemens, etcetera. And generally speaking, the last two years we have been facing a lot of shortages in terms of automation parts because of the shortage of the semiconductors.
Still, it is not over yet, despite it is now more than a year that Covid is away, but we started seeing some signs from some suppliers, some of them are still lagging behind quite far away from being normal and some of them started showing some signs. So, it looks like it is getting positive. Second aspect of Covid was last year and I think earlier as well it happened, from time to time it created some bottlenecks in certain type of materials. I remember last year at some point, for example, our supply management guys told us that there is a global shortage of silicone. So then those parts that are made out of silicone via the shortage.
I think overall from availability perspective and also huge cost variation and impact perspective, we are almost out I can say.
And Covid impacted us from one more aspect, which is last year in China, there was a big shutdown of certain regions and the Shanghai region where we have our distribution center, serving China and hold Southeast Asia and Oceania, when the region or that district was shut down, our operation was shut down as well.
And because of that, our whole world got paralyzed. The entire supply chain because this is now if you link it with the resilience, I would like to do that because we talk about it a lot these days and we have been getting comments from customers that you guys have a supply chain which is not resilient. You got paralyzed.
So, what happened was that our Lund operation in Sweden is our brain or center, so when that happened, all the customer orders were been pushed to Lund. Whereas we have other DC's like in India, Dubai. Because of the setup that we had, they couldn't take the load. The entire the whole load was pushed to Lund. But as a brain or as a main distribution center of the global operation, Lund became the bottleneck, because it went over the capacity of Lund, the demand, and then Lund couldn't supply all the customers in Europe on time, they couldn't feed the other regional distribution centers on time and also they couldn't supply the customers in Southeast Asia and Oceania as well.
And that's why, we have initiated a transformation project last year which was mainly aiming at this one as well and also digitizing and changing a little bit the way that we work in supply chain. So, one of the aims there is to bring resilience in our supply chain. I think last couple of years we learned a lot.
One another dimension I would like to bring up, which triggered also us to bring this resilience in our supply chain was the war in Ukraine and also deglobalization and the countries putting more boundaries and more rules for their territories and logistics becoming more complex as well because of different reasons. So, in that sense, resilience in terms of regional or local operations and customers, is very, very important. So, we are looking into both how, how globally we could be more flexible and resilient and also locally as well, how it could be more flexible and resilient for our customers that we serve in the markets. - Q: If you think about the article and how it breaks down into short term, mid term, long term, how is the transformation you have underway like? Does it address each of those sort of time frames?
A: What we did is we split this transformation into smaller steps. So, to address the immediate short term based on the risks that we see, we triggered some actions regarding them. When it comes to longer term, which will take care of this global and also the regional and regional supporting other regions as well, that one is going to be a little bit more mid term or long term. That is how we broke it down.
And to address the immediate potential risks that we see, we started implementing those actions as well and they are more like smaller impact actions that can address those potential risks that are short term. - Q: If you think about the impact of Covid as one of the most disruptive events in in our lifetimes, are there any changes that you all have made as a result of that in terms of looking for ways to increase or improve resilience?
A: I think one of the most important things we did was to take a step back from trying to intervene to much on how the sites out there were handling the situation because it was very different. It would hit very differently with the lock downs with the barrier restrictions. Of course we were meeting regularly on corporate level following the situation, etcetera, but we can now just give a general message out to keep the factories running. Keep people safe. Apart from that, I mean do as best you can as close as you can to the customers.
Don't go for drastic cost cutting. Don't play out people. We followed this and that worked pretty well because after all, in most countries the lockdown periods where factories were totally shut were quite short.
And people managed quite well within those terms because, you can’t plan for it, nobody knows, other than having a building after flexible supply chain which mostly means having a broad geographic footprint. Stockpiling doesn't help for long, so it's more about having the capacity in different countries.
So, I think that was learning that worked well.
You have to be on top of the situation, but you also have to push as much as possible. All the decisions as close to local business as possible.
It's very different, of course. There, there are some things that we know will come like the green initiative. The change to greener business that will also give unforeseen breakthroughs and changes, but all those we can plan for, but these things were in the Ukraine, Covid you cannot really. - Q: And that was the point that was brought up. Demand for suppliers with lower carbon footprints or greener alternatives will rise. Suppliers may have to shift inventory management strategies in the coming years. It's a good point that it's a disruption that you can anticipate and plan for. So, I guess when it comes to probably short, mid and longer term like is that topic that is already in play? It's being incorporated into planning and consideration in various areas of the business, including supply chain right?
The impact that the SEC and different European regulations will have on sustainability and how that relates to looking for suppliers with lower carbon footprints or greener alternatives to existing products. And then it also says suppliers may have to shift their inventory management strategies in the coming years,
It's interesting to think about overall, resilience and agility, there's these things especially now we know could happen, but you can't ever anticipate, right? So, you just have to think about how do we put ourselves in the best possible position to react well to disruption. But then there are things like sustainability and green initiatives that are only going to increase in focus. So, you can sort of plan into your strategy.
A: Yeah, we have some discussions already on ESG and the way that we integrated this stainability part into our transformation is that, first of all, we need to we need to make our carbon footprint impact visible. When I when we look at our operations today, it's not visible. And our carbon footprint impact or environmental impact is not a is not taken into account when we make decisions.
Whereas it could be like this and I saw some demo last year when we were in this Gartner Supply Chain Symposium in London, and we saw some demos. For example someone in the supply chain needs to make a decision. Whether this part should be sourced from that location or this location or that DC and then in the options there are three parameters, one is the cost and other one is CO2, and another one is lead time impact. Then the person is aware of it. If it is not so urgent and cost wise is not so much, you can select this CO2 or if the company says as a strategy, always is select cost over the CO2 if cost is within certain range or whatever. So, it should be visible for the people who are making decisions. Today at least in my company and in my operation, we are not there. This is one gap that we need to address, how can we make sure that the environmental impact of CO2 could be visible for the people who are making decisions in the operation. - Q: Is that something you have accomplished or made progress on, or is that a similar challenge?
A: Yeah, we're making progress, but there's quite a way to go and I think again, this is a very different kind of interval of change and disruption.
This is because this has to follow the competence development on a corporate basis and of course corporate functions need to take the lead and need to do a lot of work to be able to be prepared for what's coming because I know a lot will come on regulations with reporting and also from customers.
We require a lot of work. The supplier doesn't have all the answers yet, but I know we have had good discussions with you on ways to go and I think not so many others have all the answers yet either because it's new and all of the requirements are not set. We need to be on top of it and work hard. This is interesting and very different challenge. There are all kinds of disruption that they talk about which you can own only solve within the competence and the framework you already have. You cannot really introduce a whole lot of new things from one week to the other, but here we can. And I think also this stock management principles is maybe a little bit, I don't know how relevant it is because those are things that I think most companies think about from day-to-day and week to week, and constantly adjust a little bit. I don't, or at least we are not thinking just in time is the overarching principle that that we would do, I think most companies try to find their way and adjust these kinds of things quite often based on the situations around. - Q: Well, I think the disruption caused by Covid or the war in the Ukraine makes the idea of just in time feel pretty terrifying. Because you have to have some balance of having some response built up versus, being as lean as you as you can be.
One of the points I liked in here and it was under the section where they're talking about the short term or the firefighting. I think it's relevant across the board. It says ‘CEO should consider implementing cross silo efforts that ensure an agile response to fast moving events.’ And I'm just curious if you feel like you're companies not only did a good job of that in response to COVID, making sure that that there weren't decisions or actions or efforts in silos, but on an ongoing basis, when you think about resilience it isn't really just about supply chain resilience, it's about resilience of the entire business. So, are there efforts taking place to think about strategies that are cross functional.
A: Yes. You know, as supply chain, we have a lot of dependencies. So for example, in our case, one of the biggest dependencies is the supplier management the purchasing function. Another dependency is for example is our engineering function, engineering function designs all those parts and even they to certain extent define where they could be sourced. That's why I think when we talk about the resilience, if we just think about the supply chain itself, it would be it would be really short. In this transformation, we took members from the supplier management into the project and they are also part of it because we would like to do some local and regional sourcing versus the global sourcing, because of this resilience reasons. So, we need to do that and we are doing it for supplier management. There is also one more aspect which has been discussed before in different forms because as a supply chain we have one big dependency of to the finance function because there is a trade flow designed for different reasons, put in in certain way and then we ship the goods and then do the invoicing and all the rest of the documentation based on that. So, if you want to change something in our supply chain, at least it is valid for us in my function globally then we need to have a very strong collaboration with the finance and tax team to make sure that we have a good trade flow design for our resilience activities and transformation we would like to do. So that part, at least in my case, is as a big dependency we have. - Q: I was just noticing in the notes I have here, it talks about re-evaluating just in time inventory strategies. So, it actually says that “the absence of a back stock obviously can seriously threaten.” And it talks about looking at the prioritization of suppliers and assessing vulnerability and then potential measures to mitigate risk. I think the other aspect that's interesting about this is when you get into the scenario planning and the digital twin sort of assessing different scenarios and situations and things like that. Are either of you doing that sort of analysis?
A: No not really. I mean, to a certain extent we plan for growth. We know their capacity etcetera, but we see a lot of this also happens in the moment. We'll see that some of our factories, they are able to do amazing things if they really have to. And they live on site for many weeks at the time, because they couldn't move between. So, people find some fun ways that you don't even think are possible. I don't personally believe too much in doing too much, so this calculation mathematics simulations because real life is very often difficult to predict and there are all those opportunities that they don't think of. Firstly, you don't know where the issue will hit. Secondly you don't fully know how to solve them. - Q: There's what if calculations and scenarios. I mean, it's taking away from effort that can be put into today’s real circumstances, so of course there is areas you can obviously assess vulnerability. You can think about contingencies for certain aspects of your supply network, etcetera. But when it comes to just coming up with pretend situations, I think that makes sense.
A: Yeah. And of course, if it was so easy that you can only do a push of a button and it would calculate at all kinds of different scenarios then of course. But very few systems, I think really can give you that. It's a lot of work with a lot of uncertainty and is it worth it at all? I'm not so sure.
Next Meeting: 31 May 2023 11:00 AM US Eastern Time
IFS Supply Chain CollABorative - Think Tank - Improving Sustainability
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