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ASCM Insights

Episode 48: Sourcing Strategies for a Post-pandemic World

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Bob Trebilcock: Welcome to the Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post-COVID world. This podcast is hosted by Abe Eskenazi CEO of the Association for Supply Chain Management and Bob Trebilcock, editorial director of Supply Chain Management Review. Remember that Abe and Bob, welcome your comments. Now, to today's episode. Welcome to today's episode of the Rebound, sourcing strategies for a post-pandemic world. I'm Bob Trebilcock.

Abe Eskenazi: I'm Abe Eskenazi.

Bob: Joining us today is Skyler Covington. Skyler is the Division Supply Chain Manager RPCNA for Sonoco products, a leader in packaging for both industrial products and consumer products. If you've ever eaten a can of Pringles potato chips, that container was likely manufactured by Sonoco. I'm going to get some when we hang up here Skyler, so welcome.

Skyler Covington: Thanks, Bob. It's a pleasure and an honor to be speaking with you and Abe today. I appreciate the opportunity to connect with the two of you and the broader supply chain community, so looking forward to the discussion.

Bob: Well, we're looking forward to it as well. Like every other industry, Sonoco products has had its challenges when it comes to shutdown, supply shortages and a lack of visibility, just what's going on in the supply base. It's leading to serious discussions about how to plan and work with the supply base going forward. I think those discussions are going on probably everywhere. They seem to be everyone I talked to. While Skyler's background is planning and S&OP, these discussions are integrating, planning, procurement, and operations in new ways and that's what we're going to talk about today.

Skyler, let's get started. We're going to start with an easy one. I gave a very high-level overview of what Sonoco products does, tell us about the company and in particular, the division in which you work.

Skyler: Sonoco is a global packaging solutions provider. We have more than 300 manufacturing locations in 30-plus countries serving a variety of consumer and industrial packaging applications. I work in the Rigid Paper and Containers division in the North American region, which is one of the largest business units by dollars and units within the Sonoco portfolio. We produce paper and plastic cans for large CPG companies primarily in the food sector. You mentioned Pringles. Between North America and my regional RPC counterparts, we produce all of the Pringles cans globally.

In North America, we also produce all of the caulk sealant and adhesive cartridges, as we call them, if you go into any home improvement store, all of those brands, whether they're paper or plastic, we produce all of them. Another large market for us is the refrigerated biscuit market: cinnamon buns, croissants, and other dough products that are refrigerated in food stores. The product we produce is essentially the primary package. Again, especially for food, and if it's a spirally wound can with a label and a metal topping or paper bottom, chances are in North America, we make it.

We again, as the primary package, that is the product that the customer purchases from us and then they then take a can that usually has a top or bottom already sealed onto it, fill it with product, and then we sell them the other attached end that goes on the other side of the can. For this discussion, one of the critical points is Sonoco is highly vertically integrated. We actually source a lot of our critical raw materials from internal sister divisions, which as you guys can imagine, is and can be a blessing and a curse all the same time.

I just wanted to highlight that piece because I'm going to touch on how we interact with both internal and external suppliers.

Bob: Skyler, just real quick, tell us a little bit about your responsibilities, your portfolio at Sonoco.

Skyler: Sure. I have responsibility North America for 17 plants, two in Mexico, one in Canada, and a balance in the US. The supply chain group within RPC North America is essentially a center of excellence type of structure. From a responsibility perspective, I have purview over all of the planning, which essentially means the S&OP process, including demand, rough-cut capacity planning, and then any strategic raw material planning activities that the business needs.

We actually have a separate corporate sourcing group and they have primary responsibility for managing strategic sourcing events, contracts, pricing, but as we'll talk through, I'm working a lot more closely with them across our planning processes. In addition to planning, I also have a responsibility for all the inventory, and all the processes associated with it to plan it and utilize it. We're an Oracle house, so in regards to planning tools, I have responsibility for all of those MRP, rough cut, production scheduling tools.

Then the final piece is I have responsibility for our supply chain pillar, which is a component of our internal Toyota House of Quality Program that we have. All of the assessment and working with individual plants, planners and processes, I have responsibility for that, as well. I will say, in the past two years, which I know we're going to talk about, my team has moved into a much more tactical role. We're looked to from the business as the experts in planning and execution activities and processes.

As a result with market changes all the supply risks that we've all faced over the past couple of years. We've also been working directly with suppliers, which I'll talk about plants, other stakeholders within the corporation. That's organically led us into a lot more tactical type of role versus a pure strategic Center of Excellence.

Abe: Skyler, you've really described a lot of the challenges that supply chain professionals are facing almost on a daily basis. Especially from the last couple of years, we've seen a lot of challenges and changes within role responsibilities for the supply chain professionals and yet, it seems like we're still working through those challenges we really haven't cracked the code yet. As you're looking at the challenges that's facing you and your team, specifically on sourcing and raw material risks, obviously, a critical part of the disruptions that occurred in the beginning of the pandemic.

Has that changed, in your perspective, in terms of your ability to source the raw materials and get the parts and the resources necessary, or are you focused on something else?

Skyler: It's a layered question, Abe. I would say for us, it's important to provide a little bit of context. 2020, obviously, we're facing very similar issues as it relates to COVID, in terms of material shortages related to suppliers having labor issues, or just lack of production capacity so that was a couple years ago. Last year for us and I actually referenced this in a talk I did a conference, last 2021 for us was really about extraordinary environmental constraints.

We had several events, a winter storm at the beginning of 2021 in particular, that drove different, but additional constraints as it relates to sourcing raw materials and all the planning activities. That was really what consumed us in '21. Then this year, again, no different from anybody else, we've been facing a highly inflationary environment across all of our raw material commodities. Then what's interesting to me is, in the past few months, there's been obviously a right-sizing of just inventory across all of our networks, internally, as well as with our suppliers.

We've seen multiple suppliers pull back production significantly, partially in anticipation of weaker demand in the second half of the year, and also going into '23 but also because there's a lot of inventory out in the network right now. Maybe getting back to your question, Abe yes, in terms of how we have supported all of those different planning and execution requirements has absolutely changed. I would say that the biggest challenge for me right now is just helping the business rebalance the three legs of the supply chain stool: cost, service and cash.

There's this perception that, hey, there's a lot more inventory out there to be had, but also a recognition that it's to be held at a much higher price. Then at the same time, we still absolutely have pockets of supply risk. I think that the pendulum is swinging back currently, and we're being pressed to reduce inventories, even though we still have price and supply risks. That's a very high-level fear, but as you can imagine how we're dealing with that is different in a lot of ways versus just not being able to get material like was in the case in '20 and '21.

That's the one thing that keeps me up at night is battling those perceptions of, hey, I'm hearing in the media that there's just more inventory, the demand is slowing so we should have less risk, more material availability, but that's just not the reality. The world is obviously a whole lot more complex than it was a couple of years ago for all the reasons I mentioned. I hope that answers your question. That's one of the key things that I've been battling over the past couple of months. Again, it's nuanced, but it's certainly different from a year ago.

Bob: Skyler, you've hit on supply and supply issues in your last question quite a bit. I recently had a chance to interview the outgoing global CPO for J&J. He had a really interesting observation, of course, easy to make when you're going out the door. He said that for the last couple of decades, we focused on CRM because supply was pretty predictable. Supply chains work the way they ought to. He said he believes going forward that we're going need to make the same investments in SRM because in his view the company that has a stable and reliable supply base is the company that's going to win.

You've just been talking about supply and indicating how you're working with suppliers. Can you identify three key ways in which you're interacting with your suppliers today versus before the pandemic and before we hit all of these disruptions?

Skyler: Sure. There's obviously a lot. Boil it down to a handful that folks would be interested in. A little bit challenging, but I think that the one that bubbles up for me is that to your point about SRM being a more holistic approach, we're working with our suppliers in different ways. One of those is we're actually working with our tier two suppliers in a manner and level of rigor and detail that we wouldn't even thought about or considered prior to 2019.

Not only are we working with our tier ones a lot more closely, and there's a lot of elements to that. In terms of more detailed engagement on our requirements and our inventory levels and our risks and downstream changes in our demand, but we are providing that information to our tier ones more frequently on a more structured cadence. In some cases with our tier ones where they don't have good capability to translate that into an effective demand forecast for our tier twos, we're actually helping them with that. Supporting their planning process ultimately to support us.

This whole concept of taking a forecast, throwing it over the wall to your supplier to be perfectly honest is dead. The comment about SRM being a strategic advantage is a manifestation of that in terms of what we're doing with our tier ones and ultimately our critical tier twos. That's one component. The other from a holistic standpoint several times over the past couple of years where we have supply arrangements with our tier ones, we are actually engaging with our customers on issues they might have with their tier ones.

If there's a critical raw material shortage somewhere, and we have an opportunity to engage tier one of ours that's either directly or indirectly related to a tier one of our customers, we're doing that. The commercial team, in addition to myself and our supply management sourcing group, we all get engaged on that. It's all-hands-on-deck type of activity when that happens. Again, working with our suppliers to help our customers’ suppliers is just not something we've even considered a couple years ago.

The third thing I would say is we're really doubling down on standard strategic engagements that we have with our suppliers. Not unlike many folks. We have totally business reviews sometimes biannually depending upon the nature of the supplier where we review typical metrics. Well, now those reviews obviously include a lot more detail around specific inventory levels supply risks. When we started the pandemic, just as an example, our sourcing group started a very detailed risk scorecard for pretty much all of our suppliers, not just key suppliers.

The components of that have made it into routine discussions with suppliers. Just really taking that typical strategic supplier review to a whole other level. Those are the three areas working tier ones and tier twos differently on our side, working with customers, suppliers directly or indirectly. Then just really taking the business analysis, performance analysis and ultimately collaborative results with our strategic suppliers to just a level that we wouldn't even considered was value-added three years as [unintelligible 00:14:46]

Abe: Skyler, you're bringing up a couple of really key points here, specifically on the risk management and supply management, obviously for your key suppliers. One of the things that we saw on the pandemic was that the majority of the disruptions occurred beyond tier one and tier two and tier three and beyond. Give me a sense of how you're integrating your suppliers who may not have the same capabilities as you into your planning process. Whether on the data side, obviously the level of trust that's necessary with your key suppliers is critical, but how are you integrating your suppliers into your planning process?

Are they actively engaged or is it arm's length transaction or relationship with them?

Skyler: Absolutely, is the short answer. Obviously, it's going to depend on the supplier, their criticality to our production process. There have been several instances over the past couple years where we have implemented what I would consider very tactical execution and planning processes with suppliers. We have a constraint, whether it's at the tier one level, tier two, or both. We effectively run on a-- the one I'm thinking about in particular was a weekly cycle where we would provide detailed requirements out for the next six to eight weeks.

We would overlay that with our tier ones' inventory, their production schedule and ultimately even their raw material. We could see a little bit upstream where the risks might manifest themselves. Obviously, the data that we were sharing in that particular case was an output of our S&OE process. It was closely linked in terms of the visibility we had to our short-term requirements. The other thing I'll mention on this, Abe that we're doing is, in the past, strategic suppliers generally would come to us and say, "Hey, we need better visibility out, whatever, six months, whatever the time horizon was."

For the most part, it was suppliers pulling visibility data and information from us. We're now pushing it. We're looking for-- obviously over the past couple years, we've identified where we have critical raw material supply chains, and we've looked at all of the available forecast production inventory data that we have that's specific to that commodity. If we're not already, we are reaching out to those suppliers and saying, "Hey, if we don't have a process set up, we need to figure out how we integrate our information across those attributes and elements into your process.

What are the specific, how are you consuming this forecast data? What's the refresh frequency? How are we going to pass along assumptions to you regards to changes in our forecast?" It's been a much more proactive process versus, again, in the past, suppliers would come to us and say, "Hey, we're getting bull-whipped here. Help us get visibility." Like I said, we're now going to suppliers and saying, "You need to have this and if you don't, then we'll help you get the information you need from us, build out the process," and in a couple cases, actually run it a few times to help them develop that capability.

That would be one just high-level example. The other thing I would say, Abe, that I'm assuming other folks are doing, but in these new planning tactical processes with our suppliers, our commercial team has a significantly more active role. For key raw materials where we have these tactical or midterm allocation or production scheduling, collaborative production scheduling processes with suppliers, we have our commercial team that's representing the key customers who consume those materials on the phone.

They can obviously provide a whole lot more color to short-term changes, long-term changes, things that they're hearing from our customers. They have a significantly more engaged role. At the end of the day, what that looks like is supply chain facilitating that new integrated production scheduling process, if you will, with participation from our commercial team. Also, obviously our sourcing group. Typically, large calls on a frequent basis with a lot of data, with the ultimate goal of making sure we reduce risk up and down supply chain and ultimately have raw materials that we can convert into finished goods for our customers.

Bob: Skyler, when I first started editing SCMR, which was a decade ago, one of the concepts, we heard a lot about at the time with CPFR. I can't remember the last time I did hear the term CPFR. In today's environment, is it still relevant? If so, how?

Skyler: Conceptually, I think it is. The concepts are exactly what it sounds like. I think where there's more that specificity needed in the apex definition is around timescale and frequency and then also risk. In the APICS dictionary, CPFR is defined as jointly planning key supply chain activities from production and delivery of raw materials to production and delivery of finished goods to end customers. It encompasses business planning, sales forecasting, and all operations required for replenishment.

I think that the key updates if you will to CPFR, the definition anyway, are the frequency needs to be well defined and obviously more frequent than the annual business planning cycle. The collaborative scope of the process needs to be not only very well defined, but understood by all parties. Then the last and most important thing is CPFR in today's world needs to include significant portion of time for identification of risk. That would be a collaborative process, which is essentially what we're doing with our suppliers right now.

Whether we're doing that in the joint tactical production planning, scheduling activities or in the quarterly business reviews. Both of those now include proactive identification of risk. I think that's the letter of CPFR as a process certainly is still applicable. In terms of how to make it truly value-added, it needs to have some additional color for all parties to benefit.

Abe: One last question and you hit upon the collaboration issue that has been obviously a holy grail for a lot of organizations and bringing all the disparate plan and procurement operations, logistics and distribution into a cohesive plan as you're describing here. S&OP was one of the ways that bring them together, but oftentimes it breaks down when we get into implementation. To your point before about that tactical step for an organization. When you describe the environment to collaborate, how do you make that happen?

How do you get the buy-in and break down the silos? A lot of organizations are facing on turf protection you seem to have at least address some of those issues. How did you break down those silos?

Skyler: Well, everything else, Abe, the devil is really in the details, but I'll give you a couple of examples. In our S&OP process the supply review the second stage of our process that's primarily a capacity historically has been a rough-cut capacity review. As we got into 2020, we pulled in one of the key commodity managers from our sourcing group into the supply review and gave him some airtime and said, "These are the things that we want to know about in terms of raw material risk, tariff impacts, any other supply shortages."

That started off as like 10 minutes roughly of the supplier review back in 2020. It's now almost 45 minutes, right? We now have a couple of different people who are attending from our sourcing organization. That's just a very simple way of how we've tried to break down those silos, get folks engaged in a standard process maybe where they weren't before. The other thing that I'll mention on this one is the more overlap that I think you can have between your S&OP and S&OE activities, obviously the more benefit you're going to get in this type of planning environment.

For us, that manifests itself in pulling in, potentially, folks from the plants in the supplier view where it's value-added and applicable, right? Over the past couple years, we've started a new newsletter. That sounds pretty Mickey Mouse and basic, but it has all of the key takeaways from S&OP process, what our S&OE goals are, has some metric information and it's a one-page digestible format that goes out to all of our operations group, our sales group and just that in and of itself, right? It's just a communication tool that we hadn't been doing in the past.

Ultimately what we do with it is we tie together A, these are our S&OP goals and directives, and guidance. This is what it looks like on the S&OE side. If you're not 100% clear on how that fits together or you're a part in that, then reach out to the supply chain group and we will get you information you need, answers you need whatever the case may be. I think that a lot of it, Abe, is basic blocking and tackling. The last thing I'll say that I've told my group is the more structured we have all this stuff, right, the better we are at maintaining our S&OP, S&OE meetings, data review, all that cadence, right?

{The better we are at standardizing that stuff, the reality is we get more bandwidth to deal with all the other exceptions, right? I talk with folks at conference about this, they say, "Well, it's just really hard to have a standard process in a VUCA world, right? I would argue the opposite. I would say that you get more capacity to deal with extraordinary events if your standard planning processes are really well defined and tight and meeting the needs that they were designed to meet.}

Just a couple ways that I think we've been able to help integrate. I mentioned the collaboration with sales on the tactical stuff and the integration with our sourcing team. It's a lot of things, right? I think it's the silo blurring those lines just gets back to creative communication and really structuring and formalizing and institutionalizing your standard planning processes.

Abe: Skyler, I can't thank you enough. There is so much there that we can continue on for at least another hour about all the things that you've implemented to really address the challenges and take advantage of the opportunities. Obviously, as organizations are facing this, they're all facing the same types of risk and management problems. Congratulations to you. That is all the time that we have today. Special thanks to our guest, Skyler Covington. Finally, a special thanks to you for joining us on this episode of The Rebound. We hope you'll be back for the next episode. For The Rebound, I'm Abe Eskenazi.

Bob Trebilcock: I'm Bob Trebilcock.

Abe: All the best, everyone. Thanks.

Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.

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