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 Eshkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, Editorial Director of Supply Chain Management Review. Remember that Abe ad Bob welcome your comments. Now, to today's episode. Welcome to today's episode of The Rebound, Moving towards digitally-enabled end-to-end control towers. I'm Bob Trebilcock.
Abe Eshkenazi: I’m Abe Eshkenazi.
Bob: Joining us today is Patrick Haex. Now, I once read a biography of the Rothschild banking family. They made a fortune hedging against Napoleon's battle at Waterloo, even though the family business was headquartered in London. How did they do it? Visibility. Legend is that they got information about the battle in what was then considered real time, carrier pigeons, while their competitors were waiting on the newspapers to make their way across things with channel. That visibility continues to be the difference between supply chain leaders and laggards. How we get it is what Patrick's going talk about today. Abe, why don't you get us started?
Abe: Absolutely. Thanks, Bob. Patrick, welcome to The Rebound.
Patrick Haex: Thank you Abe.
Abe: Now that we're in this for about four to five months Patrick, give us a sense on what you're seeing the impact that COVID has had on the global supply chains?
Patrick: Well, it's a great question, Abe. A lot. A lot of things have changed and have been impacted by COVID. Obviously, we've seen in the early start of the year, a major disruption to global supply chains, including supply chains, shortages of companies who largely were depending on fresh supplies from China, operational disruptions, the need for rebalancing and manufacturing volumes to alternative sites, a huge drop of the night in lockdown countries or in situations where there was a lockdown, quite some different dynamics on the transportation front including huge spikes in air freight or in the lack of capacity in ocean freight, and then also your surge in some of the medical products and surge in some of the e-commerce.
I like to talk always about, if you look at, due to COVID, impact on global value chains on five, I call the inconvenient truth. One is the impact of-- and our dependence on vulnerability of the state of China sourcing base. The second one is on complexity of global value chains. The third one is on lack of end-to-end visibility. The fourth and fifth one is about the drop of demand and the rise of e-commerce.
Perhaps if you talk about why we have this topic about visibility, it's linked towards, over the last few decades, we've been very-- looking into sourcing, in low-cost country sourcing, hence, for instance, China, so many companies have their supplier base there. If you look into that, combined on the complexity of global value chains, if you look into the electronics components, or products where you look into the raw materials, the components, the semi-finished goods, where they're made sourced, assembled, you see quite some complexity in that value chain.
That's really a key element here on the COVID situation is, those companies that have been sourcing a lot of products in China, with the inability to manage such complex supply chains from a tier one, tier two, tier three perspective, all those companies have been in trouble in terms of the inability to manage and steer accordingly. That sets a fate where the whole discussion about visibility is accelerated today because of that.
The other thing to call out here is, the appetite for resilience. We have Fukushima, we have the flooding in Thailand, the hurricanes in the Caribbean, and how do we tie that risk component into global value chain? There's a lot of firsts and a lot of dynamics in terms of the decentralization of production, whether that's only China, plus one or China plus “N” and reshoring or nearshoring. This is really where, I think companies to reconsider themselves in terms of, "Hey, do you want to embrace complexity of global supply chains and the ability to source in low-cost countries markets?" What does that mean in terms of the license to operate?
I made the analogy when driving in a car without a driver's license, and this is where visibility is a key component, in there to manage risks and to manage your supply chains, or you go the route to really redecomplexify your supply chain, decomplexify your supplier base, or you go to market and basically you do not have to touch on the visibility side.
Bob: Patrick, thank you for that. By the way, I love that-- a new supply chain term, decomplexify. I'm going to remember that. You've just talked about visibility, and going back to that Rothschild banking example, companies have struggled with it forever. First, why is that the case? Then, what is the challenge for companies today when it comes to visibility?
Patrick: I think what's important here is visibility has been around as a topic in the whole supply chain space. I would say visibility has been predominantly seen as nice to have at senior management level. It's very hard to justify it into a business case because if you look in the mirror, what are you going to do with visibility if you have your supply chain that runs clockwise, what is visibility going to bring you? Of course, if you have issues on customer service or fulfillment levels or when you’re struggling on a backlog position or you have all those kind of issues, then the business case for selling control towers or for selling visibility is much more easier.
If you look into the last few years, what has developed and why this topic is much more on the forefront now is, we had the Fukushima example, we had the Hanjin collapse, the Amazon effects downstream in the supply chain side where consumers, all of us have been used to getting more data points and visibility, as overall customer experience. That's what basically fueled the needs and the appetite for visibility.
Now, of course, COVID has accelerated that even further. If you don't look into companies that have high complex supply chains, for instance, the hi-tech companies, quite some multinational companies in that space, have invested or have outsourced their visibility management to parties or have done it themselves. The other thing that is important here is that the price tag of technology has dropped over the last decade. It's much more easier, from a technology point of view, to put in place visibility to really steer and to manage your supply chain going forward.
Abe: Patrick, really interesting information on the visibility and the technology that supports it. It sounds a little bit like the concept of control towers. While we've seen and heard a little bit about it, give it to me, from your perspective, what does a control tower mean to you and how do organizations view its utilization?
Patrick: It's a good question. If I were to ask or if you were to ask 10 people, you might get also 10 different viewpoints or angles of it. How I look at this is, it's basically combination of elements. We look at a control tower as an organization, including people that are overlooking all parties in the supply chain and has processes in place for daily execution and control, with capabilities and tools that support both operational and strategic decision-making with the objective to drive and to improve customer service and the bottom-line result. That's still very broad.
If I would peel the onion on control towers, we see a wide range in the industry out there. You have basically, two types of control towers, one are more of the freight control towers that focus on the transportation side. Really, on transportation management, whether that's outbound or inbound or whether it's LTL or FTL, or parcel. I call those more a classical control towers. Then you have more, the control towers that are tied into the end-to-end. End-to-end meaning all the way down from your supplier inbound to manufacturing sites, the intercompany management as well as the outbound, but also tying that to the operations in the manufacturing side as well as on the distribution side.
Really important there when you talk about control towers, is to understand, what is the functional scope? What is a company trying to achieve? Visibility comes with a price tag, you need to invest in capability, but what are you ultimately trying to achieve from that? It's important to do that assessment. We did recently one BCI survey, and there you see that the majority of people who do have a control tower in place, is either doing that in intercompany, so between manufacturing plants across the globe or between plants and DCs or even DCs to DCs or they have a control tower in place that basically manages the downstream side, so the customer facing transportation as such. There's only a few companies or a limited degree of companies that really cover the end-to-end concept as such. Of course now with the whole COVID dynamic, I think what's important to call out is that yes, you need to have the ability to steer and manage global supply chains in a better way, but also ties into how do you factor in risk management into the consideration? How do you take into account the ability to manage what I call your tier X supplier, so that's your supplier base your suppliers, and not only from a transportation point of view, but also from a capability, from inventory positioning point of view. Ultimately you can also make better decisions going forward.
Bob: Thanks for that Patrick. You may have touched on this a little bit in the last answer, but what are the different ways to put a control tower in place?
Patrick: There are multiple ways. Important here is to also make a distinction on what do you want to accomplish and how do you want to go about that. First of all, what kind of functional scope do you want to put in place? Is it the end-to-end or is it just the functional part of the supply chain? What do you want achieve with visibility? Is that just a visibility layer? Is that trying to also incorporate global trade management on top of operational planning, or is it really what we call the end-to-end piece? It's also important to think about, is this something that you see as a core competence within your own firm where you invest as a brand owner in technology, or is it something that you believe you can better get from the marketplace going while through legal-- just for providers of 4PLs that can basically bring that forward to you?
It's really important to understand what are the right value pockets for the company? What does really drives value? What do you want to accomplish over time with such a control tower? What is the right setup from a technology point of view or from a partner point of view? How do we again basically, implement that? I think on the implementation side, it's important really to do a right scoping, a right communication internally in terms of, "Hey, what do we want to get out of this?" and how do you basically deploy that? Really, about change management because people are fed up with all big bang IT implementations. How do you make sure that when you talk about visibility, that you also can make an impact fairly quickly and get data at your fingertips rather than seeing this as an IT project that will take two years to accomplish?
Abe: Patrick, really great points on data collection and data utilization. We recently did a podcast on supply chain design. One of our takeaways was that it really isn't enough just in and of itself. As we take a look at control towers, plus supply chain design, how quickly is that space changing or are we looking at an easy or a slight modification, or are we looking at an overhaul of how companies will take a look at a supply chain design, network control towers, or is there something else that we should be thinking about?
Patrick: Great question. It's exciting to be in the supply chain landscape these days. If you look at where I see nirvana to taking place, is really a strong convergence of the world of physical transformed logistics. I would go with the old freight management control towers that have been around with the role of planning. Those roles have always been disconnected, where you have control tower for transport logistics, you had a center of excellence of planning with the different kind of supply-demand plans, inventory plans, what have you.
What you basically see, and what I'm expecting to see in the near future is those roles will converge, and already what that will bring is we use the data, whether that's data from the actual production site or the sources, whether that's data coming in from the in-transit and the deviations to really make sure that the company can use that data for planning purposes, rather than just using static information in your P systems. That will really drive real-time decision-making across the entire supply chain that will ultimately evolve with new kinds of technologies, whether that's machine learning, AI. That works more like autonomous planning concepts.
I would say if you look into control towers today and where they develop going forward, and then also tying in with the supply chain design spaces, there's quite still some firefighting that you see happening in organizations where basically some of these kinds of tools and capabilities have a value add, but we don't unlock the full potential there. If you look into the routine task and the level of automation that you can employ, that can be pretty significant. One of our surveys we did really last year was that 60% of the audience of more than 100 people is expecting that the role of planning, so the sales operations planning and supply and demand planning is going to be integrated with those kind of control towers, but also that they are seeing a huge level of automation to be expected in the next five years.
If you go and look into companies such as for instance, the German Merck, it's a pharma company, that they've really gone through a major digitalization transformation on getting-- The senior control towers as a starting point, but really as a stepping stone for automated planning, or if you look into one of our clients (unintelligible) really using this as a digitization initiative where you have data lakes, where you have the ability to have the data at your fingertips, to ultimately use visibility for better decision-making. Well, when you're talking about supply-chain network design, there's also a concept about digital twins and replica of your supply chain.
That of course, needs to be fed. It needs to be fed by real-live data. That's also where the concept of control towers can be basically (unintelligible) providing the data and the data repository and the capability to make better decisions for the company going forward.
Bob: Patrick, before wrapping up, we have a couple of minutes here. I wanted to go back to something that you talked about early on that frankly, I'd never thought of. You talked about visibility as a business case, how do you build the business case for visibility? Never thought of that.
Patrick: That's a good catch here. That's where a lot of companies are struggling. I think it starts with, do you have an issue at hand? If you speed on the highway, you get caught, you get a ticket, but if you speed, then you don't get a ticket, then there might not be an issue. That's what you see in some of companies that we work with, where they are not hit by the lack of visibility yet. Whereas others, as I said, the companies that have been faced with Fukushima, flooding, all the natural disasters or fires, or really have issues in their global supply chain, they've seen the value of visibility much earlier in the game.
If you sell this internally, and I think this is really where also leadership kicks in, is we're talking about, what are you trying to do with visibility? What is the price tag? Does visibility automatically give you better customer service? Does that visibility give you better ways to think about sustainability and manage the sustainability impact of your supply chain? What is the price tag or what are the cost savings you can get from a control tower? You need to go through a review of what is really the value for a particular company? Is that across all geographies, is that on the company side, is it on a downstream side? Is that only on the end-to-end side?
That's where companies need to really think about, what do you want to achieve and how do you put a price tag to things that you cannot do without the cost of the control tower?
That could be really linked towards, if you talk about elements like operation excellence, how do you tag that into freight, inventory benefits, reduced headcount, consolidation benefits, what have you versus if you talk about elements that are linked to customer facing, or customer intimacy elements, whether that's having predictability in terms of your estimated time of arrivals or the rerouting options that you have and goods are in transit, or having better communication with your customers, already hinted from this on the sustainability side.
During COVID, the whole risk management, whether that's event management, looking at a reduced cost to fix or repair, looking at BCPs, that's a key element and all elements here to try to turn to the mix is how do you quantify better decision-making in terms of improved forecasting, or if you talk about proactiveness in terms of problem-solving or channel management, or even supply-chain network design. What you really need to do, what my advice would be for to companies to unravel and to peel the onion to say, "Hey, what's the value that I believe that I can bring to the company by unlocking or implementing such control towers?" That also drives the cadence and the scope and the type of investments going forward.
Bob: Thank you. Abe and I had a chance to talk to Greg Toornman who's a supply chain executive at AGCO a couple of weeks ago, and they were a company that has made risk management a real best practice there and had visibility into what was happening with COVID. The lesson from that is that getting visibility early really made a difference in their supply chain. Thank you again for that great information. I hope all the listeners to today's podcast got as much out of it as we did. That's all the time we have today. Thanks for joining. We hope you'll be back for our next episode. We look forward to seeing you then. I'm Bob Trebilcock.
Abe: I'm Abe Eshkenavi. Stay safe everyone.
Bob: The Rebound is a joint production for 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.