Fireside Chat: Strategies for Overcoming Challenges with Today’s Supply Chains

Supply Chain Challenges seen from a Supply Chain Leader

Stephanie Feraday: Rob, thanks very much for joining us. Rob has been a thought leader in global supply chains and their management, and a great party for us to work with, along with Joe Schneider who’s at GE as well. They really worked with us collaboratively over the last few years as they’ve been deploying aPriori, dealing with supply chain challenges, and giving us feedback about what they’re trying to do in supply chain management and how they’re using aPriori to evolve.

We thought this would be a great opportunity to hear from Rob. He has so much experience across the industry, not only in managing supply chain issues, but projecting consumer demand and overseeing supply chain strategy overall. He’s worked not only as an operating member of an organization from a procurement perspective, but also with PE firms who are working with a host of manufacturing companies. He’s been looking at how to scale organizations with new technology from many different perspectives. Rob, thanks for joining us.

There are a number of things that I wanted to ask Rob about because supply chain disruption has been such a challenge over the past several years. We’re gonna cover a number of different areas, but first, Rob, I wanted to talk about what you’re seeing, how are companies addressing supply chain disruptions at the tail end of the pandemic right through now, and what are the approaches that they’re taking, even if they’re tactical?

Rob Lidster: When the global pandemic first hit, we were already well established in our supply chain management playbook. We were going down a path of transforming our spend culture using should-cost modeling, forecasts, projecting consumer demand, etcetera And then we got this t-bone on supply chain disruption and all the supply chain challenges that came with it. Suddenly transformation was on lockdown. We had to take a step back in real-time and get very tactical. So we started with our end step sourcing process, whether it was a six-step, eight-step, 12-step sourcing process, we checked all the boxes, we checked the technical requirements and engineering signed off on that, we checked the commercial requirements at the tier one, and tier two level. Little did we know that we needed to peel back the onion and go even further into tier four, tier five, and in some cases really understand where the raw material was coming from. We had to transition that into where we are now with inventory levels and customer demand. How many of you are watching in real-time the potential strike on either capital equipment, parts, or anything that might be coming off a rail? I never thought I would be sitting in a line of balance and explaining where we were with regards to PPE, masks, gloves, and the bottlenecks that had to do with container shipping of medical equipment.

And then on the packaging side, we had suppliers that were couldn’t get labor because they were facing labor shortages or their labor was on lockdown. We were short on corner posts. Our lines of balance is traditionally where we are looking at a tier one, and a tier two level. It really transformed into a deep dive into raw materials and energy supply. Were they getting gas from Ukraine? Are they going to be turned off? Are they going be able to manufacture? Are they getting power shortages from China? It became very, very comprehensive, and that was on the tactic side.

As you look at in your question around coming out of it, we’ve overhauled our entire end-step sourcing process. We are using new technology for managing those technical requirements, using commercial sign-offs to validate a supplier and also to enhance the existing supplier. Now is an opportunity to start going back into the supply base and begin clawing back some of the lost productivity they had because they had to go on lockdown. We’re looking at putting some enhancements into their manufacturing operations, like automation, to reduce lead times and develop a resilient supply chain. Now is a great opportunity to go back in there and say: “Look, you’ve got vaccines, you’re no longer social distancing, are you still getting 30 pieces per hour? Or are you back up to what you originally quoted at 45 or 50 pieces per hour?”

Building Supply Chain Resilience

Stephanie Feraday: We’ve been talking with supply chain leaders about the topic of supply chain resilience. What are your takeaways from this conversation? Because risk management is not a new topic. We’ve been talking about inventory management in terms of supply chain planning for years now. But now we’re starting to talk about metrics for long-term supply chain resilience.

Rob Lidster: Yeah, you’re right. Supply chain disruptions aren’t anything new. What’s new is the compounding effect of natural disaster, shutdowns, labor shortages, the war in Ukraine, and semiconductor shortage, and all the impacts those have on supply chain operations.

We were buried in so much minutia in the last two years, that we’ve compiled a tremendous amount of data, a tremendous amount of data around what are the cost drivers of our supply base. We know what’s happening in freight, in container shipping, in transportation costs, and what’s happening in China or New York with regards to reactions to COVID, or any of the issues that could result in volatility such as labor shortages. Now we can use that information, and look outwards to affect our decision-making.

My goal for supply chain resilience is to take that information that you’ve gathered over the last few years, put it into a data lake and start pulling it and refreshing it and using it to your advantage.

And it’s not just information on transportation costs, warehousing, or port congestion that you want to be collecting. There’s also feedback on your customer experience, or all the data you get from your ecommerce platform and the IOT. When put together, these streams of data can turn into a real competitive advantage in the age of supply chain challenges.

Stephanie Feraday: As you think back to the data you collected, were there any insights that you look back and said, Oh, I wish I captured that?

Rob Lidster: Yes. We were on a mission to dual source, eliminate as much single sourcing, or sole sourcing as possible. It was always the investment that precluded us from doing that. It was not really the piece price, but it was the investment. We would run the should-cost modeling on tooling, we’d go and we’d present it. Now, because of the supply chain disruptions and having that received by the P&L owners, there’s more acceptance of multi-sourcing or dual sourcing amongst our internal stakeholders.

Before lockdown, we were in one country. We had a commodity that was dual-sourced in China. Well, when the pandemic hit, that didn’t help us. Natural disasters behoove us to have somebody in Mexico and somebody in China, and somebody in New York keeping tabs on the ongoing supply chain challenges. That’s diversification. The right country to source in is based on the potential for supply chain disruptions.

Better Metrics for Forecasting Supply Chain

Stephanie Feraday: Staying on the data topic for a minute, you talked about the gaps that you had in your forecasting before the pandemic. Is there new data that you’d like to be able to bring into your decision-making?

Rob Lidster: Yes. I want to be looking at metrics around value chain, and value chain analysis around the supply chain strategy. Obviously, we want to design for sustainability. We have all talked the good talk and we thought we had carbon footprint metrics in place. We thought we had good business continuity planning, that if a certain area was going to go down in China, we could transition to another area, maybe even another country. But it’s one skill set to receive a business continuity plan, and it takes a new skill set to be able to digest that BCP and see if it is a validated, a true, well-thought-out business plan? Peeling back and having a system where you can have a true business continuity plan, you can test it, and compare scenarios, I would make that part of the business FMEA.

We’re transitioning more into what I call a Business Failure Modes and Effects Analysis. It’s almost like a BFMEA instead of a DFMEA. Unless we’re focused on the risk priority number, as much as I’m focused on the severity, the occurrence, and the frequency, the product of that gives you an RPN. What do I mean by that is we could have saved a dollar by sourcing a part in China, but if I had to airfreight that two, three times for a month, did the dollar all of a sudden see diminishing returns and I lost the dollar savings? Do scenario planning around port congestion, or the cost of container shipping. If I have to fast boat it for a period of time, or if I have to airfreight it for a period of time, how many times or how often will that happen before I have lost this savings? We’re transitioning from more of a first cost focus, to a total cost of ownership through the life cycle of the part. Our decision making needs to include: what does that BFMEA, this Business Failure Modes and Effects Analysis, what does that prove?

New Processes for Digital Transformation in Sourcing

Stephanie Feraday: We talked a lot about the data in the last few minutes. What about processes? How are processes changing to meet the supply chain resilience issues this dynamic of ongoing change as we’re moving from year to year?

Rob Lidster: One of the critical processes that changed for us was really less about what the design engineer did than what the sourcing team did when they went out to market. It used to take the entire team four to six weeks to check on raw materials, transportation costs, inventory levels, and warehousing. Packaging did their thing, logistics did their thing, and then you got together again cross-functionally and sourced it. It’s doesn’t count as digital transformation if design and sourcing are siloed. The design team is iterating, doing should-cost modeling, doing your DFAs, DFMs, and you’re designed for sustainability. That’s digital transformation within design. To do enterprise wide digital transformation means working with the supplier and nurturing a relationship with full visibility into inventory levels, raw materials, and processes.

Look, we were very good at negotiating costs, but it the digital transformation of sourcing became a very new thing for me and my team, and a new element to negotiate allocations. I’ve got a relationship, and I’m either nurturing the relationship or I’m teetering on a potential bad relationship. When it came to some of the critical components such as semiconductors, and the PCBA boards with chips needed for the iot, while we were doing Supplier Relationship Management, we all needed to be doing customer relationship management. We should have been looking at the customer experience, where both our suppliers and our end consumers are key stakeholders.

One process that’s changed when I was the supply chain leader was driving the nurture of existing relationships. If they’re coming in and asking for a price increase, traditionally as sourcing we beat them over the head to get them down, and they’re teetering on profitability or not. That’s not viewing a supplier as a stakeholder in our business. Instead, I pushed to nurture the relationships because in some categories, such as semiconductors, it’s still a game of allocation. It’s not necessarily a piece price reduction negotiation. But it’s the total value chain and the costs that are driving to get the part there or not. It’s less or about reducing the piece price now, and it’s more about the total landed cost and total cost of ownership.

Supply Chain Management Involves Engineering Too

Stephanie Feraday: You talked about the same process changes that Tristan Abend talked about it from an engineering perspective. How do you get design engineers to change their process? Is it the same way that you get the procurement side, the sourcing side, the supply chain side, to change their process?

Rob Lidster: I like to sometimes call it culture hacks. But what I would say is that a lot of the engineers over the last couple of years have been so busy — especially during the labor shortage— busy looking at alternatives and substitutes and validating those substitutes. Again, that’s expected when in you’re in a period of supply chain disruption and your production faces bottlenecks. But moving forward, you don’t want to have to go through validating and and re-validating. That in my opinion is a lot of waste of time. How do you bridge that into automation as part of a complete supply chain strategy? Let’s take a variation of an existing part to create a new part fit, form and function. How can you leverage more of your PLM, your parts library, to use existing parts, carry over parts, variants of an existing part versus designing something new? Then you can also influence design engineers by identifying: “Hey, you’re going down this design path, did you know you’re adding a dollar, you’re adding five dollars, there is a lesser or more value-added way of approaching the design?” That’s where digital transformation really hits the design team, and ropes them into an overall strategy of supply chain management.

Stephanie Feraday: Rob, what you’re talking to is going through this change of really being a tactical organization that’s driving efficient processes to one that’s evolving towards helping to be a strategic partner to drive growth in the future.

Rob Lidster: Yes. As a supply chain leader, I try to change the messaging. For example, I don’t want to be viewed as a cost-out function, purchasing is here to get a cost-out, purchasing is here to get savings. I’d like to frame it up as we’re an organization that is returning a minimum of 3x of our organization cost. I measure our organization not only on a percentage of savings, but also on a return of organization cost, fully burden, fully for all costs in. That’s a metric that everyone in the organization can get behind. Secondly is, I’m here to expand your margins and grow your margins, not here to just achieve cost savings. Gathering data, back to the data point is, understanding the data as a material, as a percentage of the revenue, material as a percentage of the selling price.

And look, I’m in an environment now where there’s heavy promotional periods. You’re out there and you’re fighting every single day to capture a bigger share of consumer demand. And the sales professionals are reducing price to be able to compete in the market to get floor response, to get end caps, to get race tracks. How are you competing in that during the variation and also having an understanding of material as a percentage of the selling price? You need buy-in from all stakeholders to be able to say, “You can’t afford to reduce your selling price, because you’re going to give up margin or you’re going to have margin erosion.” If by sharing those metrics and getting everyone on the same page— whether it’s in the design lab or on the sales flor or in ecommerce—that’s how I’m able to help them in building their margins and increasing margins.

Driving the C-Suite to Take Action on Supply Chain Challenges

Stephanie Feraday: You’re talking about creating a partnership with organizational stakeholders around the shared business outcome. Just as with driving change through digital transformation, you can’t just do it top down. It’s top down and bottoms up. But how do you do that?

Rob Lidster: Well, it can be delicate based on the personalities at the top and the personalities at the bottom to be honest with you. What I try to do is influence through micro burst of information. Back to when reverse auctions were the hot thing and everybody was doing OLQs and running reverse auctions, I would do a reverse auction in the conference room right by the C-Suite. We’d have some popcorn and say, “Hey, come on in and look at this tooling auction! Come on in and look at this piece price auction!” It generated some enthusiasm.

Have a monthly forum. In our profession, and even before the pandemic, Chief Supply Chain Officers and VPs of sourcing and procurement were kind of buried. They were reporting to a director, or they may be reporting to a VP. Now the CEOs are recognizing the value that we’re bringing, many of us are now reporting directly to either a CEO, a CFO or a COO, which is great. You have to understand the personality, of the stakeholder. For example, if you have a heavy engineering technical CEO, we would show him some simulations, we’d show him the design areas that aPriori has identified as being potential cost drivers or cost increasers, DFA, of DFM inhibitors. And then here are some alternatives.

Religiously, wherever I’ve gone, I’ve asked for a monthly cost out review for the sourcing team to come in and present cross-functionally what are we achieving not only on existing, but what could we be doing looking forward into, we call them NPIs, New Productivity Introductions or build phases of your new product launches. And then how can that correlate into the next evolution. And truly, I was really pounding on engineering to understand the life cycle of the parts that we were sourcing. I will take a complete different approach if I’m sourcing a part for one year, versus I’m sourcing a part for three or five years. If I’m sourcing it for one year, I’m absolutely gonna have that first cost focus, I wanna get first cost right because I don’t have time after we launch to try to do VAVE and do simulations around potential cost savings. We’ll do that as a running change, or we’ll do that down the road. If I’m sourcing it for three to five years, I may take a different approach, and I may in those NPI reviews with the upper management and the senior leadership push hard to put those on an opportunity roadmap and on a monthly basis report out where we are on the roadmap.

Influencing through data, influencing through KPIs, that’s how to get the C-Suite to face supply chain challenges. If it’s a COO, I like to influence them by saying, “Here’s what we’re doing to reduce complexity, which is going translate into productivity, which is going to translate into potential labor savings.” Another approach that I like to do is, and I started to do this in the power industry: Job one plus 30 days. NPI plus 30, 60, 90 days is to implement a post-project review process. Did you get the bang for the buck? We changed a part, we changed a system, we changed an assembly, and the business case said we were going to take X hours of labor out, X material costs, we were going to increase revenue and potential share, we were gonna eliminate 10 parts by making this change. With whatever frequency you determine, go back and have your cross-functional team do a post-project review after action review.

A lot of the cost reviews that I sat in when I inherited an organization were, “We ran an RFP package, we ran an RFQ, we worked with a consultant, we saved you three bucks times the annual volume.” Be it’s more influential to tell the story, and tell the story that satisfies every one of your key stakeholders. The C-suite, the COO operations, even up to a point of HR. If they don’t have to recruit more people with the labor shortages and you’re able to reduce or redeploy resources, then tell that as part of the whole story.

Stephanie Feraday: I would imagine that monthly reporting not only helped you with the executive level conversations, but also motivated individuals to actually change what they did as well. Is that right?

Rob Lidster: That’s exactly right. So when we were doing some de-gaging of some sheet metal, we couldn’t get the plants to run the trials because of labor shortages. We were so focused on closing gap between customer demand and supply. But we couldn’t get trials ran. We couldn’t get it implemented. And when we served it up to that cross-functional committee, which included the P&L owners, we started to get some traction around that. So sometimes you have to leverage that healthy tension to get things done.

Strategic Sourcing in a Post-Pandemic World

Stephanie Feraday: Let’s talk about strategy versus tactics. You provided some great views of the way your strategy needs to change in light of the pandemic, and you also talked about some tactics you used to fight supply chain disruption, like automation. But how do they work together? How do you employ some of those strategies and make them real? The data about strategic initiatives shows that not many of them are successful.

Rob Lidster: Yeah, 12%, I think, which was frightening.

Stephanie Feraday: Yes, exactly.

Rob Lidster: So look, I think it’s an evolution and you just keep trying. Achieving your strategy is very tactical and only 12% may stick. And there’s a lot of external information out on making sticky teams and making things stick. Have these roadmaps. Constantly bring the information in front of your key stakeholders. Let the roadmaps be your north star. When it’s time to ask, “What do we do now?” ask the questions “What’s the after-action review, or post-project review tell me?” I’m going to incorporate those metrics into my strategy and then I’m going to bring it back with a quarterly milestone. I want that to be a north star. I want to have zero RFQ on 80 percent of my spend. I’m going to start out with sheet metal. I’m going to then go to plastics, some of the basic tech processes, sheet metal plastics, rubber components, maybe coil winding. But I’m going to have quarterly milestones that we report out on.

Stephanie Feraday: I think I recall you at certain points in time talking about specific tactics that you employed to support the strategies. Like, I think some were like parts reconciliation and part standardization. Do you want to talk a little bit about that?

Rob Lidster: Yes, we called it product architecture or part optimization. So, in our programs we started to measure and I started to communicate at the senior leadership reviews: x number of parts are new, x number of parts are carryover, and x number of parts are modified. And we really started honing in on the new parts. Did they have to be new? That’s the beauty of digital transformation — having a centralized should-costing organization. Because I remember the should-cost engineer coming in and saying, “I’ve already costed a motor very similar to that. The only thing that’s changing is the shaft length.” Well, why do we need to change the shaft length? Do I have a parts library? And despite us having a part of a standard operating procedure in some of the companies I’ve worked in for the engineer to go to the parts library and pull down and deviate, for some reason that step would get missed. So, it’s just reiterating and re-bringing that up. And then I think also having the should-cost engineers involved — providing them a form of what are you seeing, what is similar versus what’s being designed new or what you’re being asked to cost from the ground up.

Stephanie Feraday: So, given the transformation in sourcing that’s occurred through the course of the pandemic have the skills changed? Are the skills that people needed three years ago the same as they are today?

Rob Lidster: I think they have changed and I think they’ve changed significantly. Again, I don’t need professionals that are capable of doing three bids in a buy, running an RFI, down selecting to an RFP, down selecting to an RFQ and then negotiating an RFQ. I need people who are able to do all of that, partner and influence the internal stakeholders, listen to the should-cost engineers, partner with the design engineers, with manufacturing and the supply base — by the way, because they’re a very important aspect into this — but I’m looking for more influencers, more business case development, more of that analytics approach.

On the basic tech processes, you can hire for or you can train for basic tech processes. I’m a big fan of having both technical and commercial backgrounds in my organization, especially when you get to PCBs, PCBAs, wiring harness, some of the more EMD, some of the more complex assemblies and etcetera. I think the skill sets have changed. I believe they’re also going to continue to evolve. Again, a lot of, you’re a purchasing person, you’re a materials management person, you’re going to have to know end to end, including how do I challenge some of the design.

Stephanie Feraday: So given that that’s a pretty big change, how do you find those people? Or do you train them? How do you put people in those jobs?

Rob Lidster: So that’s a great question. A combination of both. Like I said, on basic tech processes, you can train them up. I’ll never forget, I knew a little bit about engines. I’m a farm row boy from Ontario, Canada, so I knew how to change a push rod engine. I knew how to mess up with that stuff, but once it started to get into some of the more complex engines and I started buying engine components, I immediately enrolled in a three-day engine tear down class. I took that tear down and, man, maybe I’m one of those people that wants to be an engineer. So I learned from that. When I was in the marine industry, PeopleMover and Elevator, they actually offered layman’s non-technical training for some of our buying set. What are the most frequently purchased parts that I’m getting for a renovation or a remodel or for what’s breaking down? So educating the non-technical person is key. How do I teach them? Here’s the parts you’re buying. Here’s the fit, form, and function. Here’s how they work. Here’s how they interact together. So that part of it I do think you can train. I do think some of the new skill set that’s required with end-to-end forecasts, doing volatility analysis for business continuity, decision-making reviews, and global supply chains for political unrest in real-time, that does take a different set of skills.

I would probably put people in decision-making roles who have had a breadth of experience and a depth of experience and look for probably more strong technically and/or have experience with P&L ownership. I’d put them in some of these higher-level, more complex roles.

Digital Transformation for Global Supply Chain Teams

Stephanie Feraday: I’m going to throw a question at you that we didn’t talk about. Just hearing what you’re saying now triggered something else. You’ve got these skills for global supply chain management, and the way that the economy is changing. But digitization is another trend that we’re all talking about. To what extent do you require your team to have the sort of technical skills that are necessary for digital transformation? For example, familiarity with software, using different digital tools?

Rob Lidster: I steal. I steal from other organizations. I shouldn’t use the word steal, but I entice other organizations or people to join. You’re right. It’s lesser about buying widgets now, because a lot of the MPIs are based on over-the-air real-time updates. It’s more software. So having somebody that can actually do that cost-benefit analysis and/or should-cost model if applicable, and having that understanding, is ideally having somebody that’s been in the field working withe ecommerce or automation. Because that is a whole new skill set. It’s not enhancing a part that’s going to pump water out faster or a compressor that’s going to get cooler or hotter. It’s more about understanding the iot, what are the over-the-air functions. Going from touch to voice is a change. If I’m a buyer buying a touch module versus a voice module, that’s a different skill set. Are you starting an ecosystem with an existing provider? Are you starting from scratch? That’s the evolution, especially in consumer products

Stephanie Feraday: As it comes to our arena, I think you’re actually requiring some certifications from new organizations like the Society of Product Cost Engineering and Analytics.

Rob Lidster: Absolutely. So SPCEA, we’re looking for certifications from that organization. Also obviously CPSM, IIAPS, International Institute of Applied Purchasing. So, yes, certifications in a fleet example is really branching off and getting some different certifications in different areas. Another area, along with the digital transformation of sourcing, is the digital transformation of repair and service. We’re not too far away from an HVAC technician maybe sitting in your basement or sitting in your attic doing a diagnostics, and if they need a tube, they’ll pull it up on their phone and they’ll 3D print it in the back of their van. Or if they need a gear, they’re going to be printing it in the back of their van. So understanding a 3D printer, how do I source it, how do I write the materials, I don’t think we’re too far away from that concept.

Sustainability is Part of Sourcing Decision-Making

Stephanie Feraday: All right, last question. There are a lot of requirements coming down the pike in terms of ESG requirements and regulations that are really starting to confront us as we’re thinking about carbon impact, particularly in the context of Scope 3 emissions. So what plans or actions, if any, do you see CPOs taking to operate in this new realm of sustainability?

Rob Lidster: Yeah, I think instead of talking the talk, we’re starting to walk the talk. Making it a part of the sourcing decision-making process and truly understanding, again, all those multi-tiers of where is the component, where is the part coming from, where is the material coming from, what’s it take to get the raw materials, when you think about batteries and etcetera. So it’s really becoming front of mind. Again, pre-pandemic, we were talking about it. One of the areas I was really monitoring was ocean freight and the clean fuel for container shipping. That got postponed during the pandemic, but that’s going to come back. So again, are you going to be long distance, are you going to be offshore, nearshore, or onshore? That whole strategy is top of mind.

There are different sustainability regulations for different states. Obviously, look at what’s happening in California and some of the greener states versus non-green states. How is that going to impact consumer demand in New York? Look at what’s happening in Mexico, and obviously what’s happening in China.

Sustainability is becoming part of the design and sourcing decision-making process — understanding the carbon footprint.

Stephanie Feraday: Rob, thanks again, really appreciate you joining us today.

Rob Lidster: Thank you, thank you.