How to Make Your Supply Chain More Agile, Responsive and Secure

Alarice Rajagopal: Good afternoon everyone and welcome to our webinar, “The Evolving Global Supply Chain. Where Do We Go from Here?” My name is Alarice Rajagopal and as senior editor of CGT I'll be your moderator for today.

While the materials in the webcast have been reviewed by our editorial staff the views of the speakers and their organizations are their own and do not necessarily reflect the opinions of CGT or its owner EnsembleIQ.

I am delighted to introduce our subject matter experts on this topic. Our first panelist will be Michael Forhez, global managing director, consumer markets industry strategy group at Oracle. He brings over 30 years of diversified sales, marketing, and management consulting experience to his current role. Michael is frequently called upon to write and speak on various subjects germane to the consumer products and retail sectors. He also serves as an evangelist in the consumer markets and has committed his career to engaging with various stakeholders to better understand and reflect their collective requirements.

Our next panelist will be Mario Vollbracht. Mario is global senior director for consumer markets for Oracle. He brings 25 years of a combined direct industry experience, management consulting, and an extensive IT management background. While working in industry Mario gained direct experience in many functional areas including sales, marketing, production planning, category management, and demand/supply planning.

And last but not least, our final panelist for today will be Tim Denman, editor in chief of CGT and our sister brand RIS News. Tim has covered a variety of industries during his media career including car care, pharma, retail, and CG. He focuses his retail and CG coverage on new and emerging technology implementations that help brands attain a differentiated experience in a hyper competitive landscape.

So as you can see, we have some very experienced and a diverse group of experts on hand today for this lively discussion. So Tim, Michael, and Mario thank you all for joining us and let's dive right in.

Just a couple short months ago, CGT surveyed qualified consumer goods executives in order to benchmark the state of the global supply chain, which we are presenting in partnership today thanks to the support of Oracle. We will cover some key findings from the targeted research; however, if you'd like to explore the full report we've provided the link here.

To give a quick snapshot of the demographics, the survey was targeted at high-ranking headquarter staff at major CG manufacturers. Forty-four percent of respondents hold VP titles or higher with job functions running the gamut from IT technology to supply chain to customer management, sales, and more.

We'd also like to note that nearly seven of 10 survey takers identified themselves at CPG manufacturers with 48% telling revenues north of $500 million. While the full report benchmarks the status of 20 unique supply chain technologies, 26% of IT budgets are being spent on technologies to support the supply chain.

Of that budget, it's no surprise here that an overwhelming 62% said they were looking to improve their ability to respond to fluctuations in demand this year and another 24% have earmarked it as a 2021 initiative.

So, Tim, I'm curious to hear your thoughts on this stat. Does this surprise you at all?

Tim Denman: Thanks, Alarice. Not really. Having a quarter of the CG IT spend allocated to supply chain is definitely not surprising. In our annual Analytics Study that CG co-produced with RIS this year we asked CGs to name their top analysis area, and they mentioned demand forecasting, consumer insights, inventory, assortment planning. And all those things are either supply chain functiosn or directly tied to supply chains. So obviously there's a lot of money you can import into the supply chain. And looking at the results from this targeted research report, it's more of the same.

CGs are investing heavily in demand forecasting and agility, omnichannel fulfillment, and a host of digital transformation initiatives that are going to enhance the enterprise as a whole and the supply chain specifically.

Rajagopal: Thanks Tim. I'd like to bring in Mario next. There's a lot of valuable insight on this slide, but as I look at all of the feedback, 26% of IT budget goes to supply chain. Mario, is this in line with what you are seeing?

Vollbracht: Yeah, just like Tim was saying, I think we're seeing similar things. When we step back and look at the supply chain, it's garnered a lot of visibility in the last couple of months and for good reason. Typically when we are in pure execution mode and everything is good, a lot of people don't get too involved in supply chain. The product just shows up when it should.

Not that that was always perfect. We have always had issues with out of stock and what have you. But now with the latest pandemic, of course, the out of stocks and the latencies and disconnects have become much more exposed.

So what I thought was interesting in this data, and there is a lot of data on this slide, but if I look at the data for 2020 the thing that jumps out to me is the 62% where responses are saying we're investing this year in making our supply chain more agile so we can respond better to fluctuations in demand. When I first looked at it I connected to demand planning, but it's a much broader remit really. It calls for better demand planning, but it's much more than that. It's basically looking at the entire supply chain and saying, okay, how do I make sure I line everything up to respond to these incredible fluctuations that I'm seeing in demand? And as we look at that, I think there's a couple of things to call out on how you actually can achieve that.

The first one I categorize as how do you take latency out of your supply chain? So when we look at a typical supply chain in consumer goods, we see still a lot of manual handoff between the various business functions. And every business function — could be manufacturing, inventory management, order management, you name it — has its own set of data controls and manages too. So that leads to a lot of miscommunication, a lot of discrepancies, and a lot of buffering, right? There's a lot of lag in it. And that's just within the company's own supply chain, let alone looking at all the partners that feed into that supply chain and come out of that.

So, inevitably, we will have things like the bullwhip effect that most people in supply chain are very familiar with. So the first thing to do is to break down all those silos and connect every function within a supply chain digitally so it can actually enable the flow of information, get people on the same page, and get that speed up.

Second, as you connect every different function, you now also need to look at each and every function and say, okay how do I make it more sophisticated? How do I make it smarter? So if I take demand planning as an example, what we saw happening in the last couple of months is that planners are planning for the next SNLP and the next manufacturing or sourcing route, and all of a sudden a key supplier just goes offline. There is no more supplies coming for critical component or critical ingredient.

Vollbracht: I think that's a great point, actually, if I can jump in because Michael is connecting the supply chain to the consumer, which I think is right on. It reminds me to kind of step back and say, okay supply chain as I thought before about steps to take to make resilience is only part of the equation. At the end you need to go all the way to the consumer to the table. So we have a picture here from a solution we have where salmon is caught in the ocean and it flows all the way through to the right to the consumer. And what we've done is we've taken our supply chain cloud and we've extended it with our IOT which we'll talk about IOT in a little bit, and blockchain.

But what this does is it really lends itself to a lot of automation. So as this product moves through the supply chain and critical events come up which are triggered and captured by IOT, they get written to blockchain for everyone to see, including but not limited to, the consumer itself, where we expose this information and tell the consumer this fish was caught in this ocean and this product is on recall so you actually should not consume it.

All that information can be captured in addition to everything else that people in the supply chain need to know. And this is not limited to fish. We see a lot of uptick in variety of applications so we have a customer in olive oil business who is using that, we have somebody else tracking shoes as they're manufactured, and even diamonds so it has a very broad application.

Rajagopal: That's interesting. So now that we know where supply chain technologies stand today, I want to take a look at where investments are heading. So not surprising in a study targeting to supply chain professionals, 41% of respondents report that they have up-to-date supply chain planning software in place. Tim, while it looks like these executives have a solid foundation, I'm curious can you talk a little bit about the status of some of the more emerging technologies?

Denman: Absolutely. Like you mentioned at the top, we asked CGs their tech maturity on 20 different technologies. The complete chart is available in the full report on our website but for the purpose of this webinar we chose to highlight the technologies with the highest proportion of either up to date or planned investments.

However, it is noteworthy to talk about some of the technologies that CGs report they have no plans to implement. And, surprisingly, 62% report no plans to implement blockchain, 48% no plans for IOT, 45% say AI/machine learning is not on the immediate horizon. And these are all surprising to me, especially the AI piece.

I would chalk some of that up to funds being diverted to more pressing COVID concerns. AI is off since CGs are certain investing in it albeit indirectly through other systems in the tech stack. In addition, many of the demand planning solutions that are being invested in have an AI backbone. And, again, I just kind of chalk all this up to these vital technologies are sort of taking the backseat to the funds are being diverted to COVID.

Rajagopal: Right. And Michael, what other types of emerging technologies do you see CGs planning to invest in within the supply chain?

Forhez: Just a couple minutes ago we were covering click and collect and direct to consumer, but I would say frictionless commerce and other digitally enabled initiatives, which would have already been accelerating as part of the market's call to action, but are actually speeding up even more to satisfy households that are trying to minimize the time they needed to shop, to eliminate bottlenecks on the other side between trading partners and so forth.

Rajagopal: That is great. It kind of segues to the next topic because we can't talk about investments first without acknowledging some of the barriers. So here we can see the obstacles that oftentimes reduce efficiency or productivity within the supply chain. Top three on the list of challenges? The inability to adjust or respond to fluctuations in demand, the lack of accurate real time inventory visibility, and the inability to run detailed what if scenarios. So Michael, if I could start with you this time, how can CGs overcome some of these obstacles?

Forhez: I guess I've been alluding to this throughout the conversation, and I honestly think it's probably the central point to this whole discussion. And the question we have to ask ourselves I think is how are we going to look differently at how we serve today's ever connected consumer? It's not just about the algorithms for, I don't know if you're in a loyalty program. Recency, frequency, and monetary value. It's also about needscape and about a modern customer experience I think which seeks to move beyond always trying to sell more, nothing necessarily wrong with that, to how do we inform better which I think is what consumers are looking for at least in tandem. From a brand and product perspective, this is what's at stake.

We've been experimenting of course for some time now. Again, pre-COVID. But if I can be so direct I think it's school's out now. We have to get real in the context of a moment unprecedented in history in order to serve our purpose.

Rajagopal: Mario, removing these barriers to have a more agile supply chain can sometimes be a huge undertaking. So how can CGs get started?

Vollbracht: I think that is kind of the multimillion dollar question. It is a huge undertaking, no doubt. In general, when we talk to our customers we know that the age of multiyear projects where you don't see the pot of gold at the end of the rainbow until you're done, they no longer work. No one has an appetite for that. So instead what we do is we partner with our customers and come up with a roadmap, a master plan if you will, and then within that we prioritize what they should be tackling first and then what impact that's going to make. So these are sprints, to use a word from the Agile methodology, where you basically work within this master plan but you get some relatively quick wins and they all build to this end goal that organizations have.

But it isn't easy and it's definitely, the one thing I would say — and this is no new news for anyone that's done projects in the past — you have to get the right executive sponsorship and leadership. When you do something like this, the argument we're making makes it even bigger because we're saying it's supply chain, but it's also connecting to the consumer so you really need to have top of the organization as executive sponsor driving this tax project. So it's definitely something that needs all hands on deck.

The other thing that I want to point out too that we're seeing from our customers as they're tackling this is that more and more our customers saying we're good with supply chain, we get that that we need to overhaul it and make sure supply chain is pointing in the same direction, but how about financial ramifications? How do we connect the financial organization and financial analysis to our supply chain?

And that's kind of the picture you see here, so you have your business planning completely integrated from finance to supply chain and back, as well as plan and execution, it's kind of a round loop where you constantly update one as the other one changes. So, for instance, if I go back to my example where my supplier goes offline and I can't get my ingredient anymore, when the planner makes that change in the planning system, it automatically rolls up into the financial system and says we have a potential issue.

So the CFO knows about financial ramifications, the VP of sales knows about financial ramifications, and everyone can tackle this problem from one version of the truth.

Rajagopal: Great, I think that's some good tips on how to start. Switching gears to IOT. We saw in the study a clear divide between those embracing it and those that are not. So we asked their top organizational challenges into investing in the technology, and top of the list was lack of skilled workers required to implement, no clear ROI, as well as budget concerns.

So Mario if I could bring you back in, this is a key emerging tech area and IOT has been talked about forever from RFID tags to making manufacturing machines smart. But the results here seem to suggest a lot of serious challenges when it comes to IOT, so can you comment on that? What is your take here?

Vollbracht: Absolutely. First of all, I think what you got back from the survey is pretty much in line with what we are seeing. And there is a lot of information here in these bullets. We could probably have our own webinars just on this slide, but to have a couple highlights. So 45% say there's no clear ROI, 41% say that there are budget challenges around getting funding for IOT. When I tie that back to what we're seeing, we basically come across two different types of customers. First type are the customers that come to us and say okay we've heard a lot about IOT, we feel that we need to embrace it, we want to do an IOT project. So we will get RFID tag or an automation of plans to smart manufacturing, very specific technology-driven project.

The second type of customer that we see is a customer who comes to us and says I want to have a business outcome. For instance, I want to have operational excellence. I want to improve my logistics throughput. So anything from a higher level business outcome. And then within that they say, okay, now how can IOT enable that business outcome?

So the first one, the first camp when we do those projects there is typically no clear ROI. They go well, they prove out the technology, but at the end everyone sits back and goes what do we do with this? How do we actually go back to our organization, to our management, to the business, and say, look, this piece of technology works really well, give me money so I can spin it out into a broader project for you?

And there is this misalignment and then it doesn't happen and I think that is where you see these type of numbers like 41% that it's tough to get budget. I would agree, most of the time when we do IOT projects, the successful projects with the second type of customer, there really is no line item in the budget that says “IOT X number of dollars.” Instead it's a business outcome led project that says, I want to move smart manufacturing, I want to have operational excellence. And then within that budget is a sub item that says okay here is how I'm going to have IOT work within that.

So those are kind of the two that we see, and there's a lot more on this slide but maybe we can have some questions later on that.

Rajagopal: Thanks Mario. I want to move onto this “new normal.” So the COVID-19 crisis has highlighted some shortcomings for both consumer goods’ and retailers’ ability to successfully predict and plan for future demand. It also brought some supply chain inefficiencies to the forefront, and in response the data shows that CGs are mostly committing to improving their visibility into demand and inventory accuracy. And with all the volatility lately, it has sparked this idea of preparing for the new normal.

So, Tim, I'm curious, do these results surprise you at all? Then just pulling from your background in retail, as well do you see any overlap with CGs and retailers on this new normal, or what's becoming the new normal?

Denman: Nothing here is super surprising. I'm sure anyone in the CG and retail space would rattle off those first few, the demand planning in inventory accuracy, supplier diversification and visibility, more e-commerce. Those are the biggies when we're talking about COVID's impact.

We just did a similar supply chain survey focused on the retail side for RIS; however, the question we asked was a little bit different. We asked about lessons learned from the pandemic, and an overwhelming 88% named protecting essential workers and 60% said essential workers should be fairly compensated.

We didn't ask CGs about their workforce safety, but if we did I would imagine we would see similar numbers. And also of note is retailers don't think the supply chain disruption from pandemic is over, not by a long shot. 70% said pandemics were a high concern for future threat to the supply chain.

Rajagopal: Interesting. Thanks, Tim. Michael if I could bring you in, how have priorities shifted with the onset of the virus? And do you see these focus areas staying top of mind in the near term or even in the long term?

Forhez: Yeah, two great questions. I'll unpack them best I can. I've been traveling around, well pre-COVID I had been traveling all over the world for the past several years, and I've been in a lot of boardrooms and meeting with a lot of senior management. It's interesting to try to understand what their priorities are, and most particularly you can get the answers if you ask them and if you've earned the right to the kinds of questions I was posing.

So let me break it down: What do you think you're in the business of? And it's surprising some of the answers I've obtained as against the conversation that generated. Going beyond "survive to thrive" what can and what must we seek to change?

As well, of our precious resources of the corporations’ enterprises, precious resources in human capital, knowledge capital, and financial liquidity, for infrastructure and brand equity, how might we better leverage these assets to align with a rapidly changing customer and consumer? And, again, this is pre-COVID. I think the answers to these questions or the fact of even asking these questions has a higher imperative than ever.

And then to the second question I'll pose two more questions. Not only what is the forecasted cost and expected ROI for the change requirement. In the absence of any agreed new remits, what are the probable clause if we do not aggressively seek and enable change?

And then there are companies I have been with and they're at various stages of either again, aggressively moving to make the necessary requirement changes or they're stuck in place a little bit and not sure precisely where to go, this is understandable. Then there are a small number I think that are just, it's kind of like a deer in headlights.

And in this last category, you have a lot to worry about. But I think for the vast majority of companies it's pretty clear particularly now in the COVID environment we're living in that change is afoot and if you want to be part of the future you're going to have to create it yourselves.

Rajagopal: Absolutely. Well, many CG companies know that operating in silos is a detriment to success; there are still some traditional approaches that are hurting business, and the top response including linking multichannel order fulfillment to inventory availability. So Mario, can I bring you back in here? What are some of the key insights you're seeing from these responses here?

Vollbracht: Well, the thing that jumped out to me this response particularly was that all of this really is related to data. How do I make sure that I have data flowing throughout the organization, throughout the supply chain and beyond? So when I mentioned in the beginning about you need to digitize your supply chain, you need to make functions more sophisticated, that obviously has a big data component that sits underneath that that we didn't really get into. But that's kind of what comes out in this survey as far as the survey.

When I look, for instance, at order fulfillment to inventory availability, it's all about connecting all these different orders are coming in, to what do I have available to promise, what do I have available to ship for each of these orders knowing the differences in channels and the requirements that go with that from a packaging and SKU perspective?

Same thing with trade promotion and supply chain. I've seen a lot of customers implementing trade promotion systems where it really is geared towards sales selling, and that's what that type of system does really well. But the flip side of that is when you start generating that kind of data on the sales and marketing side, and you start generating all these extra sales that come from promotions, when you plan the promotions, you might want to check with supply chain or at least let them know it's coming so they can plan for a promotion and have the product in stock. Or maybe there's really no way that manufacturing can even make that promotion that you're about to promise to a major retail customer.

So all of this really to me ties back to data, and that's not an easy thing, right? That's really hard. When you look at the amount of data that's being produced and the increases in the amount of data, it's staggering. But if we just look at internal data within CG companies, that's enough of a challenge, let alone all this external data we now need to bring in.

Rajagopal: Michael I will just bring you back in one more time here, I know you want to talk about some key takeaways.

Forhez: I'm just going to wrap it up. I mean, what are we talking about here? Mario is a supply chain intelligence expert whose lineage is well enough known, I've spent 30 plus years in retail and consumer good primarily in the marketing and sales and customer/consumer function areas. I think something very clear is happening now that we have to reckon.

A resilient supply chain is only going to take us so far. The demand planning and forecasting models, the algorithms that have been the bedrock of this industry and of that area of the company can only take us so far. We are now reckoning a fact which is that consumers behave equally, well we'll put that in quotes, some say between rational and not always rational. And the fact of the matter is we need to listen to them better. We need to hear what they're saying and record that as part of all of our core processes

I believe then that what we're looking for is some combination of updated supply chain management, resilient supply chain now has been the phrase on everybody's lips, and an empowered consumer which seeks to understand an updated customer experience what it really means to understand and serve. It would be through the combination of that authentic listening, that listening and response as it were, between manufacturers and retailers where consumers are concerned and our ability to make and ship product to needs that is product and needs states. And here is the simple formula so you can just put it right up there. It looks just like this, right? A resilient supply chain plus an enabled or empowered consumer equal a new way to serve. I honestly can't think of a better way to sum it all up than that.

Rajagopal: Thanks, Michael. So we have a few minutes, I want to just quickly transition over into Q&A. So the first I see coming in here is around security. So how do organizations deal with supply chain security and disruption? Maybe I'll start with you, Mario, and then Michael if you'd like to add anything you can jump in after.

Vollbracht: Sure, thank you, Alarice. That's a very broad question so I will take a part of that, right? So if I think about security, it's an important question. As we connect and open things up within our organization and outside to partners and then ultimately because you're doing that to the wide overall world it becomes a security concern for sure.

So back to IOT, there was a response there around security too. Security concerns at IOT, and for good reason. When you take IOT to enable smart manufacturing for instance, when you look at a typical manufacturing plan that may have been in existence for many decades, and there's plenty of those, they were typically built as a self-contained kind of unit, and the entire reason for being for a manufacturing plant is throughput. Let's make sure we can make as much of whatever it is we're making there and that's the main concern.

Security isn't a concern because these plants typically haven't been connected to the grid. So now you come in with your IOT devices, and you start attaching all these sensors on these machines and then out into the internet and that is when you get security holes. And there's lots of protocols at IOT to make it even worse.