Are B2B Supply Chains The Elephant In The Room? with Mike Jette

PAUL:

You're listening to GEP insights for intelligent procurement and supply conversation. Hello everyone and welcome to GDP insights. I'm your host Paul Blake and today we're continuing our series of conversations discussing the state of global supply and procurement and finding out what companies should be doing right now to prepare their operations for a near future dominated by downturn and possibly by hard recession. With me today to discuss these matters is Mike Jesse a vice president of GDP. Let's begin as always with introductions So Mike welcome. Please tell our listeners about yourself and what you do a GP and your specific area of expertise. 

MIKE: Good morning again My name is Mike Jedi and within GP I'm responsible for our telecom media and technology or as we say TMT industry vertical cell phone companies the Internet social platforms and media companies all those all those types of verticals are within my purview and I'm responsible for managing successful projects with those types of companies.

PAUL: Great. Thank you Mike. Now you've written recently a lot about the subjects that we're going to discuss today. And while the focus of our attention most recently has been on the supply chains that impact us the consumer us as individuals. What have you seen going on in the business to business supply chains.

MIKE: I think we're just beginning to see disruption on the business to business supply chain front. So recently I'd been talking to a number of our customers and also contacts in industry and they are starting to let me know that gee were getting concerned about how things are going to look in the future. We're starting to see that our suppliers are being disrupted and we're trying to figure out what's the best way to react. So I think that the B2B supply chain is catching up a little bit with the BDC supply chain in terms of figuring out what the impacts of Cove at 19 are going to be. How would you characterize the difference between the business to consumer and business to business supply chains are they fundamentally different. Is any different simply a difference in terms of the timeline of the impact of a crisis or are there other complicating factors at play. Sure. So consumers supply chains or BDC supply chains are generally I'd say there they're better prepared to respond to this type of crisis and that's due to a couple of characteristics. One the manufacturing locations tend to be closer to the end consumer. So you have some that are less sensitive to global impacts to the production cycles tend to be simpler. Right you tend to maybe have all production happening at a single a single facility and three they also tend to probably be more automated so less reliant on people in the workforce and people who could get sick. So in general if you think about all three of those things what you'll you'll note is that one you know consumer supply chains that they can respond more quickly and to they're probably less sensitive to global crises.

PAUL: Okay. So that's why presumably we've seen the disruption in the business to consumer supply writ large across many countries already but our business to business supply chains in the same cycle. But at a different stage or are we going to see a similar kind of disruption but simply after a delay because as you said that time from origination to delivery is much longer in B2B?

MIKE: certainly. And maybe Paul I could give you an example of maybe kind of a classic BDC supply chain and kind of how it fits those characteristics. If you think about a classic consumer good I'm going to take a light beer write something which is near and dear to our heart. You know you tend to have breweries in lots of different places in the U.S. rates and they are close to the consumer you know the manufacturing processes is pretty straightforward right. They go from raw material inputs to packaged beer pretty quickly and it's highly automated so it's not it tends not to be reliant on lots of workers closely together in a manufacturing environment. And what that kind of spells is you know if you think about the born on date on your can of beer it tends to be very near to when it was manufactured right. You might be getting a born on date within two weeks of after you've purchased it in the store. So consumers supply chains tend to be had very short cycle times. You will if there's a disruption you will feel it very quickly whereas you know B2B supply chains tend to have much longer cycle times. It will take some time for those impacts to ripple through to businesses.

PAUL: What examples Mike are you seeing of major projects being put at risk as a result of this B2B supply chain disruption.

MIKE: Yes that's a great question. So I think in certain industries we will see the disruption it is likely three to six months out. So if you think about you know the preventative measures in China really starting towards the end of January and you think about a typical business to business supply chain which may have a six month cycle time you know you may see that those impacts will really flow through sometime in the summer to potentially fall timing. So you know I expect that we're three to six months out from what is going to be peak disruption in B2B supply chains. And you know I've spoken with folks in the telecom industry. They are you know beginning to recognize this. They have exhausted some of the component stock that they had so they had you know three months of component stock on hand and they are not getting their orders fulfilled from manufacturing locations in China and Southeast Asia. So they are projecting that you know within a couple of months they are going to have difficulty fulfilling their orders to their end customers. So I think you know three to six months is when we're really going to see these impacts for B2B supply chains.

PAUL: Well while none of us can categorically say this is a once in a lifetime event that we're experiencing right now we hope it is. But I guess it's equally possible that this is going to be an example of significant disruption that happens again at some point in possibly the near future. Does that mean that companies right now should be looking at this impact and looking at this disruption in the supply chain and immediately thinking about mitigation strategies for future events should they be looking to change the way in which they're doing business to restructure their supply chains to deal with this. And I'm thinking here in terms of should they be moving from a just in time model to one that has more than three months of inventory for critical components as you said. What's your thinking here.

MIKE: Yeah I think we'll see a couple of changes in the way businesses think about their supply chains. You know one I'd say supply chains have typically been designed to be as efficient as possible under sort of standard conditions. So when everything's going right let's make it as you know as little inventory as lower costs and meet service levels when everything's going perfect. And that's how the supply chains have been designed. I think you will see people take a look and say we need that. That's kind of 50 percent of our objective but 50 percent of our objective needs to have the supply chain function under adverse conditions. Right. And we're gonna have a balanced perspective whereas I'd say to date you know we've been largely over index on the efficiency and cost side. And I think you will see people move away from that. So that's one outcome might expect a second outcome has to do with manufacturing locations and countries of origin for supply and I think what you'll see and this is this will accelerate a trend that has already started. We tend to think of China as the manufacturer for kind of everyone else and that's certainly true in a lot of B2B supply chains. I'd say over the last two to three years we've seen some shift away from having all eggs in the China basket and a lot of that's been driven by some of the tariff uncertainty and uncertainty that's been out here not knowing exactly what tariff treatment was going to be on goods originating from China so you already had some companies looking to diversify some sources of supply. So for example I was talking to a computer manufacturer and they purposefully look to source 20 to 30 percent of their hard drives outside of China because of that tariff uncertainty. They had already made some of those decisions which is helping them weather the impacts of this crisis better but I'd expect those types of moves will accelerate greatly once kind of once we get over the immediate supply shocks from the crisis. And I think you'll see. I think there'll be a shift away from 100 percent China based supply chains to trying to figure out how to have 30 to 40 percent of that capacity. In other geographies.

PAUL: And how about the notion of moving away from a just in time model to one where there is more inventory on hand more local warehousing more local distribution and so on.

MIKE: Yeah I think certainly near term you will see a rise in inventory and safety stocks across. Are all parts of the supply chain. And you know that's also an area where there's some differences between the consumer supply chain and the B2B supply chain in the consumer supply chain. You have manufacturers you have distributors you have retail outlets you have lots of people who are storing inventory so they have a better chance to absorb some of those spikes in demand or disruptions in supply. Typically again B2B supply chains have been designed to carry as little inventory as possible to be efficient under standard conditions. So you're seeing the challenge of that model in that there's just not a lot of ability to react and to react quickly. And I think you will see people taking larger inventory positions and keeping more supply on hand to deal with adversities.

PAUL: Let me ask you then about the role of technology both in the current situation and in a potential rewriting of the rules in the future because it seems to me that the supply chain status quo as it were has almost become hard coded in the software that is used to manage the supply chain the flexibility that's going to be required that you've referred to is not reflected in the systems that are in place today to manage the supply chain operations. So is that going to be a negative impact on companies who want to change to a more resilient model or are they going to have to look at how to redefine the software systems to be able to manage a more flexible and more responsive supply chain than they've ever had before.

MIKE: Yeah I think this will drive technology providers to be more responsive to some of the challenges and supply chains. I'd say there's two areas that really stand out for me. One is in collaboration right to when we face these types of challenges and we create solutions and we solve problems. When we work together. And if you think about a lot of the technologies and software that are out there they're meant to be used within the four walls of an enterprise. They're not about collaborating to solve a problem with your trading partners with your suppliers potentially with your customers. So I think collaboration is going to be a big winner. That's going to be the new theme in terms of supply chain tools because we're all recognizing to kind of get the performance out of our supply chain. We need that type of collaboration. So that's that's the first technology theme that I think will become even more important. The second is inventory visibility. So one of the things we've seen lots of our customers looking to do is understand where they have inventory around the world how can they use that inventory to satisfy demand in different locations. So typically you know Asia Pacific maybe has their own visibility their own tools. Europe America they're all separate. And one of the things people have discovered in this crisis is while there's a lot of flexibility if we can just optimize visibility internally you know pull from locations maybe where we have access apply it where we have need. So there's there is more resilience if we have better tools and if we can extend that view even beyond our four walls to our trading partners we're going to be able to make better decisions about how to consume that precious inventory so that that second theme of inventory visibility I think is going to be a hot topic on everyone's mind right what do you think then are the challenges for organizations in trying to achieve that visibility of stock and of a multitude supply chain with the technology that's in place right now. Yeah. Well I think there are numerous challenges in the traditional technology landscape. If you think about most of the activities I described you know they are handled within ERP based systems and those systems one they tend to assume a course a static view of the world that things don't really change too. They tend to consider largely inputs that are that are only within the four walls of the enterprise. And three how they try to solve problems is based on kind of a predefined here's the four answers to the problem. Right there's not a lot of learning in the approach. So that has worked you know maybe up to 2000 to solve supply chain problems. But as we think about supply chains that are global in nature where we are jointly collaborating with customers and suppliers to optimize inventory and inventory availability across the network those tools will break down they cannot handle that complexity. Fortunately there are new technologies out there right. We hear a lot about A.I. machine learning. These are exactly the types of challenges that those technologies are meant to solve. And that's something a GEP within our next platform that we are taking those technologies and using them to solve the realities of today's supply chain and help people make better decisions and get to better outcomes.

PAUL: Well Mike thank you so much. That was very interesting indeed. And we'll be watching this space very closely and reporting on it in this and other output from GEP. Mike Jette thank you very much.

MIKE: Thanks so much Paul. Pleasure talking with you.