Flexibility for the Future - How Disruption Fosters Innovation

[Music] welcome to mit supply chain frontiers from the mit center for transportation and logistics each episode features center researchers and staff who welcome experts from the field for in-depth conversations about business education and beyond on today's episode center director professor yosi sheffie speaks with two seasoned supply chain professionals about some of the business and leadership innovations that the disruptions in 2020 brought about for them and their organizations and he asks some compelling questions as we look toward the future take it away you'll see hello everybody i'm yossi sheffield first of all thank you linda dave for joining me today let me quickly introduce the two of them to our audience i'll start with lynn chief procurement and supply chain officer at flex flex is the company that used to be called flextronics many of you remember flextronics started 51 years ago at silicon valley then moved the headquarters to singapore and later changed its name to flex it's a contract manufacturing which does and can do almost anything many of the things that brands are selling are actually made by flex the company has 24 billion dollars in revenue and 160 000 employees and very complex actually multiple supply chains it's hard to talk about flex and think about this supply chain they have so many now linda red is responsible for this multitude of supply chain she is a graduate of the university of minnesota with an mba from the kerry school of business in arizona state hi lynne thank you for joining us hi elsie uh let me introduce dave wheeler from new balance to balance was founded in 1906 so it's a old company in boston as an art support company by william riley who actually i don't know if it's true or not but the urban legend is as he followed the way she can balance their gate and decide this is the perfect way to balance ones and they say that he had the chicken leg on his on his desk for for many years by now of course the company sell athletic wear in 120 countries with five and a half billion dollars in revenue and eight thousand associate it is a private corporation david wheeler is the chief operating officer of new balance he studied merrimack college he's an engineer and has an mba for miami university i should say that both dave and lynn were generous with their time in the middle of the pandemic which tax every supply chain executive they both allow me to interview them about what was going on during the pandemic around them around the world providing material for my book that came out in october this year the new abnormal reshaping business and supply chain strategy beyond kovit 19. both have operation in china it's interesting because flex of course is a b2b operation while no balance is a b2c operation serving a serving consumer directly so they are come from one private company one public company coming from two sides of the of the supply chain so what i'd like to do now is start with a few questions we just went to an amazing and tough period what's the biggest insight or aha moment that came out of this for your for you and for your organization well i think one of the most interesting dynamics is that 10 months ago nobody was really talking about supply chains people just expected them to work and and deliver the products now supply chain is a topic on everyone's mind and it is very pervasive in the industry today the importance of supply chain and supply chain resiliency i also believe that digitalization tools provided great information to allow our organization to address the supply chain challenges throughout the pandemic but it also highlighted to me the importance of supply chain professionals making smart decisions with imperfect information throughout this challenge and i also believe that it validated the investments that flex has made over the past years in our digitalization tools to be able to stay at as quick as we could in our decision making as we addressed all of the challenges that we were faced on a daily basis throughout the pandemic thank you dave what was it for you the uh the inside and aha moment that came out of the of the epidemic good morning yossi and uh yeah thanks for thanks for having me on here good to share some stories has certainly been a challenging 2020 for sure um you know a combination of loss and chaos and certainly some opportunity as well and you know i think maybe two parts i'd share one is um i guess i'm not too surprised that having a burning platform brings people together you know if i think back to the earthquakes in haiti you know we rallied around our suppliers to make sure that they were supported and we also figured out ways to get back up on our feet in in fairly short order so seeing a team come together for a common cause certainly was the story of this year for us i also think we all surprised ourselves around the ability to come together in a virtual way using tools that have been available but certainly have come together for you know the masses which enabled us to work together really in a more seamless way and in many cases more effectively to get to conclusions make decisions and take action you know in a way that hadn't happened in the past so you know that for me the ability to work virtually essentially was the big aha moment for me in 2020 thank you dave and we may come to this point because we will be interesting to know later how much of this would stay after the pandemic including working virtually and underpinning but lynn you mentioned before that supply chain became people used to ask my wife what's your husband doing is they do research in supply chain and they say what is it nobody asked what is it now they say oh wow that's important but within the company what happened to you and your function as a result of this well supply chain within the flex organization has always been a critical aspect of our business so it was always highlighted as a strategic importance within the flex organization but i do think in many companies supply chain became more prominent in the discussions and direction and decisions that companies were making yeah dave you used to be the head of supply chain now you're running the whole operation right yeah i think um new balance is a little bit different right so we're a consumer-facing brand so when we think about the most prominent functions in the company it's about marketing and merchandising and those types of functions supply chain is there to support those efforts and in the early parts of the pandemic and actually throughout 2020 um you know supply chain has been thrust into the forefront a lot a lot further very visible often uh having discussions with ownership and the ceo and the cfo and you know really trying to make sure that you know our efforts are headed down the right path to support the demand which has really fluctuated both down and up in a significant way so the v for us has been real you know we'll still end the year on the negative side versus 2019 but certainly in the latter half of this year you know volume is up significantly so we're actually chasing the supply at the moment oh wow let me follow up on this with you dave to do this of course the supply chain has to be not silent but work together with every other function in the uh in the organization can you talk more about the cooperation with other functions yeah sure thing um you know we found in 2020 that the working in an agile way really helped us accelerate change and you know in the past we had run projects in a more traditional you know longer term get a gantt chart really have key milestones uh we created in the march april time frame a series of what we call pods agile pods that were very cross-functional had a 90-day time limit and had key deliverables along the way and so every other day that team was together in a cross-functional way and that synergy was really game changing for us because we could pivot a lot quicker given all the inputs from the various functions so that was significant for us this year for sure well when the pandemic first started in january we were getting information out of our our chinese operations and one of the things i did is we created a daily call with my leadership team and other areas of cross-functional business leadership from our resiliency team our legal team our tax team and we had a daily call at 5 30 in the morning my time for months and i think that was incredibly important in how we addressed the challenges we were facing we would have a very structured agenda for the daily call we would hear from our regional leaders what they were hearing from customers what they were hearing from suppliers what they were hearing from the media or local governments we'd look at the information we had from our suppliers and our customers forecast to understand where we may have supply chain risk and then we employed tiger teams to address the significant challenges we had and that daily rigor of the calls and our ability to move very quickly and readjust our our teams to focus on the most critical aspects that we were working on provided a great deal of resiliency in our our supply chain we had we cover a great you know number of industries at flex so we had instances where some of our customers forecasts were going through the roof and we were chasing our medical supply medical business for instance uh you know drop in lead time demands shortages that we were chasing and we had other uh parts of our business where the forecasts were declining rapidly so having that daily rigor being able to deploy the vast resources that we have within the supply chain organization to both expedite orders and cancel orders and understand what other challenges we might be facing such as sourcing ppe equipment or freight and logistics challenges and making the decisions based on the discussions we were having on a daily basis was very critical just a following on what on the comment that they've made do you see the business that was down do you see it starting to go back up yes in in many cases the rebound has been dramatic in in the increase and like dave we are chasing supply supply right now because the demand is the demand is high and now we're we're certainly seeing some shortages that we're working on to make sure we clear to recognize revenue and support our customers but and i do think throughout the entire pandemic with the forecast going up or down we really work to with our customers closely to validate their forecast and i wanted to ensure when we were working with our suppliers we were giving true demand signals and prioritizing appropriately so they would be able to work within their organizations which were also challenged because of the pandemic and we worked very closely and collaboratively and compassionately with our partners to try and ensure we could meet the demand dave could you just comment on working with with your suppliers sure yeah it certainly was challenging in that april and may time frame as we went in and put a hold on production but we also wanted to make sure that we had really strong relationships with our tier ones and also respecting the tier twos and tier threes as they tried to you know stay financially solvent and so it was a real delicate balance actually and we put a lot of emphasis a lot of resources around understanding the data at a very detailed level uh so that we could repurpose the certain materials that were already purchased by the tier one into the tier twos rather than leave them you know holding the financial liability and so fortunately we were able to you know work down a material liability of over 10 million dollars essentially down to zero by just trying just really using the data again respecting the suppliers because we need them for the long run and i think those relationships are so critical you know i would also maybe tag on there that you know living in this virtual world it does certainly become challenging to maintain those relationships at the level that we have had in the past you know in person really does make a big difference so we can get 90 there but you know that extra 10 percent makes makes really does make for a much stronger supply relationship and we look forward to getting back to the at least some level of travel in the near future for sure in the book i quote lynn actually that talks about the fact how important it is to sit at the end of the day face to face have tough negotiations and then have dinner together it's just the way trust trust is being built but lynn following on other discussions that we had before there's a lot of focus on resilience from your customer want you to be resilient what are the challenges here that's a great question and it's actually a topic that i'm exploring in a series of blogs on the flex website everybody's talking about a resilient supply chain and we believe that there are a number of ways in which you can work with your customers and suppliers to drive more resiliency visibility is is incredibly important digitalization and collaboration so when we're looking at driving a resilient supply chain there's numerous ways you can do it it's some in some cases it's like an insurance policy is that having additional inventory and if so who funds that additional inventory is it looking at alternative suppliers to de-risk the supply chain and it's also from an internal standpoint looking throughout your entire organization to find out where you may have resiliency risks and continuously improving uh internally to drive improvements in that area thank you and um dave you face different challenges because you are not faced by huge customers each one is a large percent of your business who can exert pressure i mean you're facing consumers i mean you're facing some retail chain obviously that buy more than others but so you have how do you deal with the move to e-commerce and only channels sure i mean even prior to the pandemic we had seen quite a shift from wholesale into our wholesale retailers over to you know direct to consumer e-com type sales and it's certainly accelerated in a big way in 2020 i think as many companies have found as folks stay at home and can't get out to the retailers so we have seen an acceleration in that type of sales uh you know that's launched us three years beyond where we expected to be and as you can imagine that puts a lot of stress on the supply chain you know from you know the way that we distribute the product and then finally deliver it into the consumer's hands versus a customer of wholesale a completely different set of processes so we have quite an effort underway within our warehouse network and that transportation capability to make sure that we can you know catch up and also you know sustain what happens in 2021 which we which we expect will be continued growth in ecom you know i think on top of that we are certainly getting into the omnichannel capability utilizing our stores to ship smaller volumes of certain skus that consumers want in a relatively short period of time they're used to that amazon potentially same day within two hour type delivery and we are working down that path with a couple of pilot projects utilizing our brick and mortar which is super exciting for us thank you and both of you have operations in china both of you are also selling in china so let's let's go to you are you going to move out of china no no flux flex has a large footprint in china and we are committed to our employees and other stakeholders there and we also have a diverse and global footprint and and depend on uh supply chain from china to support our customers china is unparalleled in their electronics manufacturing and supply chain capabilities and the hubs you know the technology hubs that have been built have been decades in the making and so we will continue to to work with our valuable suppliers from china to support our our customers i think at the same time we need to look at resiliency and de-risking the supply chain so i anticipate change but not in in the short term uh we'll continue to to value our suppliers and and our uh production in china dave i think similar similar to lynn's perspective you know certainly new balance has a strong consumer base in china so producing in china for consumer consumption in china makes a lot of sense to us in the apparel and footwear business in general you know it's not as high of a value add as electronics for example and so across the industry we've seen migration generally away from china but still some volume remains there especially for let's say high performance technical running and certain capabilities that china has built up over the decades are outstanding that businesses like new balance want to stay there in particular but china certainly has and brings a lot of great production capability to the table that we're certainly proud of for a lot of different reasons and we source globally you know we we're proud that we're the only major athletic brand that produces right here in the united states with five factories in new england so we're very diversified on our supply chain base thank you there's another related question before we go to the to the um technology lots of technology questions uh about the you know the trump administration and and others are talking about regeneration and moving to insourcing instead of outsourcing you see i did not see much of this but do you see in your company do you have part of the strategy to bring more stuff in home well flex has the benefit of a large global presence large global footprint you wrote in your book about china plus one yes you know flex can offer china plus 50 um options for for manufacturing so i do believe that you know talking about resiliency and regionalization it means different things to different companies into different industries we believe that there's an opportunity to look at partnering with customers who potentially have done their own manufacturing and want to look at maybe de-risking by using a partner like flex to take on a portion of their production to provide that resiliency and and risk mitigation strategies but in general i do believe that uh there is a lot of talk of regionalization and resiliency and there it needs to be defined exactly what that means for a customer for their strategies and then looking at is that something they want to do themselves is that something they want to partner with we also offer services in engineering because the manufacturing is one aspect the entire supply chain is another aspect so if we have customers who have a single source device as part of their technology innovation can we provide alternatives that come from a different supplier manufactured in a different region to help de-risk the supply chain so i think there's a lot of ways in which we can drive resiliency and and support regionalization as as our customers want to define that dave sure yeah we have a real interesting combination i think um you know i guess i would tie it to a key initiative we have underway and have had over the last couple of years but especially in 2020 it's been focused on design for lead time you know and so as we think about an agile responsive supply chain a lot of that is around lead time shortened lead times so that we can sense demand and rapidly respond with supply and that tends to focus our energy around localized regionalized supply base and our ability to open up our own capabilities there in every single country that we that we sell into is unrealistic you know and so using an outsourced specialized capability on a regionalized basis makes a lot of sense to us and that will certainly continue to be the trend as we design for lead time so that we can respond shorten up our you know inventory turns and really get a little bit um you know more precise around what inventory we have on hand based on our sell-through so that would be our trend at the moment thank you every virtual conference that i'm on every other question to get is digitization of the supply chain okay the question is what do we mean by this which technology goes where what are the technology i for example flex i know developed this unbelievable nasa-like world that looks at the the whole surprise and that's something that takes a lot of money and time to develop lean if you can just say a word about your system that was developed actually even before well before the pandemic but then about the technology that you think are critical for making the supply chain more agile responsive shortened ellipse time increase you know inventory turn and all the good things that we expect yeah flex benefited greatly during the pandemic in the investments we've made in our digital technology and the best example is the flex pulse center which we started in 2015 and have con been continuously innovating since so flex is a cloud-based intelligent platform that provides real-time visibility into our entire global supply chain and we use it to manage all aspects of our business we're able to go in you know with a click of a button and look at you know a global picture drill down to a regional picture a site level a customer level to a part number level and understand you know what potential gaining aspects we may have so the insights we are able to glean from our flex system are incredibly powerful prior to joining flex i was a supplier to flex that i remember my first visit to the flex pulse center and i told my predecessor that i had data envy because it was so powerful coming now and joining flex i realized how critical and important those investments are in managing such a complex supply chain yossi you mentioned it at the beginning we have you know we support over a thousand customers uh with 16 000 suppliers and that translates into a million skus so that working across multiple industries makes it incredibly complex so the visibility that we have from our pulse center is incredible it was a significant investment in the continuous innovation and we've innovated even with lessons learned uh from kovid and one of those was uh and dave you mentioned at the the tier two tier three supplier and and the lack of visibility both from their supply chain but as well as their financial health and that those are areas where we believe in further furthering the capabilities of our system will require you know third-party partners to to support us with that information because even before covid you know we had environmental issues impacting our supply chain then you had the trade tensions then the global pandemic that that need for resiliency and visibility is more critical than ever and in some cases it will require really an industry wide type of connection to be able to gather the information in and provide that visibility we have nine of those around the world uh pulse centers and and they're you know wall length uh across a room digitalization tools that provide live streaming and really actionable insight towards where we may have challenges so it's it is uh very state-of-the-art from what we've developed uh dave can you talk to us about where do you see the most important investment in uh in supply chain digitization what problems are we trying to solve sure yeah um you know we've made the decision to as many companies have um either in the past or at least thinking about it to really invest in a new erp and a new supply chain planning suite which will you know bring in demand sensing actual sell-through data point of sale information use ai to give us a better forecast that's the expectation because it all starts with the forecast and um so we're excited about that we're about ready to get started on it um so as far as software and the platform to help us tie and supply chain together that's a big deal for us i would say on the product side you know there are a couple of areas that really came to the forefront in 2020 one was you know in the past we have done some 3d product modeling so our suppliers have capabilities that we have helped them get you know ramped up with to be able to create a 3d you know computerized model of a shoe that's in the design phase and and in the past you know we've created physical prototypes which get produced and then sent transportation handling all that all that adds about four to six weeks on to the overall production cycle and if they get it wrong then we start that over again with the 3d model which we've really invested quite a bit of money in just in the recent past you know in 2020 we were able to really turn these prototypes quickly in the virtual world and so that's been a big big improvement for us in the digital transformation the next step is to be able to take that 3d model and have it blow out into a bill of material and then digitally right to the shop floor and so there is a lot of work across a number of different suppliers to help us get to that point as well and i know a lot of companies in our industry are working toward that and that i think will be true product you know digital transformation i'm excited about that good let me change tax let's go back to lean during the pandemic is it changed the way that as executive you do your job how you lead the organization you have a pretty large organization reporting to you and did it change your leadership style i think it probably enhanced some of the strategies that i've always employed one of my leadership tenants has always been collaboration i always believe that it's important to have teams working together to drive the best results because it's a very complex industry that we're in and i think that came to uh another level during uh our our pandemic because certainly you know i was relatively new to to flex when the pandemic broke out i joined of october of 2019 so when we started those daily calls with my leadership team who are phenomenal experts in their area we would have a discussion and i said i wanted to hear everybody's voice and everybody's concerned when we were having these discussions because we needed to make quick decisions to mitigate our supply chain and we would meet again in the morning in case we had to adjust them so i would say i think collaboration was uh something that increased across the organization as people understood all aspects of our business needed to be in constant communication to understand the customers the suppliers our manufacturing capabilities we had our manufacturing sites close down and open up as our suppliers were closing down and opening up so we shifted product around the world to to make sure we could recognize revenue and support our customers so collaboration was enhanced and i think communication one of the things i learned personally is the importance of ongoing regular communication in some cases i thought it might be repetitive but recognizing the organization wanted to hear from the leadership team even if in cases it wasn't perfect information or we knew exactly what was going on but really learned that that regular communication to the employees was very important in such an uncertain time that they would hear from the leadership team on the strategies we were employing for the business dave what can you say about your leadership style and did anything jump to you during the epidemic yeah i think i would just you know 100 percent you know emphasize lens points right on target as far as you know communication collaboration i would just maybe add an additional point that i've recognized certainly working in the virtual world with the staff folks you know that are working from home and in other locations you know my leadership style when in the office has always been let's have a meeting and prior to that meeting there's a lot of work that actually gets done after the meeting when you're breaking up and having hallway conversation a lot of work actually gets done there and in zoom calls or team calls when you hit that leave button it that ends you know and so that's the part that i recognized that we were missing out on even though during the meeting super collaborative people can hop on in almost on a moment's notice you know with no travel which is fantastic but intentionally carving out a little bit of extra time to connect into individuals for five or ten minutes has made a big difference because after all we're all part of the human race we like to socialize we want to talk about what's on our mind and as we do that we not only create new ideas and innovate but we feel connected and so you know on top of what i would i just add that additional part certainly people did amazing thing during the pandemic i wrote the book usually it takes me four years i wrote it in four months but that's nothing compared to developing the vaccine that you know we thought people can do it takes 10 years people do it in eight eight nine months i mean amazing with no technology so i didn't mention the fact that flex started making ventilators and urbana started making masks amazing how companies just did the right thing and without much protein and all this just i'm just mentioned that it was interesting to me that the masks that new balance developed were developed by the supply chain people not by the designers so and it looked great uh but it's one thing to do on this as you say when the whole team feel that there's a burning platform it's important and people work on a lot of adrenaline the question is so we learn how to do things fast the question is how to keep some of this going forward well it's interesting i had a discussion about this yesterday flexibility is in our name and in our dna i think it flex we have you know as a contract manufacturer and logistics provider we support our customers and and we have to be very agile we are introducing new products you know around the world in any one of our factories multiple new product introductions at the same time that we're bringing products to end of life and managing that complexity of the supply chain so it was i would say you know we always work fast and try and be flexible and agile to support our customers because that's our business when we moved into the ventilator production we added passion um because we understood that you know we were making products that were desperately needed around the world to to save lives and that was something i felt was really critical for the organization i mentioned those 5 30 a.m calls because they were really early for me when the pandemic started when we started doing getting ready to ramp our ventilator production i was up before my alarm i couldn't wait to get on the phone to understand what we could do to get the products we needed to get the engineering resources the supply chain resources to drive that product so certainly that uh you know for for our business we need to be flexible and agile but we certainly saw a difference in the level of passion during that time dave how how do you keep the spirit that made i don't know i described in the book making masks within basically over a long weekend putting together mit messages general hospitals and audio manufacturing and material on hand and just doing it in days really which is amazing you mentioned that it's um a product of the supply chain and that is a true design for manufacturing because we leveraged our available capabilities and materials and there was a ton of passion around it no question about it we did it within like you said a long weekend and really tapping into the talent that we needed to bring to the table because we weren't mass experts we didn't work in the fda you know world prior to this we're footwear and apparel makers and um and so there was a lot of learning and you know fortunately folks came to the table and and rallied together i think you know how do we keep that momentum up um we learned a lot along the way uh in the mask making business that has actually helped us there are some lessons learned and new processes to your point i mean we made mistakes in the mask you know creation you know we as you recall back in march we didn't even really know what type of mass to make was it an n95 mask a surgical mask a basic face mask what was the demand and you know all these you know changing consumer inputs um and you know we made three versions within about six weeks and we produced over a million masks and have donated those and hundreds of thousands of masks at this point but certainly lessons learned as far as implementing certain quality processes along the way as we shorten up that time frame so that we don't you know incur any additional errors on our apparel and footwear business so kind of a combination of things of new processes to ensure quality as we accelerate the process that's needed right now in this new you know consumer environment i really want to thank both dave and lee for taking time out of what is a very busy and hectic schedule still today to share with us some of the lessons learned from this period thanks everybody stay well [Music] all right everyone thank you for listening i hope you enjoyed this edition of mit supply chain frontiers my name is arthur grau communications officer for the center i invite you to visit anytime at ctl.mit.edu or search for mit supply

chain frontiers on your favorite listening platform until next time

2020-12-19 06:18

Other news