Interos, Bechtel and Intel on Avoiding the Next Supply Chain Crisis

Interos, Bechtel and Intel on Avoiding the Next Supply Chain Crisis

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Jackie I want to start with I want to share with you. For many of us semiconductors came to epitomize so much of what was broken or remains broken about our supply chain during the during the pandemic. And before we start looking forward to preventing the next one I want to take a look back and hear from you about what it was like to be on the front lines back in early 2020 maybe even late 1990 sorry 2019. When you started to see the early warning signs. Tell us about what went down and how you at Intel responded. Well I want to start by saying I arrived home from Beijing in the end of December 20 19 and had the original Covid in January of 2020. It was quite a shock and no one knew what it was just

in the same way. We didn't know what was going on in the world. And for our supply chain because we have a very large installed capital base we need to continuously feed it so that we can maximize our ability to serve our customers. So as a result over 40 years or more we've developed a playbook and some sensing mechanisms to try to see if there are perturbations in the market that could get in the way of delivering production. And in early January we started to see disruptions to

transportation. Material wasn't moving and we didn't know why but we didn't need to know why. We started implementing a number of charter transport mechanisms so that equipment and materials would get to our factories to provide capacity or to allow us to manufacture parts. And things continued to stay unusual. And so we started to see not just the transportation perturbations but we saw more and more going on where material or other goods coming out of China were very limited. And so in the late part of January 2020 I

activated what's called our war room or command center. And what that is is it's the top 50 people in our supply chain who would get together at 6 a.m. and at 10 p.m. on a daily basis. Weekends included of course. And we would compare notes we would identify what was going on. We would align on best methods and which of our practices that we were going to employ from our existing playbook so that the 40 separate commodity teams that we were working with we're all getting the benefit of maximum shared knowledge and ability to leverage the muscle memory we've built over 40 years. When I talk about that I want to say we institutionalize what we learn with each disaster. And people think disasters in supply chain are the new normal. They're the old normal. So we try to incorporate what we've learned in the past. And as a result as a company we had a pandemic leadership

team that we had established in 2003 with SaaS and we didn't know when we might need it but we knew it would be needed at some point. And so there was a tightly orchestrated corporate emergency response team 50 person supply chain team that operated twice daily. And around the world. And and you know it wasn't until March 13th I think of 2020 that the U.S. finally said OK it's Covid. We don't know how long it's going to last. And so we had several months in advance district to put together our actions. And I think that stood us in good stead because for that year we were still able to deliver two commitments at ninety five percent on time delivery. Despite the many challenges that we were facing I

could go on but we'll come back. I'll break. There's plenty more. Catherine you also had some early warning signs. You've got Project Bechtel has projects all over the world mining building you name it. What were some of the early signs for you. And you responded in some similar ways to until I see the first signs that we saw and we're an engineering construction company operating in all corners of the world. And the first things that we saw were the immediate health and safety actions for our people. These are our people on the ground our craft professionals working around the world and ensuring the health

and safety of those individuals was our first and first and foremost priority. And so learning how to read sequence to establish and Covid safe protocols to test to understand the local jurisdictions to work with our customers to ensure the health and safety of our people. That was the first thing that we had to do and then to learn how to re sequence work. How would you reduce crew sizes. How would you do construct. And physical construction in a way that protects

it and health and human safety. So that was a huge aspect in terms of the people the health and safety of our people. But the second thing that we saw in that we did was we buy materials we buy we buy pipe we buy steel we buy chemicals we buy materials from all over the world and understanding and having really our finger on the pulse for where these materials coming from. What are alternative sources of supply and in our business. The key of course is something is very important is certainly as pricing

that schedule is critical. And so getting materials getting things to a site for construction on time is the name of the game. And so what we started to see were needing to invoke these these plans of finding alternate sources of supply of looking at different modes of transportation and ensuring that we could get a pull the schedule for our customers our customers. Jennifer for you this came at a really interesting time. If I'm not mistaken you had just raised a round of funding recently. Right. Right before that happened. You created a software that basically helps your clients monitor their supply chain and identify areas of risk and vulnerability. You just raised this funding.

This you know it starts to hit the fan and you get started to get inundated with calls. Take us back to that that time. So I think so. I think the first thing is the fact and you both just touched on it. How surely just human the supply chain became. And so you know knock on wood I think to your point we had just raise our series B I was sharing with Catherine before this in the company in terms of 17 years old. So we've been at just

mapping and monitoring the global supply chain for 17 years. And yet you know we say we raise this money. We were getting ready to go fast. And then the world stopped. And I think to the point that you just said the first thing was just making sure we had the health and the safety and the security of our people. But then you had massive global organizations that we had been talking to that suddenly CEOs our share Katherine recalling me saying I'm still managing my supply chain on an Excel spreadsheet. What do I do. And because of the seriousness of what was going on at that time it started in China. You know the implosion of bridges and the shutting down of trade routes and there was just a lot of

unknown. And so I shared with you. We're getting ready for this. Our inbound. So we weren't we were doing normal marketing. We didn't change anything. Our inbound went up north of 400 percent in a matter of 30 to 60 days because every the world stopped. Right. It stopped from a human standpoint. People suddenly went from home. I don't know about you. I said it's only a 30 to 60 day thing. I started baking cookies for my

husband which I never beg. And then we had to stop that because it went on longer than 60 days. But but the world changed. And I think you know what's happened is that the world really got educated right. The world got educated simply how hyper connected we are in ways that we don't really know and how fragile. You know we all went to just in time and off shoring back in the 90s and we got really lazy. That worked. It became a kind of a cost cutting center. I agree

with you. It's like can I say so my orders on time. And I think the pandemic brought such a human aspect and a business bottom line that for the first time ever the conversation is that the CEO and the board level. And I think that that's still where it is today. Catherine you know we we've been through SaaS. We've been through the type of I mean we see climate change and how that's changing the scale and the frequency of disasters. Why were we so poorly prepared. Why were so many corporations so poorly prepared. I can't I can't certainly speak for for for others but I would just say that the the ways in which you get prepared is to is to practice and it is to be hyper focused on the things that aren't they don't necessarily seem necessarily interesting or there's not a lot of glory in them but you have to do them. It is you have to embed the resilience into into the way that you do business. That's for us as a

company that's building resilience into the way we have a centralized services whether that's payroll I.T. transportation and logistics and then testing those services. Can we do this in the event of natural disaster. Can we do this in the event of geopolitical unrest. But but really testing your systems and the resilience of your systems to respond because it's really not a question to Jackie's point. It's not a question of of if these events will happen. It's a question of when they will happen. And to what degree. To what scale. Where might they be. And so really you know being being quite adamant and and focused on on that resilience and and testing your systems. Jackie we've had a lot of conversations about how long this is going to last. We've

asked everyone. Everyone we talked to to look into their crystal ball to help us understand why it's so persistent and when can we expect relief. Intel CEO Pat Gilson recently said somewhat to my mind pessimistically that we're going to see this persist into 2024. Why is it going to take so much longer. Yes. Well I think that big reason is that the semiconductor supply chain is very multi level and a lot of the limitations are not in the advanced technologies. If you look at an Intel or a Samsung or TSMC on their advanced technologies they're all able to ship parts today. What's hanging things up is people can't fill out their

full bill of material with a lot of the legacy technologies that were designed and equipped 30 or 40 years ago. I mean truly old technology fully depreciated and nobody's making that equipment anymore. They sell the parts at a very low price. So the return on investment hasn't been there for people to invest in capacity expansions over time. And behind the scenes the whole world is becoming more densely populated with semiconductors. Probably most of you have a ring doorbell or you have

a remote start on your your heater or your irrigation in so many areas of life particularly automotive. There is a great densification of semiconductors and a large part of that is from these older technologies. They're the power management devices or the proximity sensor. So you can see you know as your car is auto backing up whether you're getting too close. And as those things became more densely used the full capacity out in the industry was sucked up. But it wasn't obvious because for the automakers these were thirty five cent parts or less. It wasn't something they spent a lot of time looking at. So beneath the

surface of this iceberg we have the older technologies that needed to be added to. So people say well why did you build some factories. Let's find you can build a factory and might take a year to build a factory because these are very sophisticated devices even though it's older technology. But once you get. But nobody is making that equipment anymore because no one has invested in that capacity for the past 30 years. So they have to restart their line. Well why do you buy stuff in the used

market. It is sucked dry. OK. And then if you're an auto manufacturer or you occasion cycle for new parts is quite lengthy because they're extremely concerned about safety as they should be. So there's this you know set of rolling requirements that have to be put in place that do require that people are putting their forecasts out. If you're one of those guys making the thirty five cent part or less you want to know that your customers are going to invest in the long term. It's not a short

term blip. So there's impedance in the investment decisions. All of those things I think are are starting to be worked through. But you know we need things like the CHIPS Act to be passed in the United States. Finally we need larger companies automotive companies consumer good companies electronics products companies to make longer term commitments to ensure that the underlying providers of equipment or materials et cetera can feel comfortable investing in capacity. So as you can see it's a multi-level path that has taken a while to convoluted. I think as we look at the beginning of 2023 you will see some improvement as some new factories start to come online. But what we are obviously observing is a secular change in demand for

more electronically driven products that are part of how we operate our lives. So I think you will see some tightness even through the end of the decade. Jackie I want to come back to the Chips Act later. But in the meantime Jennifer what's your sense of when we get back to normal or is that the wrong way to think about it. Is a state of disruption the new normal. So I think that this is normal. What we're dealing with is now I think how we handle it has got to change. And I think that's the time. You know we get asked all the time how much is it going to cost us. Nothing fixes this. And I think I love what you just

went through because I think you know when you talk about ships and technology that's been the problem. The good and the bad here is technology has connected us forever. We're not going back. And so how do we live in this new norm where you know technology's got some great advantages right. It allows us for innovation allows us for a global cost competitiveness access to different markets. I'm looking at the question about Mexico and Latin America. It's great opportunities because we are so connected from a technology standpoint for different parts of the world to enter the developed economy in a way they might not have had a chance. And if you think about what's happening with Russia Ukraine there's 3000 sanctions against Russia right now.

So if they're rare earth elements or any type of access to skill sets available anywhere else people are grabbing for it. And so I think this is the new normal. I think that you know investments in understanding the true extension of the supply chain and the good and the bad of it is really what's going to be happening. And I don't think it's going to change. I think this is exactly the world we're living in. To what extent and I'll stay with you for just a I Jennifer. To what extent is our companies an organization. Corporations preparedness for supply chain disruption. Should that become a new determinant of the company's value. You know we think about our why we think about there's a lot of ways we can measure the value of a company. We

do that in myriad ways of Bloomberg. To what extent should we now have a metric for look. Can you. Can your corporation can your startup withstand this kind of disruption. Well I think that's the name of the game. So at interest in you know and you know this we're working on becoming pretty much the UL for supply chain health. So we actually provide scores for companies

that folks can get up that day and realize that they're gonna have a good or bad day based on the health of their supply chain. We're seeing it play out in the court of public opinion. So if you think about what just happened with baby food and the stories of the mothers that went to ten eleven stores just to look for formula there is no brand loyalty anymore. It's about availability and be able to fulfill orders. And so I think when you talk about the value the consumer is able to put out the set the value of the business based on availability of product when they want it. And in the way they want it. So it's talking to

Jackie before about ESG and sustainability. You have people that will or won't buy from your brand based on sustainable sourcing. That's all about the supply chain. And so. So that's kind of the B2C aspect. Then you also have the B2B where if you're a public company used to have to write a paragraph for the S.E.C. on supply chain risk. Now if you want to go public they actually grade you on that. We work with PE firms that are mapping and monitoring their portfolio companies using our platform to set valuation before they even go public to set. How much do they invest in them. So I think you're seeing it from a B2B standpoint. You're seeing it from a beat. You can't escape it anymore. And the hyper connectivity from technology is really

what's enabling this. Catherine the. This crisis has has created something of a field day for critics of the concept of globalization. So I'm curious in your view. You know you know do we need to create geographically independent regions sources of supply. The question about Latin America and you know. How much do you buy the argument that look we went too far in terms of making our economy interdependent our global economy interdependent from region to region. I don't think that it's it's fair to say globalization didn't work. And what we've been doing for the last 20 years 30 years just isn't working. But I do think that there's there are different. There are different forces upon us right now. There

is a force of energy transition. What that means for people what that means for companies there is a force that was just mentioned on the awareness of where products are made how they are made and the importance of that. And so those things I think have a much stronger influence on the sources of supply. The awareness of where supply is coming from and it will push us to invest you know all around. It will push us to invest more in regional solutions. And those investing more in regional

solutions is part of growing the resilience of a broader supply chain. So I think it's a it's absolutely a must. You know the pendulum is swinging more towards certainly increased investment which by the way increased you know produces really tremendous opportunities for people for societies for it for employment. You know really amazing opportunities. So there is a there is an upside to this challenge. But I think it's more in terms of the forces of energy transition heightened awareness as to where materials are produced and how they're produced. Jackie you mentioned that ships act. I am curious to hear from you. You

want to talk a little bit about what role government or governments should play in helping alleviate these kinds of crises. I think we were supposed to have the ships act through by the end of last year. And yet here we are middle of this year. What's what do you what do you see as the holdup. Can you talk about the sense that you're getting from D.C. on where we are and why things aren't happening more quickly. I love talking about politics on an open mike. This is good. I was just thinking and I am not sure exactly what the holdup is but one of the things that we do know is in our industry a lot of the competitiveness difference in terms of cost structure between more Western companies and those that are concentrated in Asia does come from government support government subsidies incentives access to free land preferential capabilities for lift and cargo transport and so on. And we do think that the

Western countries need to create some comparable support for their critical industries as well. Semiconductors is an important part of the United States GDP and it is a tremendously capital intensive industry that will live with its cost structure for quite some time. And if we want to create not you know not fully independent regional centres because I think that that is excessive and overly costly. But if we want to diversify the access to resources across the different regions regions for risk improvement purposes we need to somehow help level the playing field. And that playing field spans. Cost cost structure incentive expands regulation and how regulators and academia for example collaborate with industry. And and we would like to see more of that attention in the United States to think about what are the critical alliances. What are the national imperatives in

terms of research and intellectual property that would be required if we wanted to stand up more fully robust regional capability. And so the role that government has to play I think is to collaborate with industry to do things that are right for their population and to ensure that the things that are critical to their living standard which are not just products but they're also jobs and infrastructure that those things are done in tandem to support the better good of the population. So we'd like to see that engagement and we are finding good connections in D.C. or in the EU. And we just need to push some of these things over the finish line. Catherine based on what you've learned in the last couple of years what would you say in the last few seconds. A company that is really still trying to get its arms around

this what. Where do they start. Start by being humble I'd say you start by by recognizing that this is this is a challenge. It is to know to know the supply chain to know where to enter is going to take a lot of collaboration. It is not and there's not IPI in terms of this collaboration. And so whether it's getting to know your suppliers whether it's working with your customers to find the right solution. Finding the right talent. I think that that you

really need to take a step back and and be very much a purchase in terms of a one team approach. What is your what is your mission. What are you trying to accomplish. And then what's the super team you're going to assemble in order to make it work. Because no one company no one organization is going to to solve this or can approach it. But it really requires so much more coordination so much more awareness to know where are all of the pit the bits and pieces and and labor where how do all of that.

How does it all that come together. You can't know it by yourself and you really need to collaborate. It's a great note to end on. Katherine Jackie and Jennifer thank you so much for joining us here today.

2022-06-10 06:14

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