[H2] Transcript: Achieving Sub Tier Visibility in the Automotive Industry
Dana Sadiq:
Good morning, good afternoon, good evening. Welcome to the Everstream Analytics Webinar: Achieving Sub-Tier Supplier Visibility in The Automotive Industry. We will get started shortly. All attendees are on mute. If you have any questions or comments, please use the chat or question toolbar and a copy of the presentation will be available to attendees tomorrow. We’ll get started shortly.
Good morning, good afternoon, good evening. Welcome to the Everstream Analytics Webinar: Achieving Sub-tier Supplier Visibility in The Automotive Industry. All attendees will be on mute. Please submit any questions or comments that you might have in the chat or question toolbar. We will get started with David Shillingford, our moderator, and he will kick us off in just a few moments. You all will receive an email tomorrow with the playback recording of the presentation, as well as a copy of our latest white paper. So we will tell you about that a little bit later. So go ahead and let’s kick off with David Shillingford. David?
White paper: Multi-tier supplier management in the automotive sector
David Shillingford:
Fantastic. Thank you very much, Dana. Welcome everyone to today’s webinar, very excited to have such a fantastic panel. We’re going to be talking about some of the challenges that the automotive industry is experiencing at the moment, but noticed there’s numerous attendees who are from beyond the automotive industry. And that’s great because almost all of the challenges that we’re going to be talking about and the solutions are applicable to almost every supply chain, perhaps in some cases more extreme in the automotive industry than others. But certainly the challenges and the lessons are applicable much more broadly. And to say this is timely would probably be an understatement, some significant challenges to be worked through, and really very pleased to have the group that we have today to be talking through the challenges and the solutions. Fantastic panel. My name is David Shillingford. I’ll be the moderator today. I’m the chief supply chain officer at Everstream Analytics.
We have Amit Nagar from Bain’s Chicago office. So Amit has extensive experience in advising global clients across a number of different industries, including automotive with a particular focus on things like cost transformations and competitive resiliency. Fabian Kleinschmidt is the director of risk and contract management purchasing at Brose group, as many you would know is a multi-billion dollar European automotive supplier, but global as well. 62 locations in 23 countries I think, Fabian. So thank you for joining us.
And last but not least, Ulf Venne. Ulf leads Everstream Analytics Global Center of Excellence. Before his time at Everstream, Ulf off worked at DHL and before that Huawei, I think I got the pronunciation right there, Ulf. Also actually been at Everstream for eight years. So there aren’t many people in the industry, being a nascent industry as it is that have eight years’ experience of working with hundreds of global companies on the challenges associated with supply chain risk and resiliency.
So we want today to be highly interactive so we are encouraging all of the attendees to use the question function throughout. We’ll certainly have questions at the end, but we’ll be looking for questions as we peel back on each of the topics that we’re discussing today. In the interest of being interactive we’re actually going to kick the panel off today with a poll. So live polls are dangerous things, but it’ll be interesting. We’ll see what we come up with. So I’m going to hand it over to Dana and we’ll do each of the three polls. We’ll ask the questions first. We’ll give you a short amount of time, maybe 15 seconds to answer each. They should be fairly straightforward. And then at the end, the panel will discuss the poll results. So over to you, Dana.
Poll: Estimate cost of disruption to your automotive supply chain
Dana:
All right. The poll question number one is up on the screen and we are collecting responses as we speak. We’ve got about 15 more seconds to let everyone finish answering, and then we’ll close the question one.
David Shillingford:
Very good. And as you can see, these are rough estimates. Hard to know exact numbers, but do your best and we’ll see where we land.
Dana:
All right, two seconds left. All right. We’re going to close the poll. Thank you, everyone, and here are the results.
David Shillingford:
Okay. Well, it looks as if there are a few outliers that have either a very limited amount of disruptions or something that was over 100 million. Looks like most companies are in the 1 to 100 million category. From a panel standpoint, any thoughts from the panel, surprises, you’d expect it to be higher or lower?
Fabian Kleinschmit:
Maybe I can. For the category of the 12% that had more than a hundred million in revenue loss because of a supply chain disruption. An average as we see it every 10 years, companies lose approximately half of a yearly revenue because of supply chain disruption. So they might be over the worst, but for the others, I think they might still be up for surprises in the next decade, because supply chain risks are not getting smaller.
Amit Nagar:
I would agree with that too, Fabian, and it’s also hard to estimate it, right? Cost of a disruption can play in multiple sort of facets. It’s how much are you actually losing on the reliability side, i.e how much sales are you actually losing, which could effectively be a cost in itself. And also just from a inflationary perspective, the cost of commodities, the cost of transportation, logistics, everybody on this phone call is probably realizing a lot of that’s even just unknown, or it’s hard to quantify I should say.
David Shillingford:
Yeah, good point. [inaudible 00:08:32]. The size of the company matters as well. A 10 million disruption could be pretty significant to a small company. Sorry, Fabian, you were going to say?
Fabian Kleinschmit:
No, I was about to say that I totally would copy Amit’s comment about this might show the first round effects, but obviously there might be second round effects about the business about you might be losing or you might not be getting just by having that impact in the first place. So I think that that is a very good representation of what’s currently out there, and I think it’s underscoring and underlining the importance of managing that in the future.
David Shillingford:
Right. Thank you. Okay, Dana. Second poll, please.
Poll: How much disruption caused by sub tier suppliers?
Dana:
All right. Let’s move on to the next one. Here’s the poll number two. All right. We are collecting responses as we speak for poll two.
David Shillingford:
Okay. So we’re asking here where the disruptions occurred. Was it tier two or below?
Dana:
Got about five seconds left for voting. All right.
David Shillingford:
All right. Very good. Well, it looks like a pretty even split between companies who feel that the disruptions they are experiencing happened below tier two or those that were not experiencing this from sub-tier suppliers and that’s certainly the experience that we have seen. This idea of roughly a 50/50 split, whether it’s a tier one or below tier one. I’m curious to hear if the panel has anything to add to that.
Amit Nagar:
Yeah, to some degree, what I’d say is, I mean, when we talk about automotive supply chains, I think it’s, like for example, if you’re talking about disruption in everybody’s facing the semiconductor issue right now, I think everybody’s sort of realizing, or most people, at least from an OEM perspective, realizing that’s certainly beyond tier one, and they kind of know that, right? So knowing that that’s now the case, I think people now are sort of proactively trying to figure out how to manage that in the future. It’d be interesting if we asked this question maybe last year if they had that, hey, do you know if your disruption will be coming past your tier one, whether this poll would be a little bit different. But I think it’s known now specifically within the automotive industry industry. But yeah, if we had asked it retroactively, maybe even last year, it’d be interesting to see the comparison set.
David Shillingford:
Yeah, no, it’s a good point. And I think it’s fair to assume that there are what look like disruptions at the tier one level that in fact are recurring further upstream, but it’s hard for the OEM sometimes to see that. I was expecting don’t know to be higher, so maybe that’s a good sign. Okay, Dana, next poll please.
Poll: How much visibility do you have to sub tier suppliers?
Dana:
All righty. Poll three is launching. To what extent do you have visibility to your sub-tier suppliers? Please select one. Ulf is just joining right now. And we are collecting responses. 15 seconds left to collect your responses. All right, and I will share those responses.
David Shillingford:
All right, thank you, Dana. Well, that’s a pretty clear winner. Some visibility to tier two, and that certainly reflects what we are expecting to see from this particular survey. Curious if the panel has anything to add to that.
Ulf Venne:
That is exactly [inaudible 00:14:06].
Fabian Kleinschmit:
Sorry, go ahead.
Ulf Venne:
No, you start, please.
Fabian Kleinschmit:
So I think that that perfectly reflects how we’re currently seeing, at least within the automotive industry, that yes, tier one is very well discovered for the most part, yet on tier two we’re slowly engaging. Currently, we might be engaging with a higher pace, but still the visibility is somewhat limited and there’s a certain urge and need to gain that visibility. So I think that is a perfect representation about how a lot of the automotive industry feels right now. So I think with the panel, with the discussion, we’re right in that heart of that movement.
David Shillingford:
Yeah.
Amit Nagar:
I have a little bit of somewhat different … I actually was surprised to see the answer. The reason is, well, it’s depending on how we define visibility, right? Because visibility can mean multiple different things, but visibility in the sense of how we have seen it with our clients is one part is just knowing who your suppliers are, but understanding what’s beneath that, i.e, do you understand your suppliers supply did not demand dynamics within their industry? Do you understand the concentration of suppliers within that tier? Do you understand, for example lead times and things like that within sub-tier, which I think, and as we’ll kind of get into the discussion I believe, I mean, knowing all that gives you a lot of firepower to help build resiliency into your supply chain. I think mapping and just knowing suppliers is table stakes and then being able to understand the dynamics underneath that gives you the, I think, ammo to be able to figure out, am I resilient or not beyond my tier one, for example.
Challenges facing the automotive industry
David Shillingford:
Yep. There’s visibility and there’s visibility. It’s more than just knowing who the supplier is for sure. Good, thank you. All right, well, that was interesting. Glad we did that. So what we’ll do now is we’ll move into the panel itself. And the first question that I’d like to pose to the panelists is really just a sort of take a top-down view of this, a high level view of the challenges that automotive companies are facing right now in their supply chains. And as I said earlier we can broaden this beyond automotive. Many of the comments I think will be similar. There are some that are specific to automotive, and so maybe Fabian as the automotive participant, maybe you could kick us off just what do you think are the top two challenges facing the industry right now?
Fabian Kleinschmit:
Yeah, very good question. So I think you have to look at it from two perspectives. If you look at it at the long term perspective, I think what we’re currently seeing and what is well very well described, and what is very much discussed already is the transformation that we’re seeing, right? About moving towards electrical powered vehicles, moving to autonomous driving. And in addition, you have various stakeholders pushing to get more clarity about your corporate responsibility or sustainability achievements that you want to achieve in the future. So that whole transformation that we’re seeing in the automotive industry, I think from a long term perspective, that obviously is one of the key challenges. And depending on where you are within your supply chain or within the automotive supply chain, that affects a little bit more, a little bit earlier. But that’s on the long term. On the short term, I think within automotive, and we briefly touched about that earlier in the poll about the chip crisis or semiconductor crisis, is at high volatility in call offs, right? And to the same extent in raw materials.
So we have being seen fluctuations back and forth over the last two years, a lot of them being triggered by those black swan events that we’ve seen, whether it be Covid, whether it be the blockage of the Suez Canal just to mention too. And what that all does obviously is both of them, what they have in common is they create uncertainty and with uncertainty obviously there’s an urge for more information and for deeper information. I think that’s what was reflected on the last question of that poll about the visibility. And you were quite right when saying, “Hey, visibility, we have to define the notion a little bit better and deeper, clearer.”
David Shillingford:
Yeah, yeah. Thank you. Amit, what would you add to that?
Amit Nagar:
Yeah, no, that makes sense. And I totally agree with what Fabian said. I would underscore on the long-term piece, the trends around electrification, the trends around autonomous vehicles, the trends around ESG requirements. These are real, and these are new things that the, I’d say the automotive industry has not sort of faced in decades, right? As far as the level of disruption and how quickly the disruption is happening, even Covid aside. And as we think about those as Fabian called it, the long term sort of issues there, all of these have massive implications that create these challenges. So for example, when you think about electrification, the engagement with new and very immature supply bases, that’s going to continue to evolve over the next 1, 2, 5, 10 years.
You have new entrants within, I’d say the supply base as well. And when you think about these entrants, it’s not just from an … You have to think about it, not just from an automotive perspective, but you have to think about it from a cross-industry perspective, i.e that this does bring to light, for example, the semiconductor crisis. You have more industries that are going to be pulling on the raw materials, the components, the commodities that you need to use in automotive. And there is a need to want to get in front of that. That’s a huge challenge.
But I’d say because of these implications, I think the way automotive companies, both OEMs and suppliers have succeeded over the last multiple years has been very much based on being cost-efficient, right? And I go so far as to say the automotive industry and money examples are usually benchmarked as far as how cost-efficient they are, the lean methodologies that they practice. It’s very well benchmarked cross industry. It just so happens, I think on a topic like this, you kind of need to pull away from that a little bit and say, “Hey, how do you actually still get the benefits of being efficient, be very cost-effective, but build resiliency within your supply chain in a smart way?” Which means you don’t have to go crazy and build inventory everywhere.
What do you think about the intelligent, smart ways where you do need to actually build inventory as a tactical solution, or very strategically, how do I think about if I’m low on the pecking order within my tiered supply base, how do I figure out to get higher in that pecking order such that I can make sure I get the reliability of supply to build my part? So there’s a lot of real challenges. It’s very near term. I think the acceleration of a lot of changes that’s happening in automotive is just making this topic I think a lot more important. And there’s a huge burning platform to change.
David Shillingford:
Yeah. Some pretty big macro changes going on there. Ulf, what would you add?
Ulf Venne:
So as Amit highlighted the point of the long term that Fabian brought in I tried my luck at the short term point. So as we see now the materials are spiking, right? Prices for materials and metals is going through the roof. Logistics costs are getting higher. With this a lot of the smaller suppliers that might be in tier two or tier three, they start to crumble. And we see a lot of associations for these smaller suppliers already reaching out and asking for help. And yeah, so I could foresee a world that, if you look at the poll we did on the disruptions, that even more and more disruptions will come out of the tier three and tier two and tier four category just because the financial pressure they’re under.
And that is a trend we’ve seen automotive, but I’m pretty sure it also reflects into other industries, especially, I mean, logistics costs are on the rise everywhere and everybody has to move goods, right? There’s a lot of margin pressure, costs are going up and it’s hard as an OEM of whatever [inaudible 00:23:13] to influence the income of your tier two and tier three. And therefore visibility to manage disruptions will get more and more vital.
Importance of sub tier supplier visibility
David Shillingford:
Thank you, Ulf. Yeah, well, so there’s no shortage of challenges and some of them are macro and are happening slowly, but will fundamentally change the way that automotive supply chains are designed. And then of course we have the ESG movement, COP 26 is going on right now in Glasgow. And a lot of promises being made both by corporations and by governments that even if only half of them are held to, that’s going to have an enormous impact. And then as you say, Ulf, we’ve got some very significant headwinds right now, both in terms of upstream and logistics networks and never has visibility been more important.
So we want to talk a bit more about what is going on in terms of some of these risks and understanding them and the dynamics of them. So maybe we can start with you on this one, Amit. What we’d like to understand here is the importance of sub-tier visibility. So we asked a couple of questions in the polls there about sub-tier visibility. It means different things to different people, but it’s something that almost everyone is talking about. So why is that? Why in your view is it an important thing for people to understand and be digging into?
Amit Nagar:
Yeah, yeah, no, absolutely, I think an important question. I would argue the importance is almost critical to have that visibility. What we have found with I’d say our clients around both OEMs as well as I’d say a lot of the automotive suppliers is … And it was sort of mentioned during the polls too, but once you get one layer deep, you sort of know your degrees of freedom of what’s known, what’s not known. So as an OEM you sort of know what’s going on at a tier one level, at a tier one level you sort of know what’s going on at a tier two level. It’s once you go beyond those levels, things become unknown as far as where is my supply coming from? And that’s critical to know because that’s effectively where a lot of the failure modes have happened and will continue to happen in the future.
So I think it’s important for a few reasons. Number one is actually just making sure you have the visibility across your tier two, tier three to understand what’s really going on there, right? It’s no longer I think good enough to just ask your direct supplier, “Hey, are we good on our supply?” I think we’ve at least those on the call that are from automotive have painfully have experienced this through the semiconductor crisis as well as for those in Europe I think are feeling this right now with what’s happening within the magnesium market. But visibility therefore means going down into those tiers and evaluating and understanding a lot of different things beyond just mapping kind of what we were talking about during the poll, like do you really understand the supply demand dynamics beyond your tier one?
And that’s not just within your industry, i.e for automotive, do you understand the supply demand within automotive? Do you understand it across other industries that are pulling on that supply, right? And that’s critical to know so that you’re not caught in a pickle, and you actually have your reliability for the supply. Do you understand things as far as what I was mentioning earlier, supplier concentration for select components, select commodities both on a structural concentration level as well as regional concentration? i.e does your tier two, does your tier three, are they being, for example, supplied from high risk regions where there’s potential geopolitical risks associated with that? That could be an issue, that could be a flag that might drive towards some sort of actions. And understanding, not just visibility, but all these things within the sub-tiers are important because then you get to what I’d argue is the most important thing, which is you can then get into developing and prioritizing mitigation plans.
So once you’re able to figure out these issues, I am actually exposed in a certain commodity based off my tier three, I am exposed for a certain component in tier four based off of the cross-industry dynamics, only then can you figure out what should I therefore do from a tactical perspective, from a strategic perspective based off the visibility that you’re able to create. So it’s I think table stakes to say, “Hey, we know our suppliers.” I think those that are starting to survive or at least get a little bit more mature on this topic are starting to actually think about these dynamics beyond just their tier one.
David Shillingford:
Yeah, great points. Fabian, what would you add to that?
Fabian Kleinschmit:
Amit mentioned already a couple of very important points. Obviously transparency helps you to cut short in a stage of a crisis. If you know already your alternative, in the best case you already have evaluated those alternatives, you come to quicker decisions. Yet with this being said, I still would say the true value of gaining tier X visibility is when you’re trying to shape and to design your supply chain. This is where truly unfolds its full potential where you can think about, okay, how do I want to source in the future across business divisions, across regions, across commodities? Do I want to have transatlantic connections still in place, or do I rather have self-sustaining hubs within each region that in the worst case can for example, in a certain situation support each other, yes, that they’re cut off in case one region is facing troubles, right?
So I think the true value and the true reason why you should engage in tier X visibility is when you’re trying to strategize about your supply chain and how you want to do that in the future. I think this will entail a couple of different questions, especially within the automotive industry of whether we still want to use the model we have been using in the past that obviously develop, or whether we’re going to find new ways and new models of how to source and how to collaborate, right?
David Shillingford:
Yeah, yeah, exactly. Ulf, what would you add?
Ulf Venne:
Everything was quite well said already, so there’s not a lot to add, but I just want to maybe clear up some of the myth that is going around sub-tier visibility because we see a lot of people talking about focus commodities and then creating visibility there is good enough. And yeah, we see time and time again that even a small material costing 50 cents and is produced in your tier three supply chain can stop your entire production. So we believe strongly it needs a mass scale approach and that you have to uncover as much as possible and not just focus on, for example, semiconductors as a lot are doing right now, but really try to encompass your entire portfolio.
David Shillingford:
Yeah.
Fabian Kleinschmit:
Maybe if-
David Shillingford:
Fabian.
Fabian Kleinschmit:
If I may add something to that, David. So I mean, what we currently have been focusing on is the supply chain in the sense of direct material. So everything that goes pretty much with speaking in the automotive lingo goes into the final product. But I think if you move that also to indirect material, you’re going to see a couple of new risk clusters that you’re going to see that you haven’t been tackling at all. It’s because currently we are just talking about, okay, how can I sup secure my supply chain? Yet, if you’re looking into, okay, what kind of cloud providers are, is my supply chain using across the board and maybe I find [inaudible 00:31:46] there. Those could be the questions that are going to arise, but currently we don’t have a good answer for. But I think with that tier X visibility, if you expand it a little bit, you’re going to get a couple of new questions that you’re going to have to ask yourselves. And with that a bunch of new risk clusters that you will have to refine and come up with solutions of how to mitigate them.
David Shillingford:
Yeah, no, that’s a very important point. I mean, what you don’t know can hurt you. And the more we see companies digging into their sub-tier networks, the more find interdependencies that they didn’t know about. And the big question is, well, what can we do about it? And as you dig into it, there is always something that can be done about it. And it may not be that you have direct control over a tier three supplier, but knowing that you have numerous tier one or tier two suppliers who are dependent upon the same tier three supplier is important, because it’s a risk concentration that you can then plan around tactically and strategically.
Thank you for those comments. It is no surprise that it’s a hot topic and I think when people say hot topic sometimes people think they mean it’s hot now and it won’t be next year. That’s not what I mean at all. It’s something that it’s going to be with us forever. And we’re going to dig more a bit now into where are we now? As much as we talk about the importance of sub-tier visibility, we experience and we hear, you know, we know that it’s not easy. We hear some companies saying it’s almost impossible. So I think we could dig into that a bit and just understand the way that people have been doing things today up to today. What are the challenges in trying to get this sub-tier visibility? Maybe, Fabian, you could kick us off on this because I know you’ve experienced this firsthand.
The challenge of achieving sub tier supplier visibility
Fabian Kleinschmit:
I mean, if you’re looking into your direct suppliers, you already have complexity, right? You have a huge amount of suppliers that is supplying to your product. So if you just add one layer, you multiply that and the amount of data points that you are gathering is getting exponential. So I think one of the key challenges is trying to start make sense, right? More data does not mean better decision making, actually it can be quite the opposite. So what we need to find solutions for is how can I transform that data into meaningful information to then make informed decisions, right? So that we are [inaudible 00:34:45] to a situation where we have good decision making. So reducing that complexity, cutting down it, building clusters. That is one of the key challenge to actually make that whole thing useful, otherwise you’re just going to end up in a big data lake where you’re not going to know where to start and where to end. And you’ve just going to quick turn and in circles.
So that is one part to it, the massive amount of data that you need to process. The second is obviously, and that’s where we touched base on what we previously said, is with that influx of data you want to reduce uncertainty, right? Now normally so if you get more information for those that gained transparency, that is associated with the perception of gaining additional power, of being able to make decisions, of being able to shape. Yet on the contrary though, for those who might be giving transparency, that might be perceived as a vulnerability to some extent. So there might be a little hesitance or reluctance to share some information and then to push back. So I think in order to make sub-tier visibility work, it needs to be balanced out between those two.
And so that you find a way of actually collaborating and seeing that as a joint endeavor to find solutions for the challenges that are ahead. I think if by one partner it’s being perceived as a means of control, then you will have dysfunctional affects and you’re not going to achieve the very best. You might have local [inaudible 00:36:23] so to speak of, but you will not find global max for your supply chain. And that actually is another risk in itself. So the mass amount of data for one and how to deal with that and that’s the expectation to solution providers of how to make good solutions to achieve that. And then second, establish trust so that you actually can start collaborating because just knowing in itself doesn’t change, right? So then you need to start to engage with each other and come up with solutions and proposals, and that needs some amount of trust, otherwise it’s going to be stuck.
David Shillingford:
Yeah, good points. And I notice in the questions some comments being posted that reflect exactly what you’re saying there, Fabian, that it is that relationship between the OEM and the supplier is it’s difficult to get right, and there has to be not just a level of urgency but real trust in order to achieve the necessary transparency and we’re not there yet. Amit, what would you add to that?
Amit Nagar:
Yeah. I mean, as far as it being a challenge, yeah, it’s a huge challenge. And I think in not just automotive, but a lot of people have been at this for a long time. I think the three things that I’d say or the three things that are the major challenges are first, if you talk about automotive specifically, the automotive supply chain, I mean, it’s one if not the most complex in the world. When you think about, as Fabian was describing, the number of suppliers that are in the end tiers, the number of components that you have to talk about when you talk about a vehicle, you’re talking about 20 to 30,000 different components that have to come together, et cetera. So just by sheer scale, sheer complexity that comes with all of that, this is a massive effort to get right. So just by true definition of the automotive supply chain is a challenge.
The other thing I’d say, number two, would be what we talked about earlier, which is when you think about that supply chain, it’s evolving rapidly, right? I mean, there’s the amount of disruption, the amount of changes that need to happen from going to an ICE component, an ICE built vehicle to something that’s EV enabled. I mean, you’re talking about a drastic, big change in your supply base like I said. So to be able to therefore then keep, say you are able to map it out, to then make it dynamic to be able to say, “Hey, listen, a lot of my suppliers have changed, there’s a lot of new entrants, et cetera.” That is another big reason why I think this is a challenge.
And then the third reason I’ll just underscore what Fabian said, which is around the relationship to actually get this thing started, do you need collaboration between OEMs and the end tiers? I think in the past, David, as you alluded to, this hasn’t been perfect. But I think this has sort of exacerbated the issue as far as the need to get this right very quickly, right? As far as being very collaborative and solving this together across the end tiers versus the historic data flow, information flow that’s always been a challenge I think, between suppliers and the OEMs. This is just more of a reason to get that right, right now.
David Shillingford:
They say that innovation is the, what is it? Necessity is the mother of innovation, I think. Maybe necessity is the mother of collaboration as well. We’ll see. Ulf?
Ulf Venne:
So we’re seeing more and more collaboration in the automotive industry. I mean, there are projects like Catena-X or drive now for sustainability trying to achieve more and more transparency under the umbrella of sustainability. However, let’s face it, I think over the years and decades actually the culture is one to try to not share as much information in the automotive industry. I come from [inaudible 00:40:52], automotive hometown and that’s something that was a very often discussed actually.
So I think a key thing that is very important is we cannot just rely on supplier responses to get sub-tier visibility. There needs to be a different angle to that. And I think that’s something that people need to understand is if you just wait for your suppliers to respond, first there will be always a time lag. There’s an ever-changing supply chain so it will never be up-to-date. And in order to keep it fresh and constantly fresh, you just have to find more better ways of acquiring this data than just waiting for your suppliers. They should still be a part of it, they should still help verify it and they should still be there and help you crisis manage sub-tier relationship issues. But it shouldn’t be that you have to rely for them giving answers. That shouldn’t be the ambition of any [inaudible 00:41:55].
Partnerships, processes, and technologies to achieve sub tier visibility
David Shillingford:
Yeah. So I mean, it’s obviously important if not necessary to get this type of sub-tier visibility. But all the challenges that you all summarize, the size, the scale of this, the opaqueness, the dynamism, the relationship challenges. Yeah, there’s definitely on one side a desperate need, and on the other side a set of pretty big challenges to getting this type of visibility. So what we’ll do now is we will progress from talking about the challenges to talking a bit more about some of the ways in which companies are having success in achieving sub-tier visibility.
And it’s as always, it’s never a single thing. It is very much a number of different processes, partnerships, and we’re seeing some pretty interesting technology and uses of that technology starting to get into this problem and starting to really make some meaningful progress against it. So with that, I think, Amit, I’ll start with you just in terms of, you know, you speak to a lot of big companies, some of whom are making some significant progress with this challenge. What are you seeing that is working and that you and Bain really thinks has promise and needs to be pursued by more companies?
Amit Nagar:
Yeah, no, this is a good question. I think before getting into it, I think one of the things that you mentioned earlier, David, I think is a good way to set the context on this one, which is this is just a very nascent sort of topic. You can make the argument that there’s been a lot of focus on risk and resiliency within supply chains for a long time. But it’s not until a lot of recent disruptions or when a disruption occurs, I should say, do people start to actually focus on this again. So what I’d say though to get back to your question, there’s a couple things to mention. First is, even with the nascent technologies, there’s still a lot of things that are out there that can help you. And I think the way companies are thinking about this right now, at least the clients we’re talking to is do they actually have to build something within their company and their IT department, or do they want to buy something off the shelf that can help them with different aspects of building in this resiliency from a process perspective, et cetera?
So I think folks like, you know, you guys like Everstream etcetera, are certainly a good turbocharge for folks to get into the mapping, the risk assessments, et cetera. But yeah, I think that’s just point one around the notion of should I actually build it, should I buy it off the shelf? Not knowing kind of what’s out there. As far as the technologies themselves, I’d say what we’re starting to see from clients, there’s a few different things that people are deploying. Number one is I think it’s table stakes to also say, you know, getting the mapping right, understanding your end tier to a certain level of certainty and confidence is one sort of technology or tool to actually incorporate within the organization. The second one that comes with that is around how do you actually assess risk, right?
So is there risk assessments that actually come from, you know, I have this mapping, it’s kind of like so what? I mean, I need to understand where risk lies, where are my vulnerabilities? Do I have a framework to think about where the risk lies, both from a event perspective as well as longer term, medium term sort of risk as well? And then within that, the third one I’d say is an example, but what we were talking about earlier, there’s tools around how do you actually understand if you have so many different tier twos, tier threes in your network? How are you actually understanding, creating that visibility around supply demand dynamics, understanding the level of concentration for your supply base, et cetera, that can actually become a pull process managed by exception where you can start to look at these data points to say, “Hey, here’s actually where my risk lies based off of all these analytics that you should actually build into these tools.”
So sounds overwhelming, but we could say at least from what we’re seeing at Bain and with our clients is that people are starting to get their heads wrapped around this complexity, understanding the power that tools and technologies can actually offer up here. And then the final point I’d make here is the way we think about this, and I would also argue that we’ve been discussing very deeply with clients is technology is certainly one part of the answer. But we very much believe that technology also is, it’s effectively dead on arrival unless you have the right people in place to actually support those tools, if you have the right process surrounding the tools, et cetera, to get it right. So have that technology, create that visibility, et cetera. But if you don’t have the right people in place, if you don’t have the right processes that surround that, the tool will go, it’ll effectively go dormant without the right core [inaudible 00:47:59] structure around it.
David Shillingford:
Yeah, no, that’s a great point. And I think companies have been learning that for, well, they should have been learning that for decades, but certainly true here. Fabian, what would you add to Amit’s comments?
Fabian Kleinschmidt:
Yeah, I mean what we’re currently seeing is that overall, especially in the automotive industry, things are becoming more data driven, right? Whether it’s production, whether it’s sales, we’re getting more and more data driven and the access to data is increasing. So it’s just natural to mirror that on the supply chain as well. So I think one of the key aspects is that artificial intelligence, you name it, right? They’re going to be a vital part of your daily operations and obviously need the people to maintain that, to develop that. And there’s a big question like we said at the beginning of this section, whether you want to buy that or whether you want to develop that yourself. But overall, I think you can think of it as a maturity level.
So probably 30, 40 years back, I mean, you were considered a good supplier when you were able to provide a good part at a reasonable price, right? Over the last two, two and a half decades we’ve seen that not only providing a good part but having a production footprint around the globe is expected to you, at least if your tier one or tier two supplier, even tier three supplier, that you can cater to global products, to global project management. So there was another layer added, right? Another maturity level so to speak of, and if you take a look at the last few years, especially the expectation to you as a tier one, tier two supplier was to manage your supply chain, right? To have the knowledge and to have the alternatives ready and to fulfill your delivery obligations at the end of the day.
So if you think about what’s coming next in sense of a maturity level, right? The next level might be that the information that you’re handling and the data that you’re handling actually becomes the basis for your business, and that on the top of that you’re going to be a manufacturer, right? So you’re going to flip pretty much the perspective of being a manufacturer with good software to software company with a little bit of manufacturing. So I think it’s going to be pivotal to master that and to come up with either good partners or with a good in-house IT to cope with those new challenges and to keep up the pace, right?
David Shillingford:
Yeah, no, exactly. Yeah, things are changing fast. So Ulf, what would you add to that in terms of the ways that you are seeing companies solve this enormous challenge of sub-tier visibility?
Ulf Venne:
Yeah. So we engage with a lot of clients on sub-tier visibility and help them change pace by applying AI and machine learning uncover sub-supply chain structures. But we learned quite early on is going from knowing 1,000 to 2,000 suppliers to several 10,000 of suppliers can be a little bit overwhelming if you don’t know what to do with that kind of information. As Amit said, you have to start managing by [inaudible 00:51:10] and doing risk management. And luckily enough we do have the tools for that giving you real-time alerting and giving you on the spot risk assessment, very digitalized and automated.
So what gets then quite critical is what kind of types of incidents are relevant for you if it comes to your tier two, tier three supply chain, right? And a small fire that might stop a production for one day in the automotive industry is important for your tier one supplier to know, but in your tier two, tier three, I mean, you would expect that this can be handled independently, whereas a major earthquake that kind of grounds a whole area with a lot of your suppliers in it there, then it becomes vital to focus and start managing.
And that’s something we’re seeing and that’s something that I believe is important is first creating visibility, keeping it up to date, then managing risks and then tuning the risk that you’re interested in to the right area is very important. And then trust, being able to trust the data because you know that your solution provider uses the right data sources, can give you confidence scores on is it really your sub-tier supplier. Because I mean, it’s good to know, “Hey, here are a hundred suppliers in that area that might work with you,” but then also telling you how confident are we that they really are engaged in your supply chain. It’s quite vital and doing it on a product level and all of that is possible today.
And the importance though that I want to mention at the end is actually what Amit said at the very beginning, right? Having the best technology, having the best alerts of the world will never help you if you don’t have the people and the processes around it to really manage those. And that is something that I see as personally the upmost vital having talked to so many customers in that space. There is a lot of things that can be done quite well and to learn from the best is quite vital. And to get a good grasp on best practices I think is something that behooves a lot of companies right now, and the automotive industry actually is just poised to be a very prime example for managing risks once they occur.
David Shillingford:
Yeah, yeah.
Amit Nagar:
I was just going to mention one thing. I think Ulf brings up a great point. I just wanted to mention one other thing is the point around having that data, being able to do the analytics, but step one being the visibility. At least with the clients that we’re seeing, it’s intimidating already to think about, as Ulf put it the step one, like the 1,000 to 2,000 to 10,000. From clients that we see actually get that right, what’s actually more, call it intimidating is too strong of a word, but once they get that done and get to the step two that Ulf kind of described as far as doing that risk assessment, from an answer perspective, what you actually see there if you’re in automotive is the semiconductor thing was you actually see that with actually the phenomena that’s happening with semiconductors. You actually see that happening with other components and commodities.
So I think it’s just fascinating that you have to get through that step one, but once you’re able to get to that step two and start to do the analytics and the data that Ulf was talking about, you actually start to uncover a lot of things that can be a little bit scary, which is the most important thing out of this thing to figure out, okay, therefore how do I actually mitigate it?
David Shillingford:
Yeah, I think companies that can get there and can get there first to that type of visibility are going to have an enormous competitive advantage both tactically and strategically and particularly as you all said earlier, the way in which automotive and other supply chains are changing dramatically now and over the next 5, 10 years. That type of visibility is going to be an enormous competitive advantage. I’m looking at as I’m trying to triangulate, as the questions come in, I’m trying to, there’s about eight, nine questions that essentially are the same question and it’s either a version of, so how does Everstream do this, or explain a bit more about how AI is being used.
So I’ll have a stab at that because I think it’s an important thing to understand because there is really a world of difference between what we call inside out and outside in. Inside out is where traditionally you go to your tier one suppliers and you survey them and you ask questions to try and understand who your tier two suppliers are and on up the chain. And we’ve discussed earlier how challenging that is for various different reasons. But as Ulf said that’s not going to go away. It’s still necessary to do that. But what we see as revolutionizing this particular challenge is the use of AI from an outside in modeling standpoint and the way that works. And it’s not easy to do, but it is essentially you are collecting billions and billions of transactional records. They might be import export records, they might be shipment records, there could be anything that indicates two companies that are doing business with each other, and most importantly to Ulf’s point what it is that they trade in, the product.
These models have got to be product-centric and using the key really here with the AI is entity resolution. It’s turning those billions of transactions into millions of records about suppliers and how they interact with each other. And then using graph technology to represent that and to query it and to analyze it, to look for risk concentrations and then to layer on top of that risk data. And that could be risk assessments, it could be real-time events, it could be analytics around different types of risk concentration. And that model allows you to start the journey beyond tier one. It allows you to start seeing tier two, tier three, tier four, assigning degrees of probability to how sure you are that really is a tier three supplier. And then you go back to Amit’s point, which is what do I with this? It’s the people around it that make it work.
It’s understanding the use cases. Is it about ESG? Is it about compliance? Is it about risk concentration, supply assurance? And then to be able to say, “Okay, so this is what I’m going to do first because it’s the easiest or because it’s the most urgent,” and then to build the model out from one use case to the next until you’ve got a fully dynamic automated view of your extended network. It’s possible. The technology exists, but it takes time. It is a journey and one way we see companies that are partnering with other companies that have the data, every company is doing some of it on their side and they’re all partnering with companies external to themselves because that’s where the data is. And it’s interesting that a large amount of the questions went right to that, so how do we do it, how is AI being used? So I just wanted to tease that out. I realize we’ve got only a couple of minutes left and it’s been a really fantastic panel. Great, great discussions. I think, Dana, you wanted to finish by talking a bit about what’s next and the white paper.
Dana:
Yes. If you can go to the share your screen again, go to the last slide. Yep. So we have a white paper that touches on much of what we talked about today and it’s called the Multi-Tier Supplier Management in the Automotive Sector. It will be available tomorrow in your email that you’re going to receive. So we thank you so much for participating in the webinar and registering. Thank you for your interest. So you’ll get that email tomorrow and you will also get a link to the playback for the recording of the webinar. And so if you guys have any questions, you know where to contact us at everstream.ai. Thank you.
David Shillingford:
Thank you, Dana. Thank you, Fabian. Thank you, Amit, thank you, Ulf. Fantastic discussion. Look forward to more of the same. Thanks everyone.
Amit Nagar:
Thank you. Bye-Bye.