Lauren McKinley:
Hello everyone. Thank you for joining our session today, Sub Tier Visibility for Manufacturing Supply Chain Risk Management hosted by Everstream Analytics. Today we are joined by our presenters, Jena Santoro and Ulf Venne. Jena is part of our intelligence solutions team. Ulf is the leader of our center of excellence. Together, Jena and Ulf partner with our global client network to standardize end-to-end best practices for company-wide supply chain risk management, and also monitor sources around the world to gather relevant information and intelligence on events that can impact our clients’ global supply chains. Today we are going to be discussing the end-to-end trend for major manufacturers. We’re going to run through an analysis of global sub-tier networks using Everstream data. And then we’re going to discuss how top performing manufacturing companies achieve sub-tier visibility for better risk management. And with that I will turn it over to Ulf.
End-to-end trends for manufacturing supply chain management
Ulf Venne:
Hello everyone. Hope you’re having a great day. So as you can see, 65% of manufacturing companies reported their supply chain was their primary business challenge and still is, which essentially means that supply chain is now a board level agenda topic first because of the challenges, but we’re positive it’s here to stay. And overall that will do good for supply chain management. But one of the key challenges right now is visibility because only 2% have visibility into their sub tiers and it’s really hard to manage what you cannot see. So sub tier visibility is one of the key concerns we’re seeing right now and there are a few reasons why and they directly relate to the challenges that we have from manufacturing companies in the year 2023. And we try to divide them into plan, source, make and deliver. And they’re good arguments to shift some of those around, but we just, yeah, we’re giving you right now a quick overview and then we do a deep dive in some of the topics.
Ulf Venne:
So let’s start with plan. Product changes drive complexity for supply chain planning. More digitalized products are available, there are shorter life cycles and there is a bigger need for recycling products and that makes it really hard for supply chain planners to forecast. Going on to sourcing actually ESG and nearshoring will be two of the topics we will have a deep dive in the next two slides. So I would actually move on from that and first talk a little bit about critical raw material shortages where 72% of manufacturing companies right now see a consistent challenge in getting their critical raw materials. That is why Jena later on in the presentation we’ll talk a little bit about insights you can derive from our tool to manage these critical challenges. Moving over to make. AI and robotic are a big enabling for the nearshoring, right? Making things a little bit cheaper to produce on your maybe back in the country you originally come from and closer to your customers.
Ulf Venne:
So it’s a big enabler, but on the same time it’s also bringing new risks from a cyber perspective because you bring more and more connectivity into your production plants, similar to your own products that might have also more and more critical connectivity and therefore is exposed to cyber risk. That is why we will also dedicate a couple of minutes on cyber issues as we see them in our platform and how engineering and manufacturing companies can get targeted. So then looking at technical and social regulations, this is another big topic that we want to look at and Jena will talk about this with a few dedicated slides so we don’t spend too much time on that. Going to deliver. One thing that is really important, our increased freight costs, and that will be one of the trend slides that we will show in a couple of seconds.
Ulf Venne:
To bring down freight costs, one of the actions that is taken is looking at more 3PL partnerships and outsourcing, which can help drive down costs, but you have a limbo with the ongoing political challenges making logistics harder. And now we will see if the trend of outsourcing will continue or actually people will take back more control of their logistics. So these two interact quite nicely with each other. So looking at some of the major trends more in depth, let’s start with ESG. So 67% said the organization had defined environmental and social sustainability KPI for their leaders, especially supply chain. And that makes a lot of sense because you see now with UFLPA and the German supply chain laws, well as EU supply chain law, more regulations come up at the same time and as CO2 emissions are a big concern and 90% of these CO2 emissions stem out of the supply chain.
Ulf Venne:
So if you really want to measure your scope three emissions, you have to also know your sub-tier visibility. And that is why this is already a very good first example of how sub-tier visibility can be important, but then also for the laws I just mentioned and trying to improve the working conditions in your general supply chain, this is why you just have to create more sub-tier visibility when it comes to an ESG perspective. Moving on to the next slide. We saw in a recent survey that 32% of manufacturers plan to move their operations closer to their consumers. And the reasons for that are regulatory burdens as we see with UFLPA and German supply chain law, but also supply chain reliability and then also just client and consumer expectations. That’s why 70% of manufacturing are expecting globalization to really shape their sourcing strategy.
Ulf Venne:
And we see that with, for example in the US the Biden administration who really make it a big topic to make sure that reshoring is something that the US American companies care about and try to do and after our 100 days already, President Biden has made the Supply Chain Act that really incentivized this behavior. And again, one of the reasons why more and more consumers are having the expectation of you being more nearshore because they want to have a good working condition in the supply chain. And a trend that hasn’t been there for before is that now they also will make you responsible for your sub-tiers. So again, sub-tier visibility is a clear requirement to fulfill your consumer expectations and reshoring alone will not help if you don’t create the visibility. Going to the next slide. Logistics cost rising.
Ulf Venne:
Obviously the new normal is a very overused terminology, but here it really fits because you essentially, we will never go back to the prices we had prior to COVID. We don’t have the insane logistics rate, right, but you still see now a 30% increase, especially in ocean freight shipping in comparison to before COVID, and this will not go away. There are several reasons you could state right now, which is Russia invading Ukraine or the general concerns around China, but essentially it’s just there’s an imbalance in global trade and that will just make the prices rise.
Ulf Venne:
So what we have to do is lower our shipping costs, sorry. And risk management is a good solution for that. As we can see for example, if you really manage disruptions and create real time visibility, you can save more than 5% of your air freight shipping costs per year. And this intelligence on how you can save it comes from the intelligence solutions team actually. And we have a lot of unique information on our platform and today we want to introduce a few of these from an engineering or manufacturing standpoint and that’s why I hand over to Jena.
Analysis of global sub-tier networks in supply chain manufacturing
Jena Santoro:
Great. Thanks Ulf. So as Ulf mentioned, I’ll now be going through some of the short term and long term industry trends, risk trends that our team has been monitoring as being potential disruptors for the manufacturing sector and for continuity of manufacturing supply chains. So the next few slides that I’ll be going through will include some regional challenges to be aware of in the near term as well as some longer term risk trends such as increasing cybersecurity vulnerabilities and as Ulf mentioned, ESG related risks like regulatory and reputational risks, which we anticipate are here to stay. So to kick things off, the first short term risk that we’re seeing is the result of Russia’s invasion of Ukraine back in February 2022.
Jena Santoro:
So this prompted widespread global shortages of critical raw materials. And you can see here in the top graphic that Everstream Analytics saw a significant increase in the material shortage incidents from 2021 to 2022. And this was in largest part due to Russia’s invasion of Ukraine, but also the resulting sanctions by the US and the EU on Russia. We can also see in this chart that in just the first three months of this year [inaudible 00:10:04].
Ulf Venne:
Hello everyone. I do believe we have lost Jena spontaneously. So until she comes back I might be able to present a little bit on the slides. Give me a second. I need to sort myself real quick. I’m very sorry for that. Okay, so I think going back to I think she talked about aluminum as an example. Just a few days ago on March 10th, a 200% tariff increase on US imports on Russia aluminum and aluminum derivatives went into a effect. On April 10th, this will expand to include any aluminum based products manufactured with aluminum casts or smelted in Russia. Since the conflict is ongoing and the sanctions are still in place, we expect these disruption to continue throughout the year. And I’m sorry for reading this, but yeah, let’s continue to the next slide.
Ulf Venne:
So moving on to another result of the Russian invasion of Ukraine, Europe’s rising energy cost, which continues to impact production across the region. We can see in the chart here of our internally reported incidents that there was a considerable spike in incidents reported in March following the invasion and they continued to be higher since then. Energy prices also reached historic highs in August 2022, which led to the second spike that we can see here in the production disruption incidents reported in September. Though energy costs have since steadily declined since those peaks in March and August and September, they remain too elevated for any manufacturers to maintain normal production operations. High energy prices have disproportionately impacted the metal sector due to its reliance on natural gas for smelting furnaces. Our internal data shows that over 80 manufacturers of steel, aluminum, zinc and other industrial metals have reported energy related production disruptions since the crisis began in February 2022.
Ulf Venne:
Again, as a conflict in Ukraine continues and the energy crisis is unresolved, we can expect the production disruptions to continue throughout 2023. So moving on to the next slide. Now we actually change our view a little bit and look into long-term industry transfer manufacturing, such as the proliferation of recent ESG related due diligence laws, which have increased regulatory pressure on manufacturing supply chains. Starting with implementation of the UFLPA in June 2022, we saw disruptions to US imports of products with links to the changing province in China, most notably for renewables manufacturers reliant on solar components and rare earth metals. Many of which have been exposed as having ties to forced labor in this region. More than 1000 shipments have already been detained by custom officials of solar panels and solar components and seizers of aluminum products with alleged ties to forced labor have increased since January.
Ulf Venne:
Due diligence measures have been introduced to new EU, German, and Canadian supply chain laws set to come in effect in the coming month and years extending the enforcement of ESG standard beyond the border of the US. Yeah, that’s definitely coming my friends. So cyber vulnerability is the next one that we quickly touch upon, again referring back to more and more robotics as well and especially warehouses and then products getting more and more connected as well in the manufacturing sector. So cybersecurity risks are expected to be a top disruptor for manufacturers long term most notably as a trends toward automation continues. As we can see here, as of 2021, the industry experiencing the most rapid shifts toward automation, automotive, electronics, packaging and industrial manufacturing. In 2022, among the industry tracked by Everstream manufacturing reported the second-highest numbers of cyber incidents of which more than 80% were ransom rare attacks.
Ulf Venne:
This indicates that bulk of the sector cybersecurity incidents had the potential to disrupt operations. The sector also made the highest average ransomware payments in 2022, which is likely to tend further attacks in 2023. So there’s an outlook.
How top performing manufacturing companies achieve sub-tier visibility for better risk management
Okay, so having gone through this slide, let’s maybe move to the next slide and this is how we can help you actually so. And it all starts with mapping out your supply chain network to generate relevance, right? So we will go and not only look at your supplier’s locations and your own production plants, but also at lanes in between at the materials flowing, the logic of that, and then we can start alerting you to supply chain risks. And these are 24/7 and vetted and we will talk about this in a few minutes a little bit more. Can be anything from a natural disaster to a cyber attack to an insolvency to any of the great content you hear here and many more.
Ulf Venne:
Predictive weather is a vital part of our solution with meteorology and we see hurricanes disrupting supply chains. And right now, for example in Madagascar, we have a big crisis for food and beverage and then we have a social media monitoring that helps us uncover financial risks as well as ESG related risks for you to know when it’s happening or even predictive before it happens so you can react very fast and create a competitive advantage. And then moving on this year’s real quick before we show anything else, this is about the logic of how we build up our intelligence for you. So we always start with a pool of data sources. This is example of an incident where we then go and have a very big pool of data. We use AI to match and find the most relevant components of intelligence that we need.
Ulf Venne:
And then humans are validating this, aggregating data together to then send one incidence into the platform that then gets filtered relevant to your network and makes that you get really relevant and accurate data. And AI and human interaction like this is like a staple in our system and it’s relevant to everything we do. So we always will leverage AI to scale as fast as possible, have human experts look at it, and then make sure that you get relevant insights, highly relevant insights. So going to the next one where this is a good ex, and this is an example actually for an incident, sorry, where in January 6th we were able to create an 11-day notice for our customers, especially for the Micro-Electronics factory of Welnew in Wuxi where we reported on an incident out of the Chinese media sources that were picked up by our analysts.
Ulf Venne:
And then we posted the incident one-day later with all the information available and then our clients were able to take first actions already on the first day January 7th. Looking forward, the supplier only alerted their customers 11 days later, same with our competitors picking up the information. So that means you could have created an 11-day head start and against everybody else if you were with Everstream Analytics. And we had a lot of customers being very happy about this actually because they were able to get some scarce capacity from somewhere else before others reacted. Going to the next slide, talking again about AI and human validation, we have a solution that helps you uncover the sub-tier supply chain. And we don’t do surveys because that takes too long. We don’t have a database because that is often outdated and has false information in there because supply chains continuously change.
Ulf Venne:
We are using AI to query sub-tier structures for every customer and you. Make sure they’re relevant, they’re timely. We have human experts who know the industry validate this, clean it up, build it based on the logic of the customer to build a highly relevant sub-tier structures within weeks for our customers and have the ability to refresh at any time. And you can see how it looks like in the system. There are different views for this. Obviously we have reporting platforms that help you then to understand within my big bulk of suppliers where are my key issues where something I really have to look out for. And you can base that based on your own risk sensitivity. So if you’re more interested in ESG alerts, you can do that versus if you see more, a problem with production outages, you can also tweak it like this.
Ulf Venne:
So it’s really about uncovering your sub tier supply chain in a quick efficient, relevant way and then building use cases together with you that help you build the focus that you need. And then our last one is the strategic way of managing risks, which are risk course. And we can do that for whenever you just enter a location in our system. It might be a sub-tier supplier from Discover, it might be your own suppliers, it might be your production plan. You get automated 31 risk scores, which you see in this graphic on the left side. But in addition to that, we can onboard a lot of additional intelligence through third party cybersecurity risk and so on and financial risks and others, that eventually gets you to a point that you have a holistic scorecard where you can have our automated, I would call them external risks because they affect the supplier from externally.
Ulf Venne:
This is natural disaster, sustainability, social political issues and individual risks. And then you also have your own performance indicators, our partner risk scores. You build a holistic scorecard that really helps you manage your sourcing decisions long term and also help you build business continuity plans for those where you see that short term there might be a risk. And with that we have been through the bulk of the content and we’re opening it up now for questions. If you’re not able to ask your questions right now, you can add Jena or me on LinkedIn and we’re happy to answer those there or your right to webinar at Everstream AI. And now I would ask Lauren if there are any questions.
Q&A for manufacturing supply chain management webinar
Lauren:
Great, thank you. Thank you so much Ulf. Okay, we have a few questions that came in. One is around prioritizing risk. So as you uncover risk, how do we help clients understand where to I guess take action first in an extended supply chains?
Ulf Venne:
Yeah, so that’s a very good question. First of all, we should assume that we should first try to generate relevance, which means it’s a dialogue with the customer about his, eventually you call that risk appetite actually where you go and say, okay, as a company, what is my appetite for risk? Because you cannot manage all risks at the same time in the same way. So you have to define what is my strategy? Can I accept, for example, a tier three supplier to burn down and I trust my tier two and tier one supplier to handle it versus even if there’s a worker right violation in my tier four, I’m not willing to accept that and I always want to have this flagged. So these are what we would call risk appetite. And this is a very important first discussion to have to build up the relevancy.
Ulf Venne:
And that is something that often has to be cited on a very high senior management level because it has implication to the wider business. Once we have done that, we will set up filters and priorities based on that. Our incidents are flagged that it always also shows you an impact. So we tell you for example, the duration of this incident is probably two days versus if the port congestion that you might face might take you eight days longer. So you already have an indicator. And then we also deliver a severity tech that helps. But in general, because we have your network, we know the incident, we know your materials, we can already, and we know your risk appetite, we can already help you filter very easily so you don’t get overwhelmed with intelligence and can really focus on what it matters. This is obviously a process and it needs your input, but that is totally possible.
Lauren:
Great, thank you. Okay, a question around company level alerts. Typical newsfeeds tied to supplier companies only give high level data tied to their company name. How does Everstream help address this since that is not always [inaudible 00:24:24]?
Ulf Venne:
That is a perfect question and you’re right. I mean media monitoring is maybe also not the perfect way of phrasing our solution because essentially media monitoring is an extended way of us looking at newsfeeds and then still have them be validated by our experts. They aggregate things together and build logical context around it. So in the future we will call this the ESG and sustainability, the sustainability and finance package, which essentially encompasses all of ESG elements as well. And you will get not a media monitoring solution in the traditional sense as you know it from others, but it always will be with the human validation that we’re known for to manage the quality and remove the noise that you traditionally see in these solutions. Totally accurate. Good question. Thank you.
Lauren:
Great, thank you. Okay, another question. Does your AI learn from the sub-tier it collects from each client? Do you find all of these sub-tier suppliers from each case you do? Wouldn’t you want to keep that for ease of access as you build upon your data?
Ulf Venne:
We do have internally something that helps us with ease of access, but frankly the reality is having a database is great, however it is outdated on the next day. And the really core differentiation of our solution is that we always query a new based on core data that we know we can continuously keep up to date. That means we have something for ease of access internally to use, to leverage, wherever it makes sense and is needed. But essentially querying a new is the only way to give you a really relevant database. And especially every customer is different because you might get another material or component from the same supplier, which makes the sub-tiers completely different. So building a, even if it’s in your same industry, building a network graph for this one customer, it might look extremely different for the others.
Ulf Venne:
So just because the component is a different one with different sub-tier suppliers. So querying a new makes a lot of sense. It doesn’t delay the process by a lot. Actually I would say it’s similar in speed in a rollout. And it just creates accuracy that is unheard of. But we can happily discuss that on LinkedIn if you want to more because maybe if you have a different take I’m happy to hear it, but I’m convinced personally.
Lauren:
Great, thank you. And again, if anybody would like to follow up or continue the conversation, please reach out to us. You can also add a note in chat. Great. Looks like we have time for maybe one more question. There are a few more in, so we’ll make sure that we respond to all. Could you provide an example of supporting logistics, freight cost? How do we decrease freight costs for clients? How can we help in that area?
Ulf Venne:
Yeah. So essentially one of the abilities we have is to integrate your transport management system or shipments in a different way into our product. So we can give you disruption alerts on a per shipment basis. So you for example, know very early on, even in the planning phase of the shipment, hey, if I go through this board, there’s a big congestion right now. I might have four days delayed. If I’m four days delayed, that is a problem I can reroute and you can do most in planning and that’s where it’s really powerful. But also if it’s already on the way and you see for example the ship is coming to the port, but now the port has a big problem because of a strike, which we have a lot of right now for example in Europe, then previously you would only have heard about this when it’s at the port and there’s a problem because notices are often very late traditionally in the logistics community.
Ulf Venne:
So right now, you know already when a ship is on route and you can already consider your backup plan, make a really solid and robust backup plan, that might be instead of air freighting a large portion, you really know, okay, it will be four days delay. I will only get a smaller portion as a backup and I send that via air. And we see customers like this saving 5% and more of the air freight volume per year and the on-time delivery is increasing. And there are a lot of other factors, but that’s I think in general the concept that we use and I’m out of time, that’s why I stopped now.
Lauren:
And I’m sure we could continue talking about logistics and materials and all of the other questions that have been rolling in. Another question just came in on bill of materials and material tracking and value. So we’ll make sure that we respond to all of your questions and include those.
Ulf Venne:
We track the value with the material flow. Yeah. But anyway. We’ll write your answer.
Lauren:
Yes, thank you so much. Ulf will definitely work with us to make sure that everybody gets the responses to their questions. If you have any more at any time or feedback about our sessions or content, please reach out to [email protected]. We will make sure that we route your request to the right person and we will deliver a copy of this presentation within the 24-hour window following the session. So with that, we are out of time, so I will close the session. Thank you again to our presenter. Thank you Ulf. Thank you Jena. Thank you Ulf for covering. We appreciate it. And with that we will close the session. Thank you so much everyone. Have a great day.
Ulf Venne:
Have a nice day. Bye-bye.
