Hello everyone and thank you for joining our session today, How Complex Supply Chains Get Value from Sub-Tier Visibility, presented by Everstream Analytics. My name is Lauren McKinley, today I am joined by my colleague, Ulf Venne, who leads the Global Center of Excellence for Everstream Analytics and previously served as regional head of sales for EMEA and APAC. Ulf has been instrumental in increasing awareness for supply chain risk management and supports Everstream clients in building a strategic path to resiliency. He has authored several articles in white papers on risk and resilience and has been published in numerous books in magazines. So we’re lucky to have our own in-house expert, Ulf, who will lead today’s presentation. At the end of the presentation, we will send a recording. Please drop all of your questions in the Q&A box in the GoTo Webinar screen. And with that, I will turn it over to Ulf.
Hello everybody and welcome to this webinar also from my side, hope you’re having a good time on this for me at least, a rainy and cloudy day in Cologne. And actually, we will talk about a lot of topics, as you see here on the agenda, but I want to actually start with cloudy for today because it’s a good start, as supply chains for today are often very cloudy. We can see a little bit of it, but we don’t know enough. As you can see here, you see the tip of the iceberg, the tier ones, you see that top of the locations, but because it’s so cloudy, it’s hard to see the bottom. So creating visibility into sub-tiers is a problem that supply chain face and that limit the visibility.
And that is not only a statement I make, but essentially that is a given, as McKinsey would say, 2% of companies have visibility beyond the tier two supply chain, and that’s a critical factor because 51% of all disruptions happen in tier two or lower. So there’s a huge mismatch where there is a problem and where you have visibility, and people have tried to solve that over time again and again, and most of the time the answer was, “Hey, let’s send out a survey.” But surveys are time intensive, responses are not so good, if response come at all, and never complete, and once you have finished a project like this, you have to start all over again because everything is outdated. So we have done that in the past as well, we were not happy with the results we were providing to our customers, and that is why we looked for new ways to address a problem.
And one of the problem solving issues, and the main problem solving issue we have, is called Discover. It’s our sub-tier network technology where we use AI to solve the problem. It’s a very new technology and it really helps customers boost visibility into their supply chains. I’m not going to talk in depth today on how it works, just it’s AI, it’s human expert validated, and it generates out of what before was no visibility into sub-tier tier data, all of a sudden great visibility into your sub-tier tier data. If you have any questions on that, let’s do that in the Q&A, but for now, just let’s take, it’s working, we have customer where it works.
So we want to today look at a new challenge that is all of a sudden you have data, so what to do with it? So just assume you can solve the sub-tier issue, and all of a sudden you’re presented with massive networks of supply chain data that shows your sub-tiers. And because we’re now doing it for a while, over two years, we have gathered experience with our clients on how to leverage what is a sub-tier data, and today we want to talk about this, because what we really want to avoid is that this goes down in a way that a lot of products go down where 68% of data in enterprises are just getting unused. So essentially, you start a big initiative and then you don’t know what to do with it, then there is no value. So it’s important to generate the value and build it up over time, and this is today’s main focus and main topic.
So for sub-tier supply chains, actually, when you start to build up your use cases, it starts with really everything being about relationships, because essentially the farther suppliers away from you, let’s take this tier four, tier five supplier here, the harder it gets to manage the situation, the more it’s just knowledge and not actionable. Because you are not directly involved, you see there are many relationships between that? You’re not directly involved working with the supplier. So you have to build up a relationship in a way, but that can be very costly and time intensive. So now the question comes, for which part of your supply chains are you willing to invest building up relationship with sub-tiers? That might mean that you have maybe your commodity buyers have to extend their reach, they have to talk to more people, you might have to hire somebody new. Where are you willing to make an investment? It’s probably for critical suppliers and then their sub tiers, semiconductors in automotive could be a good example for that.
And then for those where you don’t do it, how do you want to build up awareness for your sub-tier suppliers that they know they’re working with you and what you do is mission-critical for the planet, so they will be more inclined to help your supply chain instead of another supply chain. That can be activation campaigns, talking on conferences, other campaigns. So there are different techniques of doing that, but this is something you have to consider already is, for tier two, it’s very easy to do something if a tier two fails, because essentially you just pressure your tier one to act, this is something you could directly still influence. Afterwards, it’s a chain of command that is longer, and it can easily break between your tier one, talking to your tier two, talking to your tier three. So as soon as you want to go into the tier three environment, it’s very important to already consider strategy to build up the relationships. Different techniques for that obviously.
But already, if you are considering investing in sub relationship, that’s something you should consider together, with just technology, because we want to really help you solve a problem. So we recommend to do something called strategic supply chain strategic visibility, which means you start with a crawl approach and start building up your use cases that then help you expand it out over time and grow with a solution. So for example, monitoring disruptions, risk management, we know after COVID that was a big topic. Clearly a use case, easy to solve, can directly be solved with our product without any issues, great first use case, you just take one product and you know can solve a lot of things at the same time, generating great value.
Compliance risks, very similar topic. Compliant risks are also covered in, for example, the Everstream platform. You get all these different risk scores on sustainability, you get alerts, you have a lot of different social political risks. You can monitor environmental. Great. You are set to go and the use case can directly be applied within one platform. Easy use case.
Scope three emissions. Also something to look into. Obviously, a lot of companies still don’t start to measure their scope three emissions, and what you don’t measure, you can also not change. And we have to get there, it’s a regulation, so eventually you have to report more stringently on that, so it’s a good way to start. But I would say it’s more important to have another use case on top of that, so monitoring risk obviously creates a lot of value. So this is a great first use case and then scope three emissions is another use case you can follow.
And then directly related to risk management, as well as a fourth great use case to start with, is sourcing bottlenecks. So identifying suppliers that might be directly linked to a lot of your suppliers and therefore one disruption can create a ripple effect across your whole supply chain. And here in the example it’s a tier two bottleneck, and these are actually, based on our experience, very likely to happen. So our general idea for customers is for risk management it’s actually wise to start with a broader portfolio of tier two supplier visibility. And then once you have that, you dive deeper into the sub-tiers because then it’s easier to focus on, where are bottlenecks? Where are critical materials? And so on and so forth.
So broader visibility to first layer of rollout, and then from there deciding which of these I want to invest into more sub-tier visibility, is approach we really recommend to customers. And how does it really work? Well, it is then a decision factor. Once we have established a first amount of visibility in the tier twos, you go for scarcity or difficulty to source of materials to judge where you want to dive deeper, criticality to the business is a good factor. Costs of sourcing can be a good factor for that, or the potential brand risk you face for a product. For example, if you have different product lines, some are consumer facing and others are not, then the consumer facing are going to expose you to a higher brand risk and maybe you want to start there.
And important is also that this follows the same procedure as most of the supply chain laws are following in the world. So we have a lot of different supply chain laws popping up everywhere, most importantly the European Due Diligence Act will probably be a game changer again. A very strict regulation that also wants you to manage those sub tiers, but also wants you to do it in a way that is meaningful, meaning you base it on risks and the likeliness of something to happen and then dive deeper, which is essentially following our approach to a teeth, which is great. And we already have the risk course for you so you can put everything in one place, so a lot comes together and fits.
But eventually, this is a crawl phase that we recommend. Crawl by identifying tier twos first, dive deeper on a few, build up relationships with tier threes, for example, critical material where you might find it very interesting. Then you walk by increasing the number of sub-tier visibility you have for more product materials that you find relevant. Then you start run with building up the complete network visibility, and then fly where you also look into where do I invest even more in resilience measures, backup suppliers, and really take strategic network actions. So that’s essentially our whole approach that starts with strategic visibility because we don’t want customers to be overwhelmed by the amount of data that comes at them at the first, so that’s our suggestion for you based on our own experience for now.
Good. And with that actually, I wanted to show you a little bit how that works in the product and some of the use cases I just discussed, how you can see them within the application very easily based on one supplier. So we have a concrete use case that applies strategic visibility, we have identified one of our suppliers that is very critical to us, and then have decided to go deeper into the sub tiers here to then identify potential looming risks, and it’s a semiconductor supplier. Let’s switch screens real quick. Sorry for that.
So this is a network we’re looking at. Essentially, that is my tier one supplier, and then here I can see the full network. And in the network, I want to start with the concept of a sourcing diamond saying in the sub tiers, that there are many relationships that essentially end up at the same places. And we can see here in the tier three actually being a big risk is around here because these three suppliers are connected to all these tier two suppliers. So we have a tier three sourcing diamond that could bring down all, if any one of these falls down, they’re supplying all the tier twos, so you might run into a lot of problems. How did I identify that? Well, I looked at the amount of outbound co-location connections, and because there are four tier two suppliers in this view, if you look at it close, you can see it 1, 2, 3, 4, then you can identify four outbound locations, so essentially that’s the use case. So we have direct relationship here and they are very critical to the business and might bring the supplier down. Here, it’s tier two because we go from the tier one and here’s tier twos.
Good. So that’s one use case, sourcing diamonds, and I talked about risk management and compliance. So because it’s all very similar, it all leverages proactive risk scoring and incident management, so reactive risks, we can cover both at the same time, by for example, looking for, okay, what is a supplier with a high risk score? And here in this network it would be this supplier here, [inaudible 00:22:06] Technologies, and then I can have a deeper dive on why he’s so risky. And now we wait a little bit until it loaded up.
Give me one second. I’m sorry. There we go. And as you can see here, these are the what we would call strategic risks. They’re all delivered by the platform automatically. Once you load either your tier one, your own locations into that, or if we load your sub tiers, you will get 31 automated risk scores. Some of them might not be available in this one here because we had deactivated them for the purpose of the demonstration just to show that we can deactivate and activate some of these. But essentially, what is important here is that this supplier is in a region where especially worker rights are an issue and counterfeit threat, then even as exposed to some natural disaster risks. However, now we want to know, has there a risk materialized for the supplier because he seems to be very risky.
In looking at the incidents, we can see that this supplier is actually on the UFLPA Entity hit list, that means he might have a very tough time importing into the US these days. And seeing that come together, using the technology directly to make sense out of data and build up the use cases is really very important to us. And I hope I made clear how strategic visibility where you start maybe with one supplier as I did right now, investing and analyzing, looking for maybe sourcing diamonds and then risks, helps you make sense out of your sub-tier network graph. But obviously our solution is capable of more than that because we are a very holistic supply chain risk management solution, that means we build essentially up a lot of different views.
Here you see a tier one view. I’ll just show you a little bit more of the solution itself. You can see here alerts happening right now as we speak on the planet. You see, for example, the situation in Israel is still heating up. We actually, as we speak, still see a lot of logistics disruptions in there for different industries are risks coming up, especially technology, electronics, and the chemical industry. So if you want to know more about this, we can talk about that maybe later. So we have every day 2000 incidents that can affect either sub-tiers or tier one suppliers or your logistics operations, because we partner with DHL to get all that data in there and then we produce a context engine to create higher relevancy for our customers and only send those that they really need. And in addition to that, we have the 31 risk scores I talked about later. And with that, I would say let’s move over to our questions and answer section. Lauren.
Great. Thank you, Ulf. Appreciate the presentation today and diving into some of those use cases. A question around prioritization of sub-tiers and criticality, is that something that Everstream can help with or help take a look at a network and identify where to dive deeper, build relationships?
Yeah, so obviously we not only provide our 31 risk scores, but we also provide the ability to add internal risk scores into the mix. That means every factor I just mentioned, like scarcity of material, price, and maybe value at risk, all things that can also be added as an internal risk score, you will get help from our side, we can consult you on building up the important factors for you based on the data that is pragmatically available in your organization. But then we also will leverage essentially risk scores like what could happen with suppliers in your tier one and your tier twos, together with your internal metrics that tell us about the importance of the supplier within your network, to find the right suppliers to build strategic sub-tier visibility for. Obviously in the end you want to have visibility for all of your sub-tiers, but I think that’s just a journey, and that’s what we came to realize and that’s what we want to share today.
Thank you. The next question, how does visibility into the sub tiers contribute to cost reductions? Could you share some examples?
Yeah. So I think the most important fact, and we saw that on one of the slides at the very beginning, is 51% of all supply chain disruptions actually originate in the sub-tiers. So essentially if you think about sub-tier risk management in general, we can say that 50% of the value of orchestrating and organizing a supply chain risk management organization and building up this whole value around it originates from knowing the sub-tiers and being able to very early on manage these issues.
So if you look at, for example, most companies, so the industry standard essentially is that within 10 years, you approximately use lose 42% of one year’s EBIT to supply chain disruptions. That’s from a survey that was done by, I believe McKinsey, and it’s a very sophisticated evaluation, I think, with more than 1000 companies, and 42% of 10 years means, per year, 4.2% of your EBIT is lost if you don’t manage your supply chain risks properly, and that can be a lot, a lot of money. So the value is definitely there. And 50% of that value comes from the sub visibility.
There’s obviously more to it. In the end, where does the 4.2%? That can be 10 millions, 50 millions, where do these come from? It is reductions in air freight, it is production outage costs reduced, it is better on time delivery performance, less penalties, higher customer satisfaction and retention. There are many different factors that contribute to that, but you should always start from a high level, which is 4.2% of your EBIT per year is lost if you don’t manage your supply chain risks properly.
Thank you. The next question, do you think more regulations will require sub-tier visibility?
Yes, obviously. I do believe most of the regulations that currently are in flight are not aware of the potential that AI brings on mapping sub-tiers. So essentially they’re already demanding something from companies, although they think it’s a big burden, a bureaucratic burden, to build up that sub-tier visibility. But still they understood the importance of having that to essentially minimize the impact the human has on the planet. And let’s face it, supply chains are a big problem in that regard right now. And we all can change it, which is great. We are in the right place at the right time, we can make things happen. So regulators already think it’s a big burden, still want it. More laws will, once they identify that AI can really help solve that issue, it’s getting faster to do, it will only increase. The stringency will increase, the demand will increase, and it will be core to everybody’s business to know their sub-tiers. There’s no way to avoid that, essentially.
Great. Looks like we have time for one or two, so I will check through the list. Can you get disruption alerts from sub-tier suppliers? Wouldn’t that be a lot of noise?
You can get alert for sub-tier suppliers and it depends on the risk category and the severity and then also an accurate filtering to make sure it’s not noise. Because noise is not what you need, obviously, nobody needs noise. So it’s important to tune the context engine, the filtering, in a way that it makes sense for your business. And for sub-tiers, we currently decided to only activate bigger scale alerts that can affect a lot of suppliers at the same time, or alerts that directly bring an outage potential to the whole supplier. So for example, a fire, an insolvency, or cyber attack. And otherwise, we recommend to not go for alerts, but these categories we think are fundamental to make sure companies can save money. Because again, 51% of the value of managing supply chain risks, which probably is why you’re all in this call today, it comes from knowing the sub-tiers and then managing risks in the sub-tiers. So completely avoiding alerts is not the way to go, but providing meaningful alerts that really matter, because again, you have to have the relationship, you have to invest in the relationship and then you have to also enforce your relationship to make sure that stuff is happening in your favor once an alert happens, it needs to be a big event so you would go down that route. So we recommend to only look at big events.
Great, thank you. Time for one more. So question, how long does it take to generate sub-tier results?
In general, this can take a few weeks and then first sub-tier results are there. It’s always good to essentially, because it is AI and we validate it with experts and humans, the more time you give us, so if you demand something in three weeks, a result might not be as good as if we have a little bit more time to digest the information and leverage it properly. So five to 12 weeks is way better for us, and I would also recommend to see it as a journey of building that up. So the first batches are mostly a little bit slower, and then afterwards it gets faster. But again, we recommend to do it in certain batches, just to not overwhelm the organization with too much information, make it digestible, once we have data available directly, look for use cases, maybe some of those I just showed look for successes where we can identify something meaningful, communicate the success in the organization, so they’re getting hyped about what they might expect in the future when they see their sub-tier results and they can already think about how to leverage that in the future.
Okay, great. If we can squeeze in one more question that just hit the chat. How can we determine what makes sense for our business without knowledge of the sub-tiers of impacting our business? So I think this is a question around the crawl, walk, run, Ulf, what’s the right approach?
Exactly. So I totally agree that this is a problem, a conundrum, if you want to say it, but we believe if you start looking at your tier twos first and there go more into a more broader scale approach and then deep dive from there into the tier threes and tier fours, you probably have the best shot in creating very good value for your business. Because the tier twos are something we can still directly influence, being broader there helps the business for sure, and then diving deeper from there into the tier threes, tier fours, and so on is then easier because you already know about tier two bottlenecks, for instance. And then from there you can dive deeper, if you see a bottleneck, that’s very easy use case to do. But you have to start somewhere. Essentially you have to start somewhere as the idea, and today we wanted to present our suggestion on how to start.
Great. Thank you, Ulf. Thank you for the presentation today. If you have any additional questions, you can reach out to [email protected], but our team will be making sure that you get the recording and offer up some follow-up resources, a white paper that Ulf put together that helps support this crawl, walk, run approach to achieving strategic visibility in your sub-tier. So we’ll make sure everybody gets a copy of that. With that, we will end the session. Thank you so much for attending and have a great day.