Helene Laffitte:
Welcome to Procurement Game Changers, the podcast for procurement leaders that make a difference. Today we’ll be discussing how to build a resilient supply chain network in the context of emerging risks. That’s why I have the great pleasure of receiving Soumava Laha. Soumava is the CIO executive vice president sourcing and business transformation at Yokohama Off-Highway Tires, a tire manufacturer specializing in off highway businesses such as agriculture, forestry, construction, mining, et cetera. So Soumava have 30 years of experience in operation, supply chain and procurement activities as well as in business and digital transformation. We are glad to have you with us today. Welcome to the show, Soumava.
Soumava Laha:
My pleasure, Helene. It feels great to be offered an opportunity through this platform to share my thoughts and perspectives on a topic which is very germane, I believe, in the context of the volatile, uncertain complex, and ambiguous business environment we are all operating in.
Helene Laffitte:
Oh, absolutely. So before we start into this exciting topic, could you tell us what led you to procurement?
Soumava Laha:
Thank you for that question. So before I get into that, what led me into procurement, let me give you a context in terms of what I’m accountable for at Yokohama Off-Highway Tires, the company that I am employed with right now. I am accountable to develop and lead the digital transformation roadmap and journey for the enterprise besides being accountable for the sourcing and the procurement functions at the global level.
Throughout my 30 years plus professional experience, I’ve been privileged to contribute a lot of value in the end-to-end supply chain. The end-to-end supply chain piece covers the entire gamut of backend manufacturing to the entire supply planning, execution, and procurement is a very integral part of that. I had the privilege of contributing to the business from a front-end perspective as well in the capacity of leading B2B Key account planning in one of my prior engagements
I had been responsible for sourcing and procurement roles as well in my prior assignments.
Hence the role at Yokohama from a procurement standpoint is not new to me. But what I like about this role, which addresses to some extent your question, is the opportunity this role offers to create value in terms of top line and the bottom line given that procurement contributes to the single biggest spend or the cost line item in the company’s P&L. And the function over the years has gained recognition as a value center rather than just being a traditional cost center. And if you look at this in the light of the last three years in terms of the significant supply chain disruptions that we have seen, the function has always been under spotlight.
Eco system partnership , end to end digitalization and environment , social and governance are the key themes associated with the procurement function and is gaining significant traction over the past few years.
Helene Laffitte:
And everything you said, I totally relate to that. And there’s one thing also that’s interesting about your profile that it’s uncommon knowing that you have of course that procurement background, but you also have some digital slash IT knowledge that makes sense now that you’re working on digital transformation and procurement. But that’s unusual to see those two skills together today.
Soumava Laha:
Right. No, that is again a great point. I have been faced with the same question very often these days .
There are three distinction functions that I am accountable for. The first one is procurement and the sourcing piece. The second piece is the technology piece, explained by my title CIO. And the third piece is business transformation.
If you take the technology and the business transformation pieces and integrate these two functions you can synthesize these in digital transformation.
And the second piece is the procurement. This is precisely one of the main reasons that I was excited with the role at Yokohama, where you bring in multiple skill sets while continually learn and upskill yourself.
And the technology and the business transformation role stems from the fact that during my prior engagement where I was running the Supply Chain For the Asia Pacific Region for Goodyear Tire Management Company based out of Shanghai, I was privy to multiple technology applications in the supply chain area and also in the business transformation area.
But procurement and sourcing from that standpoint, is more of an Operations role, but for sure has elements of strategy. On the other hand digital transformation by the nature of the role is purely strategic .
Helene Laffitte:
Yeah, absolutely. So let’s go back to our topic today. So we all know that a resilient supply chain is crucial to a successful business. But what if you had to address the risk of an evolving and unpredictable climate? Many procurement leaders may feel overwhelmed during this new context trying to juggle multiple tasks while staying on top of emerging risks. Today we will try to untangle the complexities of creating a resilient supply chain network within an environment that’s hit by both expected and unexpected emerging risks. With a hint of wit, I hope, and plenty of good advice from veteran procurement leaders, this podcast will show you how to stay one step ahead. So ready? Let’s go. We’re going to start with the basics. What is a resilient supply chain network?
Soumava Laha:
Going back to the basics is always the right way of addressing what is the problem that we are facing into. So before I address what is a resilience supply chain network, let’s first align ourselves on the definition of resiliency. Resiliency to me is the ability to resist, absorb, and recover, to deliver acceptable level of performance in an acceptable period after being affected by a disruption.
And if you look that in the context of what it means to a supply chain, a supply chain network which exhibits the aforesaid traits which I just articulated, is known as a resilient supply chain network. And what are the characteristics, if you may, of a resilient supply chain network? So a resilient supply chain network has a good visibility of the end-to-end value chain, both upstream and downstream.
Point number two, resiliency is considered as an investment. This is a very key word. It is not viewed as a cost or an expense. It is an investment for future sustainability. Point number three, the resilient supply chain network has the ability to conduct scenario planning for trade-offs across the network. So there are a lot of scenario plans which are being generated. What if plans to pressure test, to do the different types of stress tests. And last but not least, a resilient supply chain network can shift their sourcing, manufacturing, or distribution within the network fairly quickly. Because if you are down in one manufacturing locations, how quickly to protect customer service, you can change your tooling or you can move your tooling dials and start the production in a very seamless way into another manufacturing network if manufacturing network has the capability to deliver the customer need.
And the measures of success. So any definition goes incomplete without defining a measure of success. So the way I look at it from a measure of success of a resilient supply chain network, there are two measure of success. One is time to survive, and the second is a time to recover.
Helene Laffitte:
All right. So why is Resilient supply chain so important?
Soumava Laha:
The question is very germane in the context of an investment because when the companies are investing in a supply chain resiliency, so there must be something for them. So a resilient supply chain network is in a relatively better position to succeed in a VUCA world, volatility, uncertainty, and complexity, and ambiguity, which is the new normal. It helps the organization on the dual path of response and recovery given that new crisis will continue to appear.
And on this note, let me tell you, there was a recent McKinsey study which was conducted I think last year, I don’t recollectthey did a lot of modeling based on historical disruption and they inferred that disruption is going to continue and it’ll happen with a frequency of six to eight months period .
And when it happens, it is going to last for maybe 15 days or a month or 45 daysand if organizations are not prepared, it can rob the company’s bottom line over a period of 10 years how much a company earned in one financial year. So that is huge. So that is the reason it is so important. So organizations and businesses enter phases at different times, and most importantly due to the scale of disruption, the timeline extends through years. So coming to your question why it is important, the benefits are very simple. Anticipation benefits. Resilient companies anticipate their issues, early warning signs. You cannot future proof or fail proof of your business, but you can anticipate. So anticipation benefit is one. Impact benefit. So when you are impacted by a disruption, how well you are able to sustain that impact? And then recovery, the time to recover, which I mentioned. And the most importantly is the outcome benefit.
So when you are impacted by a disruption, you are able to sustain that disruption for a longer period of time and then you are able to recover quickly. And at the end of the day, many modeling has shown the companies who are resilient, they come out of this disruption much stronger and from a total shareholder return perspective, they have delivered a higher total shareholder return than average companies
Helene Laffitte:
In a recent context with some disruption or you have the COVID crisis that we have the war in Ukraine, and there are more that will be coming, I imagine taking what you just said, that a company that has already a resilient supply chain network will be able to first, be less impacted by the crisis because they have at least partially anticipated what’s happening, and then they’ll be able to keep the league affordable when the crisis going on. And then when they realize that it’s going to continue because that’s what is happening with these two events that are much longer than crisis in the past, is that they just are able to shift faster and sooner than others and they’re taking an advantage towards competition in their field. Is that correct?
Soumava Laha:
Absolutely. I think you summarized it very well. That creates a source of competitive advantage. And it doesn’t come for free. It is an investment that the company chooses to make in terms of how they’re developing a resilient network. Because one thing we need to be keeping in mind, there is a difference, and the difference is not subtle, between business continuity and resiliency. Business continuity is more reactive. So you’re hit by a storm, and then you scramble your way through business continuity measures, protocol, toolkits, and all. But resiliency is being much more proactive and seeing that the storm is developing and preparing yourself when the storm finally lands and makes a landfall, then you are able to recover and sustain your operations, and when you come out much more stronger than we were before the storm hit you.
Helene Laffitte:
So now we understand why it is and why it’s important. Let’s go onto how to get there. What are the prerequisites for building a resilient supply chain network?
Soumava Laha:
Excellent. Absolutely. I will try to lay out an approach based on multiple research and thesis papers that has definitely articulated this in a much more eloquent way. But the approach is definitely not exhaustive; many companies approach it in a different way. But some of the factors worth considering in developing a resilient supply chain network, number one, multi-sourcing. So people have told that, “Okay, the just-in-time days are over. So you have to switch to it just in case. The legacy supply chain models have been designed on production efficiency and cost, and everybody looks at a single source to get the maximum advantage from economics of scale.” But multi-sourcing gives you the advantage of switching to alternate qualified suppliers or to secondary locations which might be used by existing suppliers. So if your supplier base is global in nature, for example the same supplier, has multiple facilities across the globe, maybe one part of the globe or one facility let’s say as an example in Asia is impacted by some disruption, then you can switch your suppliers for the same parts but maybe from a Mexico facility and continue your operations.
So multi-sourcing is definitely one of those. The second is, and this is the term which we are hearing very loud and clear during the COVID time, nearshoring. So reshoring and nearshoring. Reshoring is that you lift and shift from far flung locations your manufacturing or supply base and try to do it all inside your country where your manufacturing is located. And nearshoring is located near from a geographical proximity to your manufacturing base. So nearshoring is, it can be regionalization and it can be localization of supply chains closer to the point of demand generation to gain speed and control. So that is point number two. Point number three, which is very internal to the company, they call it platform product or plant harmonization, which means that great companies, their processes, their products, and their standards are very harmonized across the entire value chain.
So that means if one manufacturing facility is down and there is a part or a production or an SKU that has to be manufactured to deliver a customer requirement, they swing the tools and the molds across the other plant and the other plant can hit the ground running without going in for a qualification process and all. So designing standard parts and components across product range drives opportunity to source from multiple supplies, that is more from the platform harmonization standpoint, and when your manufacturing processes are very harmonized, then you can leverage your common manufacturing footprint across your end entire network. So that will be the point number three. The fourth approach can be a manufacturing network diversification. Now, this can be an expensive one because let’s say you are a single manufacturing location company and all your manufacturing is at one location and when that manufacturing location is down, then you are left with no choice in terms of servicing your customers. So you need to consider diversified manufacturing locations.
So if you look at the situation in China, so many companies are taking a strategy that China for China and maybe in other manufacturing locations like Vietnam, India, or Southeast Asia, they will use those manufacturing location to cater their global needs or their regional needs and China will be for China. So manufacturing network diversification can be one approach. And the next approach can be ecosystem partnership, and there is no substitute to that. So people will tell, “Okay, now that slightly contradicts the multi-sourcing strategy ” but regardless of multi-sourcing or not, you need to develop strong relationship with your strategic partners. You need to segment your supply base of gold suppliers, platinum suppliers, silver, and so on and so forth. And those who are in the top tier, you need to get into an ecosystem partnership with them because they’re bringing huge value to the company in terms of their technology leadership, in terms of the process leadership, or for that matter where you can piggyback on them in terms of designing something from scratch.
So ecosystem partnership is an important approach. And the last button not least, which is a bit of a tactical and which can be expensive also to meet the surge capacities, is building an inventory or capacity buffer. So there are two parts, inventory buffer and there is a capacity buffer. Inventory buffer means that when something is anticipated to be in short supply, which a great example was a semiconductor disruption which has happened over the last two years in the automobile area and that is current going to happen I presume for the next year as well before new capacities come on stream, so many automotive companies, they have increased their inventories of semiconductors so they don’t run out of stock. And that is done for a period of time till the time the disruption is there. But it can be very expensive because capital is not cheap this days or they boost up their additional safety stock.
The second can be the capacity buffer. For example, if you are designing a manufacturing footprint, sometimes the habit is that usually the companies do the capacity and do the capital planning based on what exactly the market needs. But during that time of designing, many great companies have started to realize that designing a buffer capacity, which is called five to 10% buffer, so in case there is a surge in demand, you can have that physical footprint and infrastructure. To cater, the only thing that you might need is a bit of a manpower adjustments to meet that. So these I tell you is not very exhaustive from the standpoint, but these are very holistic in nature in terms of some of the prerequisites of building a resilient supply chain network.
Helene Laffitte:
Yeah, absolutely. So from what I hear there are two main things that will lead to all those different options. One is that strategy and thinking in recognizing that you need to build a supply chain that is resilient, and that’s the first step that we want that, it’s important to us. And then the willingness to invest because everything you said comes with a price and of course there are rewards if there is a crisis. And based on the McKinsey study that you mentioned, there will be crisis. So it’s a good business decision to be willing to anticipate, but that is not always the case in all companies. Some companies tend to try to streamline it and be at the bare minimum in terms of investment, especially in areas that are not necessarily considered as bringing a lot of value, even though that’s not the case, we discovered that before, but procurement and supply chain are often seen as, I wouldn’t say commodity, but just a support function that is. But now let’s go back to the risks. What are your opinion the emerging risks that would have more impact on the supply chains?
Soumava Laha:
Absolutely. So look, risks will manifest in multiple known and unknown dimensions. What I told is known and unknown because the knowns are definitely which we have encountered in the past. If you look back at the last 100 year world’s history, the world has seen pandemics, war, famine, natural calamities, financial disruptions, depressions. And then the cybersecurity piece also. But there are a lot of unknowns. We know what we know, we don’t know what we don’t know. However, in my view, in the near term the risks will continue to manifest in terms of inflationary trends, which is the energy price volatility and associated demand shocks, geopolitics is turning out to be a big risk from that standpoint. And today the third element of risk which we are seeing on the horizon, whether you are seeing that the recent cold wave that swept the northern part of the US and the east coast and Canada and many places, the impact of climate change. And you can see that in Asia also the one third of the country in Pakistan, which was absolutely deluged from that standpoint.
So impact on climate change today appears to be have a moderate impact, but on the longer term this is going to be very big. Then not to mention about cybersecurity and pandemics. So for sure that list is not exhaustive and you can color code this from a red, yellow, and amber, and tell that, “Okay, what are the immune risk?” If you characterize 2023 like the way we know, definitely recessionary trends, inflationary trends, geopolitics will loom large on the horizon. And if you take the horizon beyond 24 and 25, definitely cybersecurity, the threat of another pandemics, fingers crossed it shouldn’t happen, and definitely the climate change. So that is the way I would characterize based on what we see and based on our knowledge on the ground.
Helene Laffitte:
And I think to your point is that even if they’re coming in a few years from now, we can already start working and anticipate and mitigating. And actually that’s my next question is,
How do we anticipate and mitigate these risks?
Soumava Laha:
So look, there is no silver bullet from that standpoint. There’s no one single answer. It is a question of a holistic approach. And the elements… Look, risk as a subject to start with was not in the radar of all supply chain professionals because if the sum total of all the jobs of supply chain into different tasks was 100 in the good old days and 95 was predictable in terms of the cause and effect relationship, five was variable. But today it has just swung the other way around. 90% is completely unpredictable and 10% might be predictable from the standpoint and there is no relationship between cause and effect, which becomes very chaotic. So risk management and employees and companies have paying a lot of attention to the risk management part of it, and in many companies they are appointing chief risk officers, sustainability officer, and so on and so forth.
So how to anticipate and mitigate these risks coming to your questions. So I think the first thing what we need to look at, and this has been accelerated after the pandemic, is double down on data and technology. So data is the live wire. So people tell that oil has been the live wire of all centuries and oil definitely continue to be that from the point of mobility and all. But data is more important. So COVID has clearly shown that you can survive without oil, because nobody was moving, everybody was immobile and everything was shut down, but people could not survive without data. So double down on data and technology because that gives you an end-to-end visibility of your value chain. Second is the mind shift and the behavioral change from just in time to just in case, because as I was articulating at the outset of this conversation that the legacy supply chains, and that served well for all companies the last 40 years, it was designed for production efficiencies and cost.
But that model is being questioned right now. So people are moving their mindset to just in case. Third is how do you diversify your supply network, which we talked about some of the prerequisites, whether it’s manufacturing network diversification, or supply base, or your platform harmonization and so on and so forth. The fourth element can be, how do we invest in sustainable business models? And this is a big subject, it’s a very strategic subject and it is a long run subject. Sustainable business models can allude to a circular economy, it can allude to different ways of serving the customers. It can have your different revenue options on the table from that standpoint. And the last but not least is the favorite topic of mine, is capability building from a people standpoint because talent management is the key. I always believe the biggest source of competitive advantage in any company is its people. It’s not technology, its not it’s product, but it is people.
So how do you build a skillset set that will help employees in key parts of your business respond well to changes? And some of the skillsets worth considering is a digital savviness, cognitive skills, your ability to think through complex issues, your reasoning abilities and so on and so forth, social emotional skills, and adaptability and resilience. So we talked about resilience. So what are the resilience of the mind and the body in terms of the employees? So that I would see as some of the ways you can anticipate and mitigate this risk. And get me no wrong that we are not prescribing a medicine for future proofing your business, it is how you are better prepared to manage those risks.
Helene Laffitte:
No, yes, absolutely. And I think you’re right on the people part. We’ve discussed that before that the role of supply chain and procurement was changing, and the change is going to accelerate and we need to anticipate what people we want in those functions in order to be able to absorb that change on top of everything else that’s happening. That’s the predicted changes, and then you have the unpredicted. But I think people, counting on people is key here. So do you see some specificities on that front of the emerging risk for the Asian Pacific region or not, actually?
Soumava Laha:
No, that is a great question. So look, the world economic order is gradually changing over a period of time, now, I’m not an economist but what I hear and learn, the world economic order is shifting from that standpoint. And the Asia Pacific region is a conglomeration of developed economies and developing economies. What I meant by that, developed economies you have one side Australia, New Zealand, the Pacific countries, and then you have Japan and Korea and Taiwan and all. So there are definitely the developed countries from the standpoint. And the developing economy is definitely led by China which is the second largest economy. And then you have the India and the Southeast Asia. So it is where the center of gravity from a supply chain is gradually shifting from the standpoint. Now, one can tell that yes, there are de-globalization efforts going on and now to what extent that will change this balance of Asia Pacific’s role, that is yet to be seen.
But Asia definitely will continue to play a role and China will definitely be always a bit of a center of gravity. Now, given this geopolitics that is going on from their standpoint, it’ll be very interesting to see how from a geopolitical risk assessment perspective, the global companies who are based in Asia, what will be their strategy from a sourcing standpoint and from a manufacturing standpoint? Because if I look at companies like Apple or all the automotive companies, the German based companies or the BMWs and the Mercs of the world, they’re trying to approach this, “Can we have China for China, and can we relocate our manufacturing for global sourcing in other parts?” So China plus strategy from a geopolitics can emerge from that standpoint and that will be very interesting to observe, and that can change the equation from what we have seen in the last 40 years. But otherwise, the issues and the approach, what we discussed, Helene, will be fundamentally geography agnostic, barring this geopolitics and the role of China. That is the way I see it.
Helene Laffitte:
Yeah, I think I agree. And to your point on de-globalization, I think that with the crisis in Europe, and I can talk about Europe obviously more than other regions, the countries have realized that they need to have some autonomy in those key products such as medical drugs and some also high tech products. And I think we will see a shift in a way. But as you’re saying, I think that a lot of companies are global and will continue to work globally. And that won’t change the fact that Asia will soon be the place where you have the largest economies in the world. Just because when you are so big and you are growing, ultimately you will become number one. That’s something that is going to happen. We don’t know when exactly, but that’s going to happen.
Soumava Laha:
Absolutely.
Helene Laffitte:
So that’s super interesting I think to see. That’s the first time that we see the perspective from another angle to a problem that is obviously global. So if there’s just one thing that you would like all listeners to remember from our conversation, what would that be?
Soumava Laha:
Oh yeah, so that is a tough one, but let me try to take a stab at it. So the way I look at it is that disruption is a new normal. It is not an exception. So the one thing I would like all of the audience to take away is that to thrive in this VUCA world, companies need smarter, faster, and more agile business operations and business models. That requires big changes and commitment from the top of the organization. That would be one thought that I’d ask all the audience to take with.
Helene Laffitte:
Yeah. And that also means that its going to be exciting at the same time.
Soumava Laha:
Absolutely. Because that’s why doing the straight line things… So things are not straight line that we see in your ECG graph when you go for medical checkup, if things are straight right then things don’t move and then something is wrong. So things will not be straight, you cannot straight line the past, neither you can future proof. So it’ll be challenging times. But the companies who are better prepared, the companies who take different approach and approach things differently, not doing different things but approaching things differently, that companies can create a source of big competitive advantage for them.
Helene Laffitte:
Wonderful. And that’s the word of the end. Thank you, Soumava, for your time and your insight. That was extremely interesting. Thank you.
Soumava Laha:
My pleasure. Thank you very much, Helene. Thank you.
Helene Laffitte:
So now it’s your turn to tell us about your experience and your challenges when building a resilient supply chain. Don’t forget to subscribe if you want to be notified when a new episode is out.
Thank you for listening and I hope you enjoyed this episode. And if that’s the case, don’t forget to give this a thumbs up. So happy sourcing to you all. Bye and Au revoir.
PS: To listen to our previous PGC episode CLICK HERE!
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