How Can Agility Redefine Supply Chains in This Time of Economic Uncertainty?

Marc Engel: Hello, everyone. We are going to be talking about agility in the face of economic uncertainty. I am joined by Javier Varela from Volvo Cars, Mario Rivera from CVS Health, and Jiahui Yin from On Running. And the first question for you is, what is in your supply chain? What in your supply chain is the most pressing economic issue right now, the one that is either keeping you awake at night, keeping you busy during the day, or both?

Jiahui Yin: Hi, everyone, I am Jiahui. I’m from On Running. We are a sportswear company based in Zurich, Switzerland. I would say, over the last two years, there were many, many pressing issues on all of our tables, running operations, or supply chain. I would say, right now, there’s the bigger topic of geopolitical risks that could actually burst out at any time. Our industry is heavily reliant on OEM. A lot of our production happens in Asia. Even if your production is not in China, you still have materials or parts coming out of China, that’s pretty much in everyone’s supply chain. There’s always also the topic of labor shortage and how much you’re dependent on labor.

Marc Engel: Now, Mario, we hear from a lot of our community about how we need to be more agile and more prepared for uncertainty, volatility, etcetera. Now, you’re in a mix of health and retailing. How have you become more agile in the face of economic uncertainty? What does that mean for you?

Mario Rivera: Absolutely. First of all, thanks for inviting me. I’m Mario Rivera, and I’m responsible for supply chain and logistics within CVS Health. Most people know us as a retail pharmacy company, but we’re much more than that.

The best example I can think of is some of the investments that we’re starting to make to modernize our warehouse management system. I think that’s probably one that is very easy to relate to, very pragmatic for anybody that works in supply chain across industries. We’re modernizing our warehouse management system, moving from on-premises, so more the older school warehouse management systems, to cloud-based technology. And we think that that’s really going to allow us to better connect inventory placement across our distribution centers and also be able to move and respond faster to demand changes to place the inventory across our 10,000 stores. We’re just getting started on that journey, but we’re confident that it’s going to really help us with agility.

Marc Engel: Thank you. Javier, just coming to you now on digitization and tech solutions. ChatGPT and AI, for example, what is actually going to be the game-changer of all this digitization and tech to becoming more agile in economic uncertainty?

Javier Varela: First of all, thank you for having me here. I’m Javier Varela, Chief Operating Officer at Volvo Cars, a company with a clear purpose that is providing the freedom to move in a sustainable, safe, and personal way.

The world around us is changing, of course. We are in a new tech stack, moving from ICE and combustion engines towards full electric. We’re moving to autonomous cars, to core computing, to connectivity. All the cars are connected, and I will not name all the technologies that are coming into the cars, but something very important that supports all of these technologies is data. AI and data analytics will be the new enablers for getting to different levels, levels, and uses we haven’t identified yet. Some of them have been identified, but I think these things are going to make a big difference.

Marc Engel: Your cars need a lot of semiconductors, and there’s been a lot of disruption; semiconductors need a lot of software engineers, and there’s a lot of disruption in the supply of software engineers. You’re managing the supply chain of your company. How have you been doing that? How do you make sure that people can still get cars and cars of the right spec?

Javier Varela: We have a clear strategy and clear ambitions. In 2030, we want to become fully electric. We will produce and sell only electric cars. In 2040, we want to be carbon-neutral in all of our operations. We are transforming our supply chain to be lean, green, and digital. And it’s true we have had some bumps in the road, but we are not changing our strategy. Our focus is there.

Those bumps in the road, you mentioned some of them, but I will start by talking about the pandemic. In the last couple of years, we have been suffering from that issue. For example, last year, in China, Shanghai, a 25 million people city, was closed for two months. We have had semiconductor scarcity, semiconductor shortage. We have had logistical concerns.

We have had the war in Ukraine. The day after or a few days after the war started, raw materials went through the roof. Raw materials, in some cases, very rich, in the battery vehicles. And despite that, we don’t change course. We stay on course, we want to be electrified.

So, how do we deal with those issues? Being lean, green, and digital in the supply chain helps. But what helps as well is having teams that are really engaged, that work cross-functionally, that are able to keep that course I was referring to, but at the same time, are solving problems in real-time.

Other formulas and solutions include establishing relations with suppliers, key suppliers above Tier 1. Upstream, but also beyond the Tier 1 suppliers. We learned that with semiconductors. Before, we only had relations with Tier 1. Now we are securing capacity, and we are having discussions, operational and tactical discussions, with the semiconductor suppliers.

The plants have learned how to adapt to be much more flexible in terms of changes to the production mix. Logistically, too, we have learned how to handle different components in record time and adapt the value chain in a different way. So, those are some of the secrets, but I want to highlight the importance of people. Good leadership, good management, engagement, going the extra mile to secure production and to secure deliveries. In this case, it was on an almost hourly basis.

Jiahui Yin: We don’t use semiconductors in our footwear or garment, but I think it’s a very good example in terms of building agility throughout supply chain. I totally agree with Javier, in the end, people are the most important thing. One thing that doesn’t change in supply chains is that there will be disruptions here and there. There will always be unexpected demand and fluctuations. So, having a team that is ready for that change, that agile mindset is probably the most important thing.

But I think it is super important that we don’t forget about this data and make sure that you’re aware of when disruptions happen and what the potential implication is. This relates back to what you shared about how CVS is trying to move inventory data to the cloud rather than keeping it on the premises. This is so you’re able to have better transparency and connection, to actually understand what’s happening, and to be able to communicate that change, either with your suppliers trying to secure more capacity or with your customers in order to manage their expectations. I think that’s very important.

Obviously, then there’s also the content piece in terms of how you can get more capacity from your suppliers, shorten your lead time, make it leaner, and also make contingency plans. I mean, a bit like automotive, every single pair of shoes is probably composed of a hundred components. So, you have your bill of materials, you know where each material comes from, but then you also need to have a plan B for everything in case something falls out. And when disruptions happen, how do you quickly activate your plan B to make sure that you can resume as much as you can? So, I think that these are all important components, but semiconductors were a very big and extreme example, but small disruptions happen all the time. That’s part of our lives.

Marc Engel: True, true.

Mario Rivera: Yeah, I couldn’t agree more. And what comes to mind is we talk a lot about consumer-centric supply chains. Many companies are moving away from this cost-centric environment and treating their supply chains as a back-office cost center and really seeing it as a strategic enabler, which is really what we’ve been all along. But I think the pandemic just exposed that.

But one of the things that we’re being very intentional about at CVS Health and something we’ve had a lot of discussions around is, for us to become consumer-centric, we need to put our colleagues at the forefront. If we’re not doing it through the lens of our frontline colleagues, it’s going to be very difficult for us to ask them to take care of customers. So, it’s going to that lean CI mindset that I know Javier is also very familiar with, which is: if you take care of your team and you consistently demonstrate that behavior, they will help you take care of your customer.

And in the long run, that should translate to better shareholder outcomes. And so, we’re trying to be very intentional at CVS Health, at putting our colleagues first, our pharmacists, our technicians, our front store colleagues, our DC colleagues, our transportation colleagues, really making sure that we’re going above and beyond in any way that we can, to make them feel like they’re at the center of what we do. I’ve learned this throughout my career, not just here at CVS Health. Sometimes we get into the false narrative that technology is going to be a proportional negative to the team. And what I’ve seen is, yes, that’s the case when it’s done incorrectly. You need to do it the right way, which is, as Javier mentioned, people, process, technology, in that order. You prioritize people, then you focus on having the right process foundations, and then technology is there to assist in that process. It’s there to assist the team members, to assist the associate, and then the colleague. And when you do that, then you inspire trust in your colleagues because they see that your endgame is not to invest in digital technologies or automation or whatever you’re investing in; you’re doing it to help them. So, it’s a fine balance. It’s not easy to do, but if you do it through that lens, I’ve seen throughout my career that it leads to much better outcomes.

Marc Engel: I want to stay with you for a minute and shift gear a little bit. The QR code is definitely something that the citizens of the world have embraced since Covid. I know it was popular in Asia before, but since Covid everybody’s become very used to the QR code. You can order your food, and you can scan whatever, etcetera. It’s been a consumer behavior change since the pandemic.

If you look at your business, what has been the one consumer behavior shift that has changed demand or the way they shop? What’s the single biggest thing that has had the largest impact on running your supply chain after the Covid crisis?

Mario Rivera: I think Covid, in my opinion, just exposed some of the fractures, the cracks that were already there, in many industries. And it was very difficult across industries for us to respond to a crisis of that magnitude. There was no system that predicted what was going to happen to that extent. I’m going to focus more on the retail part of our business or retail pharmacy. This accelerated move to online, to e-commerce, when we were in lockdown, those companies that already had a great digital platform to assist their consumers were better off than those that weren’t.

We’re very proud that we were able to move swiftly. My colleagues, my peers at CVS, really did an amazing job at stepping up and leading the country’s response to the pandemic and leading with 78 million plus vaccines and 58 million plus Covid test kits and counting. And that built a lot of trust with the consumer because they saw how we had to mobilize. To me, it was very inspiring and one of the reasons that I decided to join.

But now, as we went into 2022 and things started to get back to normal to some extent, what we’ve seen is a shift from the consumer, where they want more of a little bit of everything. And so, that same consumer, one day, may be interested in buying in-store and going to brick-and-mortar. And so, for those that said that brick-and-mortar was dead ten-plus years ago, I think, clearly, they were wrong.

Some consumers still want to buy in-store, and I think the pandemic, after the long lockdown periods, caused that value to come back to consumers’ minds where they thought, I really miss shopping in the store. And then that same consumer may go the next day thinking, I’d rather buy online and just pick it up in-store. And then still, because of the pandemic, of course, now we have consumers that are more and more used to ordering online and expecting a home delivery directly at their doorstep.

So, we’re making a lot of investment. Our digital teams, our merchandising teams, our marketing teams are fantastic, and they’re doing a wonderful job at trying to strike that balance so that we can provide that omnichannel experience. And one thing I’m proudest of, obviously selfishly, is that our supply chain and logistics team is behind it. We’re the engine behind that. If we’re not moving the product where it’s needed, then all the other things fall apart. So, it’s been a really good cross-functional collaboration in 2022 and into 2023 already.

Marc Engel: Excellent. I want to go back to you, Jiahui. You’re in sportswear. Where is the consumer in all of this? Do you see a role for tech and digitization in accelerating that journey? And if so, how?

Jiahui Yin: There’s a massive lack of data transparency, and then how do different players along the value chain communicate in terms of the decarbonization effort? This needs to be a joint effort. The IT tools that people are using, of which there are some out there, is it enough? I don’t think it’s enough. And also, the awareness is not there. So for sure, I see a lot of things where we need the assistance of tech and tools. One example, a single piece of garment or a pair of footwear probably has five layers of supply. From the Tier 1 supplier who put the shoe together to the one who is eventually harvesting cotton in the field, very few of us even know who are our Tier 3 or 4 suppliers. And how can you actually calculate your Scope 3 if you don’t even know who they are?

And there, you really need good tools to help map out our supply chain, audit the supply chain, and also record data. And then to be able to report and consolidate data. Currently, in the whole Scope 3 calculation carbonization talk, there’s a lot of either double counting or miscounting in the accounting of carbon as well along the whole chain. So I think, eventually, tech has to play a very big role in bringing transparency and making it easier for people to even report and talk about this.

Marc Engel: Javier, you are a thirty-year veteran in the automotive industry. How do you keep your own agility up? How do you reinvent yourself?

Javier Varela: I appreciate the question. Not a dinosaur, but absolutely. The industry is changing not only the product but the ways we are producing. So, you need to be extremely curious. Start with that, being curious, and I’m curious. I love learning, investigating, understanding, and sometimes stripping down stuff to understand more. I’m passionate about lean management, and I’ve lived with lean management for a while, and there’s something in lean management called going to the gemba. So go where the action is happening. And I think that has an enormous value, to learn.

You can help the teams by coaching and asking the right questions, but you can learn as well. Yesterday in one of the huddles, we had a fantastic discussion about reverse mentoring. So, how top management can learn from the teams as well, being up-to-date and being able to have the right discussion when it comes to completely new technologies.

Marc Engel: If you could turn back time to 1st of January 2020, with all the knowledge, what would happen? What would three things would you have done differently?

Jiahui Yin: Really, when I look back, there are probably not a lot of things that I think we did wrong per se in the last couple of years. A lot of tough decisions, a lot of it people-related. Small finetunes here and there. If you knew there would be fluctuations, the market calming down, the market could be going back up, there are things you could have optimized. But I feel like, overall, it’s just really believing things will always work out and humanity always win and really believing in the team in the future. I’m happy not to go back to 2020.

Marc Engel: I can imagine, I can imagine. So one word, everyone, what’s next?

Jiahui Yin: Better future where people move more and run more.

Mario Rivera: One word is tough. The reason why we’re here in this forum, to me, is very inspiring. Talking about climate change, the biggest challenge is, in the short term, stabilizing our supply chains and fully recovering from the pandemic. But in the medium and long term, it is really committing to bold action and moving the line on climate change.

We have a big opportunity, as industry leaders, to really influence that and not rely on others to make that happen. Not to be sentimental, but I think about my kids. I have a fifteen-year-old son who’s awesome, my son Mario, and my daughter Natalia, who’s twelve and is awesome. I want to spend more of my time in the rest of my career being intentional about moving the needle forward on all things climate change.

Javier Varela: If I see it from the eyes of the car industry, I would say that the future is electric, and we are contributing to that through our sustainability ambitions and saving people, saving the planet, is one of our big efforts that we are doing every day.

Marc Engel: Well, thank you, everyone, for joining. I thought it was a very enjoyable discussion. Thank you for your passion, for your leadership, for your candor, for your authenticity. I think this is very clearly what supply chain leadership for the future needs, and it’s been a real pleasure. So, thank you.

Mario Rivera: Thank you for inviting us.

Javier Varela: Thank you.

Jiahui Yin: Thank you, Marc.

This episode of Radical Reinvention was produced by Catherine Parry, Brian Egan, Ursulaan Khan, Anna Wooding, Nick Heinemann, Duda Rodrigues, and me, Victoria Marin. Ko Takasugi-Czernowin composed our theme music. To find out more about Zero100 and to check out our content library, go to Zero100.com. If you’re interested in joining our community of contributors, send us a note at hello@zero100.com.