Applied Innovation Podcast: Digital Supply Chain Unlocking value hidden in complexity – Part 1

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How supply chain complexity can actually be a business advantage

For large corporations, supply chains define the word ‘complex’. Huge functional teams, immense spans of control, ever-increasing volumes of data, not to mention a massive reliance on partners, macroeconomic conditions, and ever-evolving consumer expectations. Despite this complexity, modern supply chains are incredibly adept at delivering results and providing a critical link between corporate strategy and the end consumer.
Kevin Syslo, and Joe Boggio from Capgemini’s Applied Innovation Exchange in San Francisco, and Frederic Laluyaux, CEO of Aera Technologies discuss how this complexity can actually be a business advantage in part 1.

Transcript

Hi and welcome to the Applied Innovation Exchange Podcast. Today’s topic is about how having a complex supply chain can actually be advantageous to your business. It’s a great conversation and so good in fact, that we’ve decided to break it up into two. So this is part one and with that I’ll turn it over to the host Kevin Syslo.

Kevin Syslo:

Hello. My name is Kevin Syslo. I’m a leader at the Applied Innovation Exchange in San Francisco. I’ll be facilitating our conversation today. I’m joined by Joe Boggio, a innovation leader at Capgemini and Frederic Laluyaux, CEO of Aera Technology. Thank you both for joining us this morning.

Kevin Syslo:

A bit of context as we jump into this topic. Today, we’re talking about complexity as an advantage in the supply chain space. Admittedly, a difficult proposition for large corporations. Supply chains define the word complex. Huge functional teams, immense spans of control, ever increasing volumes of data, not to mention, massive reliance on partners, macro economic conditions, and an ever evolving consumer expectation in the space. Despite this complexity, modern supply chains are incredibly adept at delivering results and providing that critical link between corporate strategy and the end consumer.

Kevin Syslo:

Just a quick indication of scale. So consider one of Capgemini’s clients. This particular client allocates about 60% of their overall workforce, about a hundred thousand people against the surface area that is supply chain. Other clients refer to supply chain networks that cover billions of miles each year. Engaging with tens of thousands of suppliers to deliver products in over a hundred countries. Again, complex is probably an understatement, but innovation loves complexity and the marketplace continues to find opportunity in this space. That’s kind of what we’re here to talk a bit further about today. Again, we’re excited to have you, Fred and Joe. Thanks for joining.

Frederic Laluyaux:

Thanks for having us.

Kevin Syslo:

Excellent. Fred, I’d love to start with you. Maybe before we jump into the questions, just a little bit about yourself and your company, the background that brought you into this space that we’re talking about today.

Frederic Laluyaux:

How much time do we have? A little bit about myself. 20 plus years in the enterprise software industry across multiple companies. Small, big. 10 years, worked on the enterprise modeling activity based costing. Worked in business intelligence with business subjects. Worked at SAP for a few years doing some M & A, doing some strategy, leading their finance line of business. Then I jumped in 2012, I had a small company at the time called Anaplan, which will lead to hyper growth mode and being a [inaudible 00:02:58]. 2016, jumped out of Anaplan to launch a new company called Aera, which basically combines these ideas that we’ve had over the last 20 years.

Frederic Laluyaux:

At high level, the idea is that we’re moving from an era of, hence the name, an era of people doing the work supported by machines to an era of machines doing a lot of the work controlled by people. The first area where we wanted to apply that logic was supply chain because of what you’ve just called out. The complexity and the critical aspect of it for so many companies that are either disrupting or being disrupted. We basically build a technology that we call the cognitive operating system. The vision that we have is to really enable what we call the self-driving enterprise. Maybe we’ll talk a bit more about it later.

Kevin Syslo:

Excellent. Thank you very much. I think the first thing that pops out for me is that complexity is something I’d be really curious to get your read. When you talk to players in the market, are they looking at that complexity as an advantage for them? Something that makes it really difficult for other competitors to enter their space, or do they only look at it as a thing to be solved that gets harder over time?

Frederic Laluyaux:

Well, for sure, supply chain, it depends on which industry you’re operating. But one of our clients was telling us recently, look, basically what we sell is water and soap. A multi billion dollar company. We have just signed another contract with another company that basically sells water and sugar.

When you sell those liquids, the problem is they’re heavy and the transportation costs is really high. So what do you need to have? You need to have your manufacturing sites fairly close to where the consumers are, which creates another level of conative complexity. The head of supply chain in the company was telling me recently, look, people buy our products because of our brands. They trust our brands.

Frederic Laluyaux:

Before you put some shampoo on your baby’s head or you feed them with some sparkling water or whatever. You want to make sure that you can trust the brand. The second element is because simply you find our products anywhere. Any corner stores around the world, you can buy our product. So that’s supply chain. What differentiates their capabilities from others is actually the fact that they are everywhere.

Frederic Laluyaux:

Problems on their side, power of brands are being disrupted. We’re moving from macro brand to micro brands. So that’s interesting when you have a network of factories around the world that are dedicated to a certain number of brands. Now how do you do it? It’s complicated. Second problem is you have the E-Commerce disruptors. The Amazon’s of the world who are basically selling to consumers. You don’t need to go to the store anymore.

Frederic Laluyaux:

Here you have the two pillars of some of the largest brands in the world. The largest companies in the world that are being really shaken. So your point about is complexity of supply chain or the scale of supply chain and advantage or disadvantage? It really depends if you are the disruptor or if you are the one being disrupted.

Kevin Syslo:

Yeah. Makes a lot of sense. Joe I’d love to bring you into the conversation here as well.

Joe Boggio:

Yeah. Thanks Kevin. Yeah. I think a couple reflections for me are just kind of feeding off of some of the comments you made Fred was if I think of certain industries like the ones that make soap and make water. Those are the industries that created the soap opera in this notion that the mass communication model really kind of created the first era of modern supply chain at the time. If you look at where we’re at now, where convenience is the most important brand to most of us, right? If I’m on Amazon shopping and it’s two days for delivery, I’m probably going to go to a different product. With our work at the Applied Innovation Exchange, we focus on five areas when companies come in, to transform anything, we really challenge in five areas. One of them is this notion of customer obsessed. So if you’re a manufacturer today and you have a supply chain today, the thing that’s really driving you is your customers are demanding this.

Joe Boggio:

So if you have to do this, the other four areas I’ll hold for later, but that’s what’s driving this. Then I loved your comment that the barriers to entry are so much lower now because you’ve basically got a form of a utility when it comes to manufacturing, to distribution, to communication. These things that took the prior era of the biggest supply chains, the most sophisticated supply chains in the world, that the things that made them great and gave them significant advantage, those are deteriorating. If you look at some of the big players in supply chain today, they are using an incredible amount of technology in a very sophisticated way. They’re highly adaptive. They’re always learning and they’re deeply obsessed about customers and that responsiveness to the customer. So I think the era that we’re in right now is one where you’ve got so much technology.

Joe Boggio:

I’ll speak in generalities, but I have to think if I’m in an incumbency business and I’m the head of a supply chain, I’m head of manufacturing. I’ve probably got three decades of experience running that last success story of technology, culture, all of that. Now, I got to get my head around things like blockchain. Between the three of us. I don’t know if we can do a great job of explaining what blockchain is, right? It’s hard to get your head around in AI and robotics and a dozen others that are really layering into the marketplace today and giving that not only lower barrier to entry, but more opportunity to innovate with the product, with the client, with the experience.

Frederic Laluyaux:

The point you made on consumer or customers centricity is absolutely critical. We have now consumers going to a store with their phone and they can set promotions while they’re shopping. So the whole concept of promotion, which has driven so much of the revenue for CPG companies is now being completely reconsidered because how do we adapt? Now, if you want to rethink about dynamic promotions, but guess what? You need to make sure that you have the products available if the increasing demand happens.

Frederic Laluyaux:

The point I’m making here is that it’s an increasing complexity. I think the paradigm is shifting of course, but that drives an acceleration of the decision making. The decisions that were made into corporate office now have to be made much closer to the point of impact. That’s easy to say. You can make the decision, but then you have to think about your supply chain. You have to think about your manufacturing. You have to now think about this entire network and the interdependencies in the network. That derives a level of complexities that humans even equipped with the best tools, the best collaboration platform and the best modeling applications just cannot comprehend it. You cannot cope. This is where you need to bring. I’m always a little bit suspicious when I hear the word AI, but that’s where you need to bring a digital assistant, a tool, a set of tools that can actually can process that complexity and match with the clock speed that’s accelerating. That’s what a company like Amazon has done. They just accelerated the clock.

Frederic Laluyaux:

You said it yourself, as a consumer, if the good is not delivered to your house within 48 hours or 24 hours sometimes, you just go in and change your, buying habit. That is crazy if you think about how fast this happened as well. So the adaptability for those companies that have been working in a given model for 30, 40 years, it’s a must have. This is why this conversation we’re having today is a conversation that is happening at the board level, is a conversation that is happening in the CSUITE. It’s absolutely not relegated down somewhere in the organization. It is front and central because what’s at stake is survival. It’s plain and simple survival.

Kevin Syslo:

I’m reflecting as I hear you talk about where the decisions are moving and the two days is not enough. Joe, what you’re saying, you’ve got a incumbent set of leaders that are built around a certain dynamic certainty. Now, they’re being asked to integrate things like blockchain, AI and all of these different new technologies into something so that they can meet this changing customer demand. So to me, those feel almost incompatible or very difficult to overcome.

Kevin Syslo:

Then at the same time, I read about, there was an HBR article that talks about supply chain functional be obsolete in five to 10 years. It paints a very interesting picture about the need for this function or the ability for this function to be automated. I’m curious to get, maybe we start Joe on your end, your read on, does that sound right to you? Do you think in five to 10 years that function will be obsolete? Will it be more important? Will it be equally important but just more heavily automated? I’m kind of curious, when you think about the amount of change that has to happen in a function that is as complex as we’ve described, is five to 10 years a reasonable window to think about a true change in that function?

Frederic Laluyaux:

Look, the first thing that comes to my mind is again, as I mentioned in a quick intro, I’ve been doing this for a long time. 22 years, I believe. This is the first time that I feel like the conversation is truly at the executive level. We have the CEOs, the number two’s, the number three of some of the largest companies in the world flying to Silicon Valley. Going to spend time with you, going to spend time with us. Literally listening carefully about what we call cognitive automation can enable. A number of times we had those executives saying, can I steal your slides? You probably have the same thing, which is like, this message resonates with us.

Frederic Laluyaux:

When we launched the concept in Aera in the technology as of June, 2017. Not that long ago. It was pretty ambitious to call this technology a cognitive operating system that enables the self-driving enterprise. The reaction in the market was not like, wow, you guys are so smart. Their reaction was like, where have you been? We’ve been waiting for that. Then you talk to your customers and you learn that, hey look, the complexity is, if you think about the way a big organization is structured, it’s what I call the bedrock of transactional systems. Yesterday I was talking to a large organization in Europe. They have 86 different ERP’s. Even for those who have consolidated into a handful of them, the problem doesn’t change. It’s ERP’s are structured in silos. So you’ve got this massive big graph of transaction data. Why do they have so many ERP’s? Because a lot of businesses have grown through acquisition and because once you’re stuck in that transactional mode, it’s very difficult to break out of it.

Frederic Laluyaux:

You’ve got the theory of AI, the theory of being agile. That’s great. But when your data, what you need, you made the point about the car and data. That’s where I’m going. The enterprise is even worse because the data is stuck in antiquated systems that you need to run your business on a day to day basis. So you can’t really disrupt those systems. What you have to do is, and sorry, on top of this system, you have this massive pyramid, right? This big organization, the CEO at the top, and then you’d have people process tools. The knowledge of those information worker is as important for them, it’s equally important to know how to do their job with the outside in view, how the market is evolving as the inside out, which is how does the company actually work? If I need to make something happen in my big company, your knowledge of where to go, what system to activate, how the decision making process happens in my company is equally as important of the decision that you’re trying to execute, right? So that’s the problem.

Frederic Laluyaux:

That pyramid sits on top of this bedrock. What we’re looking at right now is moving from that big pyramid to a network. You see the new digitally native companies being so much agile simply because their organization design is completely different. One of our clients was telling us the other day, the problem of planners in supply chain is that they used to spend 10, 15 years in the same area, in the same job. Both in building their knowledge on how the market reacts and how to best plan a promotion here or there. But they also build the knowledge of how to work inside the company.

Frederic Laluyaux:

Now with the new generation of information workers, they only stay a year, two year, three years, and then move to the next job. So that intimate knowledge on how to make the right decision that you acquired over many years is gone. When you talk to executives that have all these different facets of competency, of pressure, pressure on margins, the industry micro trends, the technology trends. You’re right. They might come and say, how can AI save us? What we do is we’ll say, what problems are you trying to resolve?

Frederic Laluyaux:

Literally, go back to the technology is not the answer. What is the problem? You’re spending $4 billion on incentive compensation and you know intimately that it’s not the right thing anymore. You’re spending $10 billion on promotions a year and you know intimately that you don’t know what you’re doing because your speed at which you deployed this promotion is too slow. Consumers are outpacing you, out beating you and you just reacting. So we always try to focus on what is the number one problem you want to start. Then it’s our job to apply technology and as you said, people culture and all the different aspects to try to resolve that problem.

Frederic Laluyaux:

Back to your point you made around the 10 years. I think we’re in the exact situation where we over estimate where we will be in one year and under estimate where we’ll be in 10. Aera would not have existed five years ago, literally could not have existed five years ago. We’re alive and kicking and kicking really hard and growing really fast. So this is moving. This is happening now. I remember all the keynotes that I’ve done in the past 10 years going like, oh, it’s coming, it’s coming. Now, I’m saying it’s not coming. It’s there. If you haven’t realized it, you’re in trouble. Yeah. We’re living in that moment right now.

Kevin Syslo:

Excellent. I want to spend a little bit of time, I know we talked quite a bit at a high level about complexity, but there’s a part of me that I’d love stories and specific examples. One that comes to mind for me is when I think about leveraging complexity for value. They can uniquely be applied for larger companies or companies that have kind of some legs underneath them. There’s an example where there’s a company out in the market that used supply chain to their advantage by evaluating and building multiple recipes to build the same end product, right? By building those multiple recipes, they can look at spot pricing for ingredients. They can actually switch supply chain partners and ecosystems and use that as a way to hedge against broad price changes, right? This is a way that they’ve looked at that complexity in the market and said, that’s actually good for us if we manage it. I’m just curious what other examples come to mind for you that are kind of more targeted or specific of extracting value out of that complexity when done right?

Frederic Laluyaux:

You talked about more of the manufacturing and the supply. I’ll go more on the sell side. Forecasting. Why can’t I forecast accurately by pulling data coming from multiple streams? Once I have a forecast, I need to check that the inventory is there or that I have the ability to manage the material, which means I’m blending different systems, which is the traditional vendors approach breakdown. Then you have people in meeting rooms trying to reconcile what that connection should be between your supply and your demand. Why can’t we use algorithm?

Frederic Laluyaux:

Algorithm is a big word. Why can’t we use software to do that? Why can’t we use a Google type technology or Linkedin type technology to actually resolve this problem on the fly? Now we can. Now it’s available and we can resolve it. It’s not even AI. Sometimes it’s simple models, but they can manage that planning at scale, right, and do it in real time. We try a lot to demystify what we’re doing here because the problems are very simple. The challenge is the 40 years of boxes piled on top of each other. It’s an industry that has made so much money by saying, I’m going to change the pipes I sold you three years ago with a new set of pipes. But they basically do the same thing as opposed to, hey, you don’t need the pipes anymore. There’s a new approach to actually resolving the problem. I think that’s what you see the disruptors do. I think that’s what the market actually wants today. The message of, I’m going to give you a better widget to replace the old widget, but this one is buzzword number one, buzzword number two.

Frederic Laluyaux:

I think these days are over. I think companies are tapped out. They’re saying no more. We need to get to a point where why can’t we do like Google? Why can’t we do like Facebook? Why can’t we do like Linkedin in terms of volume, complexity, realtime collaboration, leveraging the best of technology to help us to make those decisions, augment the human power. So I see that really happening now at speed. The paradigm shift, it’s already started. I think we haven’t crossed the chasm completely. We’re still with the early adopters, but it’s coming fast and furious.

Kevin Syslo:

I love that idea of companies looking at other industries, looking at a Google, looking at a Linkedin or looking at someone out there in the market and going, well, they’re doing that at scale. How come we can’t?

Frederic Laluyaux:

Yeah.

Kevin Syslo:

I love that example.

Frederic Laluyaux:

This is what Aera is Aera. This is the paradigm. This is what we apply to ourselves and going like, wow, why are we limited in that structure? That volume of data cannot have more than a billion here or 100 million there and I cannot collaborate with more than X people. I’m going like, this makes no sense anymore.

Kevin Syslo:

No.

Frederic Laluyaux:

I do it on my iPhone. I have been talking about this for many, many years and suddenly he goes like, well, we gotta do something about it. Honestly, I think our own technology, our own industry of software vendors, of services firms is going to be disrupted. We’re the last ones to see it.

Kevin Syslo:

Okay. Yeah.

Frederic Laluyaux:

We’re the last ones to admit it. But we are getting disrupted because software is easier to make than ever. I think services is becoming more fluid as people have access to their own networks of experts. That’s the point you were making earlier.

My head of supply chain in this company doesn’t need us to reach out to someone else. So there is a new way of people to collaborate and we just have to adjust to this. The last point I want to make is the era of the three letter acronym implementation that takes five years. This is over.

Frederic Laluyaux:

That this, and you guys know that, but it’s completely dead. What we say with our clients today is what’s the problem you’re trying to resolve? If it takes more than two to three months to get there, there’s probably a better way. That’s to me, if the implementation takes. Then you roll and you start, you fell fast, you put some skin in the game and we roll. We go one project, another project and we expand like this as opposed to trying to build this massive waterfall or agile, whatever, same problem, roadmap that just doesn’t get us there. So there is a change in the way we do things as well and I think with any new wave of transformation, you’ll have a couple of winners and you’ll have some losers. We just refuse to see it because it’s our own industry.

Joe Boggio:

Yeah. Well, I think building off one of those threads you had of, if you think of the prior era of okay, I’m going to do an eight year major deployment and I’m going to contractually commit to a partner for that eight year term. I’m locked to a channel for innovation for that function.

Joe Boggio:

Everything else going on in the industry, my switching cost is so significant that I’m not going to do it. Whereas now, you can re-architect to say, okay, I’m going to do two year contracts and I’m going to have a architecture that allows me to plug in the competitive market force and take advantage of. This SAS player is on fire right now and it’s brought a level of innovation that I need to bring in. So that agility from a contracting and implementation standpoint is really amazing.

Joe Boggio:

I think that’s another phenomenon that we see is this notion of SAS and putting a software company hat on. When the sale is complete of that eight year technology deployment, that sale is complete. Where is the best talent? Where is that hungry talent, that entrepreneurial fever? It’s dissipated after that sale. Whereas now, in a SAS world, I know there is more competition concurrently, more innovation that’s going on and the sale is never done for that supplier. I’ve got a perpetually bring value because you’re on a utility model. So we’re seeing that transformation in the industry right now. I think it’s amazing to be the recipient of that, but also it’s a mindset shift that you’ve got to architect your organization different and your sourcing models different.

Kevin Syslo:

Then I think that what comes to mind for me there, it pushes the market so hard to move faster and continually innovate that as the cycles there for contracts get shorter and shorter and shorter. It opens amazing options, but it also forces innovation back into the marketplace, which is, I think, part of, like you said, what we’re seeing and it makes it super interesting and valuable.

Thanks for listening to today’s Applied Innovation Podcast. Kevin, Joe and Frederic have a lot more to say on the matter. They will continue the conversation where they left off in part two of the podcast, which you can find by clicking the link in the show notes. Thanks and see you next time on the Applied Innovation Podcast.

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