“We have two kinds of suppliers—those we hate and those we’re going to hate.” Decades ago, that was the message Dale Tutt, now VP of industry strategy at Siemens Digital Industries Software, heard while working for another company.
Fast forward to today where supply chain disruptions loom large both in the rearview mirror and beyond the windshield. Replacing formerly antagonistic approaches are relationships based on ideas such as manufacturing ecosystems and so-called “friend shoring.”
The pandemic forced improvements in supply chains—not as a disciplined approach or to move large-scale transformation, but out of necessity, according to Ken Creasy, senior director, supply chain technology capabilities at Johnson & Johnson.
“Critical therapies need to be delivered to customers,” Creasy said. “It’s not hard to have a sense of urgency; a number of the therapies we’re producing are enhancing quality of life—some are incredibly timely.
"If you’re going to serve your customers well, you best focus on things that will allow you to serve your customers in the best possible way," he continued. "The leadership at Johnson & Johnson Supply Chain, as well as the entire organization, rose to the challenge.”
Now that the immediate challenges have been addressed, it's time to focus on the next improvements, said Conrad Leiva, VP ecosystem and workforce education at CESMII (Clean Energy Smart Manufacturing Innovation Institute). These include:
Greater integration of large OEMs and suppliers;
Improving supplier agility and response to new demands; and
Adopting automated digital communication.
Looking ahead, competition won’t simply be among major companies but among entire supply chain ecosystems, according to Leiva.
Going even further, OEMs seek to build relationships with companies that share similar values—and are often geographically close—specifically around labor laws/practices and sustainability. At a recent event, Tutt heard the phrase “friend shoring” used to describe this practice.
“We have one customer that has always been reluctant to do any joint marketing,” Tutt said. “We talked about sustainability and what Siemens is doing as a company to be more sustainable. Now they’re ready to do some joint marketing with us around sustainability, which is one of their key core values.”
In healthcare, as in other sectors, company leaders realized the importance of the supply chain early in the pandemic. A loss of visibility or breakdown in obtaining certain raw materials threatened being able to deliver finished products to customers, Creasy noted. That potential or actual breakdown created an urgent need for improved supply chain visibility.
“In our field—medical technology, pharmaceuticals, and even consumer health products—a lot of effort was put into understanding where the weak points were, said Creasy, who was awarded the Smart Manufacturing Visionary Award at the Smart Manufacturing Experience earlier this year. “Company leaders said, ‘We know visibility is key for us in being able to deliver to our customers. We have to dig down a layer deeper to know where our raw materials are.’”
Early in the pandemic, Johnson & Johnson teams worked to improve supply chain visibility with key existing vendors. When adding new partners, the company tried to build in digital visibility, connectivity, and automation from the beginning, Creasy said.
“Supply chain behaviors definitely changed due to the pandemic,” Leiva added. “It really awoke a new interest in supply chain initiatives among large OEMs. They weren’t usually impacted, but this time the medical supply chain was hugely impacted,” he continued. “Automotive and food supply were impacted. They were caught by surprise. They thought they had everything handled.”
One pandemic-fueled change was a shift in how OEMs pick suppliers, with long-term relationships trumping the previous nearly exclusive focus on lowball pricing.
“In the past, the strategy was about getting the supplier with the cheapest prices,” Leiva explained. “Everything was about price. Those strategies have moved aside,” he said, adding that OEMs can no longer view top suppliers as simple and easily-replaceable commodities brokers.
In fact, these days, the power doesn’t rest solely with OEMs.
“If some products and materials are in scarcity, suppliers have choices,” Leiva said, noting that suppliers might have to pick between customers. As a result, he said, “OEMs realized they need to work closer with key suppliers within their supply groups. Instead of penalties, suppliers need more assurances. Those things are slowly making their way into the culture.”
Slow is the key word. Despite improvements during the pandemic, much remains to be done for manufacturers to develop integrated, end-to-end supply chains.
Large original equipment manufacturers often don’t specify clearly enough what they want, according to Creasy. At the same time, some smaller suppliers still rely on spreadsheets and phone calls to fully understand the issues. Overall, Creasy said, a lack of good standards contributes to the problem.
“As we look ahead, common standards and a good understanding of the overall architecture and where things fit in are important,” Creasy asserted. “We talk about plug and play but in many cases we need standards that enable plug and play. Enhancing visibility and connectivity will further contribute to understanding where raw materials are at any point in time, and understanding where the backlogs may occur.”
Siemens’ Xcelerator portfolio of products is designed to aid supplier collaboration. The so-called “as-a-service” model gives suppliers the flexibility they need without having to build multiple systems to work with various OEMs and higher-tier companies, Tutt noted.
“We’re working on solutions that allow even the smaller suppliers to participate that don’t add a lot of IT costs to their systems,” he said. “We’re bringing collaboration portals together so suppliers can have an entrance into OEM systems without driving the costs up for these smaller suppliers.”
But the necessary visibility into the entire supply chain isn’t always automated—think Excel—and, thus, isn’t always available in a timely fashion.
To better understand the overall ecosystem and changing dynamics within it, Johnson & Johnson has launched an expansive smart factory/smart supply chain initiative.
“Understanding how we create that visibility both within our doors and in our supply chain has become critical for us, all with the understanding that will lead to better agility and resilience of the supply chain,” Creasy said. “If you have the information, you can make better decisions and become more agile.”
To enable and optimize the digital supply chain during the pandemic, suppliers had to become more transparent with their data. “It was a heavy lift to get to that level of visibility,” Creasy noted. “Teams of people were working long hours. Our IT team set up a very good system for us, an architecture we could use.”
To really work, supply chain visibility must extend to the OEMs and among suppliers, Tutt said. “Some OEMs may want the supply chain to be transparent only to them, but the ones that are going to be successful are going to have supply chain transparency throughout,” he said.
To make his point, Tutt described a situation in which multiple suppliers are running overtime to meet an OEM’s deadline until one supplier experiences an insurmountable problem and is going to deliver its parts six weeks late. “If the entire supply chain knows that, they can make adjustments and manage their costs better,” Tutt explained. “If you can take overtime out of the system, everybody benefits.”
Digital twins are playing an increasingly important role at Johnson & Johnson. One example: Teams could model how quickly manufacturing processes could pivot operations within one plant to another Johnson & Johnson Supply Chain plant, Creasy explained, or even to a supplier and what the resulting impact would be.
“That’s one thing we’ve done very well with our IT partners—creating a forum with the digital and data science team to be able to use data from the digital stack to make informed decisions," Creasy noted. "Innovation teams like mine can go in and either contribute data or use data to help run our operations more intelligently. We’ve all seen the power of what data can do.”
One consideration for suppliers, Leiva pointed out, is what information they should release as part of an integrated supply chain.
“Suppliers think: ‘How much information is giving me an edge competitively versus how much information I want my customers to know about," Leiva said. "Is the fact that I’m able to deliver a part in two days versus the three days it takes for my competitor information that should be made public? If that information is made public, my competitors will match it.’”
Larger companies such as Johnson & Johnson and others have moved to the point of wanting to test this approach within their supply chains. “They know there’s a way to do it without affecting competitive intellectual property," Leiva noted.
"It’s not an all or nothing proposition. Before the pandemic, a lot of those conversations were not happening," he continued. "Now because of the pandemic and because we’ve had supply chain issues, people are having these conversations.”
The visibility into all the available data is important. But making sense of that data is even more critical.
“We’re in a situation now where we need to curate our data,” Creasy said. “To make really great decisions, it’s not so much how fast you can get the data but how fast can you contextualize and make sense of the data.”
OEMs want their suppliers to be digitally ready, Leiva added. Digital processes help suppliers react flexibly and quickly to changes in the marketplace such as capacity changes and swiftly getting new products to market, he explained.
“They want to see more of the digital investment,” Leiva continued. “They want them to be ready to provide information faster, to have more flexibility in their systems."
OEMs want information about management practices, including the level of digitalization. A shop still operating entirely on paper does not look as good as one that is digitized, Leiva noted, with "information on the dashboards and where everyone knows what is going on.”
Suppliers that can show that a product line change requires only reprogramming equipment and loading new materials will come out ahead, he added. “Suppliers need to be able to quickly go from a variant product design to implementation on the shop floor without having to shut down for three weeks.”
Such a shutdown causes unwanted ripple effects throughout the supply chain.
In the future, companies will compete not as individuals but as entire supply chain ecosystems, Leiva said, citing a recent report from Gartner. The report predicted that more than half of large organizations will compete as collaborative ecosystems that share inputs, assets, and innovations by 2026.
With its own suppliers, Johnson & Johnson took a collaborative approach, sharing some of its proprietary machine-based learning and AI platforms with its suppliers to help them improve their supply chain processes, Leiva said. When needed, he added, Johnson & Johnson used its market leverage to help suppliers acquire needed raw materials.
Through its participation in CESMII, Johnson & Johnson also has helped small and medium sized companies to share knowledge through forums and other programs. Said Creasy: “The more savvy they are, the more they can help us realize what we need to do.”
As part of the Confirm Technology Smart Manufacturing Centre in Limerick, Ireland, Johnson & Johnson works with researchers to develop supply chain algorithms and solutions not owned by the company.
“We use the algorithms to make better decisions,” Creasy explained. “They’re helping us take the data we see, specific to our processes, and use that data.”
Sharing such data benefits all players in the marketplace.
“Our job is to develop the best consumer health products and pharmaceuticals, not to hold on to or block the supply chain processes that make it possible,” Creasy said, noting it doesn’t make sense to hold those things too tightly to the vest. "It is the responsibility of larger companies to set a path forward in digital transformation, and, as much as possible, help bring other companies along the way. That’s how we’re going to best serve our patients and customers.”
Additional challenges to fully achieve a digital supply chain include the complexity and cost of implementation. What’s needed, Leiva said, are lower cost, incremental ways to achieve that goal, which is part of CESMII’s mission. The goal, he noted, is to get initial implementations to $50,000 to $100,000 with the infrastructure in place so additional capabilities can be easily added later.
“You have to think a little ahead, not just one problem at a time,” Leiva said, adding that this can be done without a huge investment.
“CESMII has a demonstration platform and ecosystem of vendors and technology providers that have committed to more open, plug-and-play methods of integrating systems,” Leiva continued. “For example, when machines get purchased, buyers have an easier adaptor connector into their infrastructure.
"We’re teaching these methods of putting platforms in place that create that infrastructure. They’re easier to install and connect machines to the infrastructure on one side and they have enterprise systems, applications and AI-based analytics all based on the other side. The easier it is to connect and integrate these things, the more digitally able we’re able to be.”
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