00:00:07 Introduction to Cedric Hervet’s and Stefan Gstettner and the impact of COVID-19 on supply chains.
00:00:33 Analysis of the PPE shortage, particularly masks, and challenges in scaling up production.
00:02:24 Dependence on overseas trade, especially with China, in light of the pandemic.
00:04:12 Examination of how businesses, especially logistics companies, have had to adapt to the pandemic.
00:06:23 Critique of companies’ preparedness for the pandemic and discussions on stockpiling essentials.
00:08:00 Dependency on major trade partners and the challenges in moving operations back to Europe or the US.
00:08:46 Bottlenecks faced during the crisis, highlighting the role of regulations and the technology’s performance.
00:10:59 Question about poor supply chain visibility, its implications, and potential improvements.
00:12:36 Importance of visibility, impact analysis, and predictability in managing future crises.
00:13:51 Impact of home confinement on deliveries, the changes in demand.
00:15:02 Impact of changing demand on home delivery services.
00:15:49 The importance and challenges of data quality for last-mile operators.
00:17:35 The role of technology and probabilistic forecasts in managing uncertainties.
00:19:00 Concept of pervasive forecasting and examples of unpredictable events.
00:21:02 Practical difficulties and bottlenecks in supply chains, using masks as an example.
00:21:59 Preparing for high-impact, low-probability events and the concept of single sourcing.
00:23:00 Importance of risk management and scenario evaluation against rare but high-impact scenarios in business.
00:24:12 “Tail risk” and the economic penalties of ignoring such risks.
00:25:27 Analysis of Amazon’s long-term strategic planning and its beneficial impact during crisis situations.
00:26:00 Examination of the positive impacts of the crisis and how companies like Zoom and Netflix have prospered during this period.
00:27:11 How the crisis could act as an eye-opener for supply chain weaknesses and the need for a resilience and agility-focused perspective.
00:28:31 Potential long-lasting impacts of the crisis.
00:31:02 Learning from the failures of pre-crisis predictions.
00:31:37 The potential of the current crisis to sort out buzzwords in the supply chain.
00:32:14 Buzzwords like control tower, digital twin, and AI-based scenario play.
00:33:56 How companies should prepare for a shrinking world economy.
00:36:26 Importance of long-term preparation for crisis events.
00:39:15 Closing thoughts.
Summary
The speakers discussed the impacts of the COVID-19 pandemic on supply chains. Vermorel attributed PPE shortages to Asian production disruptions and highlighted the difficulty of rapidly scaling supply chains. Gstettner warned against cutting overseas ties, instead advocating for a focus on agility and resilience. Hervet noted the transition to remote work was challenging for less digitized sectors. Vermorel argued against criticizing companies that had stockpiled essential equipment and highlighted regulatory bottlenecks in crisis response. Gstettner emphasized the importance of visibility in supply chains and future anticipation, while Hervet discussed the transformation of last-mile delivery. The speakers emphasized the need for data-driven decisions, long-term planning, and investing in fundamentals to build resilience.
Extended Summary
Kieran Chandler, the host of the Lokad TV episode, initiates the discussion by focusing on the impact of the COVID-19 pandemic, especially on supply chain practitioners. The conversation includes Joannes Vermorel, founder of Lokad, Cédric Hervet, co-founder and Head of R&D at Kardinal, and Stefan Gstettner, Partner & Associate Director at the Boston Consulting Group.
Vermorel is asked to address the worldwide shortage of Personal Protective Equipment (PPE), particularly masks. He attributes the scarcity to the initial hit of the pandemic in Asia, where much of the production was based. As a result, when the virus spread globally, there were inadequate protective supplies. Vermorel emphasizes that, despite the relative simplicity of producing these items, scaling up supply chains rapidly proved challenging. This difficulty was further exacerbated due to years of production being outsourced overseas, making it slow and costly to repatriate.
Gstettner, based in Germany, is asked about the overreliance on overseas trade, particularly with China. He warns against a simplistic perspective of cutting ties due to current challenges. Gstettner highlights that China serves as both a sourcing market and a significant customer market for many industries. He anticipates a natural reevaluation post-pandemic, shifting from a pure cost focus to greater emphasis on agility and resilience.
Hervet, speaking from Paris, addresses the organizational changes businesses underwent during confinement. He notes that for tech companies like Kardinal, the transition to remote work was relatively smooth due to existing familiarity with digital tools. However, industries such as logistics, particularly last-mile companies, found it significantly more challenging due to their dependency on physical interactions and less digitalized operations.
Vermorel is then asked about criticisms of companies for not having stockpiled goods for emergencies such as this pandemic. He argues that companies that had stockpiled essential equipment should not be criticized but applauded for careful planning. Vermorel also emphasizes that it isn’t realistic or feasible to relocate certain operations back to Europe or the U.S., given the intricacies of global trade. He identifies regulatory bottlenecks as a key challenge in responding to the crisis, citing examples such as restrictions on converting passenger aircraft to cargo use. Despite the challenges, he notes that technology companies like Zoom and Microsoft Teams were able to scale up rapidly to meet increased demand, highlighting the contrast between the successful response of tech and less successful areas.
Stefan Gstettner emphasizes the historical challenges of visibility in supply chains, a problem that’s been brought to light amidst the ongoing crisis. He points out that while having more granular visibility of supply chains is desirable, it may lead to data overload and confusion about where to focus. Therefore, impact analysis is critical, a process that becomes even more challenging when dealing with billions of combinations in the supply chain.
Gstettner also stresses the importance of short-term future anticipation, a task that’s particularly challenging given the current unpredictability. Automated processes based on historical demand data are no longer reliable predictors, adding complexity to the task of enhancing future prediction capabilities.
Cédric Hervet focuses on the dramatic change in the last-mile delivery sector due to home confinement. The demand patterns have shifted radically, with B2B demand dropping and B2C demand increasing. Hervet highlights the challenges of this change: different geographical areas to service, different constraints, and different quality of service commitments. He also mentions the vital role of data in navigating these changes, emphasizing the need for better data quality and effective ways to operationalize it. Unfortunately, most last-mile operators lack this capability, leading to a significant accumulation of errors.
Joannes Vermorel then discusses the potential of technology to assist during these turbulent times. He suggests that probabilistic forecasting offers a way to prepare for disruption without needing to know exactly what will cause it. By assigning a small probability to the occurrence of a massive disruption in any given quarter, companies can adopt a risk-driven approach to supply chain management.
Vermorel emphasizes that the goal isn’t to forecast things that have never been observed, but rather to accept that uncertainty exists. He gives examples of how unexpected events, ranging from tsunamis to geopolitical situations to terrorist attacks, can disrupt supply chains. Probabilistic forecasting allows the injection of a certain level of risk into the model, optimizing decisions against this risk.
Vermorel also mentions an ongoing issue regarding masks. He suggests that the bottleneck isn’t mask production, but the ability to test masks for quality, specifically filtration testing. This specific example demonstrates the importance of high-level detail in understanding and responding to supply chain disruptions.
The conversation highlighted the need for firms to prepare for unforeseen shocks to supply chains, such as the current pandemic, through methods like wargaming. The importance of considering rare but high-impact scenarios was emphasized, with the potential downside sometimes outweighing the total profits of a company.
Companies were encouraged to move away from a single-source supplier model to mitigate risk, despite the perceived cost benefits. The panel also discussed the role of long-term planning, citing Amazon’s successful infrastructure investment as an example. They acknowledged that while some companies, like Amazon, Zoom, and Netflix, are thriving in the current environment, the economic impact will be negative for most businesses.
An important point of discussion was the shift towards a more resilience-focused perspective on supply chains, recognizing that cost reduction and resilience can coexist. A long-term concern was that lessons learned from this crisis might be forgotten or misapplied, for example, forcing production back home without understanding the original reasons for its offshoring.
The guests emphasized the importance of businesses leveraging data and machine learning tools to increase resilience and agility in a rapidly changing market. They suggested that companies should focus on obtaining visibility into their internal operations, and utilize data optimization to serve multiple objectives. For instance, last-mile deliveries could be improved using these tools, enabling the simulation of different organizational approaches. This could lead to a more dynamic system that is capable of recalibrating daily based on immediate challenges. They also stressed the necessity of long-term preparation, advising companies to invest in their fundamentals, potentially even at the risk of immediate ROI, to ensure robustness against future crises. Notably, they mentioned the importance of IT scalability and infrastructure.
Full Transcript
Kieran Chandler: Today we’re lucky enough to be joined by a couple of familiar faces, Cédric Hervet and Stefan Gstettner, who are going to discuss with me the impact of the coronavirus epidemic and, in particular, what supply chain practitioners can do to navigate what will likely be a turbulent few months. So guys, thanks very much for joining me today.
Joannes, if we sort of start with you, one of the big supply chain topics over the last couple of months has been PPE, and in particular, the shortage of masks throughout the world. Why has this been such an issue?
Joannes Vermorel: It’s an issue because obviously, there has been a shortage of relatively basic and critical equipment. The PPE, in particular, the masks, were primarily produced in Asia. When the epidemic started in Asia, they had to serve their own population first. When the epidemic reached the rest of the world, it was a problem because we didn’t have enough protective equipment. It’s interesting because producing more of these masks is not inherently difficult, but it’s very challenging to scale up supply chains rapidly, even for basic equipment like regular masks. People started to realize that production has been moving to other parts of the world for the last couple of decades, and it’s very difficult and costly to bring them back. We are now seeing the consequences of that.
Kieran Chandler: Stefan, thanks very much for joining us live from Germany today. One of the things that the coronavirus really highlighted is this dependence on overseas trade, particularly in China. Do you think that we’re too reliant on that?
Stefan Gstettner: There could be an initial reflex to say yes, we are too reliant, but I think this is a bit of a simplistic answer. Just because we have a problem in this specific situation doesn’t necessarily mean everything is wrong. I would not say we are too reliant on China and should cut all relationships. It requires a more nuanced view. First of all, China is not only a sourcing market; it’s also a customer market, one of the biggest for many industries, so there are natural dependencies with China. The set of criteria for doing business with China was defined pre-Corona, and now with Corona, the weighting of the criteria has changed. There will be a natural re-evaluation, moving away from pure cost focus and maybe over indexing agility and resilience objectives. Then the decisions might turn out to be different, and I’m very sure for many industries it will turn out to be different. But I wouldn’t say there’s a general statement allowed to say we are too dependent on China.
Kieran Chandler: Cédric, you’re just down the road here in Paris as well, so it’s a shame we can’t meet in person. One of the things we’ve observed throughout this time of confinement is that businesses have had to adapt, with a lot of people working from home. What have you observed in the way that businesses are changing in order to react to this kind of situation?
Cédric Hervet: Well, we’re not totally equal in that regard. Like many other technology companies, at Kardinal, it was quite easy for us to transition from the normal workplace to remote working.
Quite easy for us, we were used to using the digital tools of today, so switching was quite easy. However, when it comes to companies such as logistics companies, especially last-mile companies, for them, digitalization is not something easy to achieve. Most of the time, they’re still relying on nuts and bolt stuff to really operate their activity. For them, it’s much more difficult. Furthermore, it’s not like us. They need to have people on the field, interacting with each other, handing parcels from one hand to another, refueling trucks to finally depart on the road, and interacting with other people. So, for them, the containment measures mean a lot more than for us. I think technologies are really the key for helping them transition better. What we’ve seen is that those who succeeded, or at least didn’t transition too badly, were the ones who had already invested in this digital culture and new technologies.
Kieran Chandler: Yeah, sure. I mean, we’re certainly very lucky in the fact that we can work from home and with technology, we’re able to kind of work almost as normal. But, Joannes, there’s been a lot of criticism going around with the way that certain companies have responded to these challenges, and the way they didn’t have the goods stockpiled or set aside for occurrences like this and big emergency scenarios. So should companies have stockpiled more, and perhaps if not, what would have been a better approach to take?
Joannes Vermorel: It’s interesting what I observe is that certain companies have been criticized for, for example, having PPEs, but they had them. They had been more careful about their own planning and thus they had stockpiles of things that were deemed essential. Essentially, we started to blame companies for planning carefully against an uncertain future, which is a very wrong way to look at the problem. If you have a company that had an internal stockpile of essential equipment, good for them. It means that they were smart and they did the right thing ahead of time. We should not confuse the fact that those companies didn’t acquire those equipments in a way that put other actors at risk. They did it at a time when there was no specific tension on the market. That’s the first part of the answer.
The second part is, it’s interesting when you see, as I really agree with Stefan’s answer about how we can’t just break relationships with a major trade partner just because it seems we are too dependent on them. The reality has a super high level of detail. There are many things that we just don’t produce in Europe, including some materials that are sometimes only mined in China and not in Europe. It’s very hard to say we are going to move certain operations back to Europe or the US, for pure physical reasons.
It’s also interesting to see that, for me, the bottleneck has not been the tech for this crisis. Most of the bottlenecks were regulatory, with lots of problems that were sometimes very mundane but were very difficult for companies to react in ways that were even sensible just because there were a lot of artificial barriers in place. Just an anecdotal evidence, aircraft around the world, especially in France, but it’s not the only country, have been flying with their seats on to carry aircraft cargo. There has been a massive spike in demand for aircraft cargo, and in this sort of situation, and because there are no more passengers flying around, the very obvious thing to do is just to remove the seats from the aircraft to have the aircraft fly with better capacity, consume less fuel.
Kieran Chandler: The aircraft that you have, but across the world, some countries, including France, have decided that, at this point of time, it’s still in effect. Civilian aircraft didn’t have the right to just remove the seats to carry cargo. I see a lot of accidental bottlenecks in supply chains where yes, technology is a big enabler. The interesting thing with this crisis, I believe, is that technology has worked quite well. Companies like Zoom or Microsoft, with Microsoft Teams, have been able to absorb incredible spikes of consumption. They have been able to nearly overnight multiply the capacity by factor 20, which is kind of insane when you think about it. In contrast, the bottlenecks were really not technology-related. If you look at other areas, they have been facing very dumb bottlenecks in all sorts of areas, most of them were regulatory. If we take that example, maybe technology wasn’t a bottleneck, where there might be other bottlenecks could be communication. One of the things we’ve seen is that there’s been poor visibility for governments to know exactly how many masks they can actually get from overseas. Stefan, would you say there has been poor visibility of supply chains and how can we improve that visibility in the future?
Stefan Gstettner: I think visibility is one of the historic challenges in supply chains. It surprises all of us, who are experts in supply chain management, why it is so critical to achieve good end-to-end visibility. But the reality is it has not been fully achieved by many companies. It’s not 100% easy on the granular level that you need. Yes, visibility is important and it would have been desirable to have much higher visibility. On the other hand, I think it’s not enough to have this visibility because the problem is that with much more granular visibility, you’re suddenly confronted with so much data. It’s not always clear where to look at. Masks is a good example, but our economy is more complex than producing and shipping masks. We are talking about billions and billions of combinations that need to be looked at. Therefore, it needs a high-quality impact analysis based on those visibility data. That is then even more difficult to understand. Where should I look at? Where is the highest impact of a disruption in my supply chain? That is the second step. The third step is the anticipation part. Pure visibility in real time is looking at the present, but we are very interested now in the short-term future and to prepare for some developments. Is it easy to forecast that at the moment? Of course not. For example, we had a good discussion with our retail clients about whether they should turn off their auto-replenishment algorithms in the stores because they are based on store-based forecasting, which is relying on historical demand. The history is not at all a good predictor for the future in current times. The question of how we Excel in our capabilities to predict the future in such volatile times is important. Unfortunately, it’s also not easy to solve. Those three elements, I think—visibility, impact analysis, and predictability—if that comes together for the next crisis, I think we are much better equipped to counteract the crisis.
Kieran Chandler: Sure, and Cédric, one of the really interesting things over the last couple of months is that everybody’s been stuck at home. So, they’ve been incredibly reliant and incredibly dependent on home delivery. In particular, those last-mile players have seen huge spikes in demand and huge variation in the demand they expected. How has this home confinement impacted upon deliveries?
Cédric Hervet: Yeah, well, you’re right. It’s been quite a change for them.
As we all know, the last mile of the supply chain is probably one of the most costly and perhaps one of the most complex to operate. With so many things to deal with, it makes the supply chain quite complex. The changes we are witnessing are huge, especially in terms of demand. It’s not only the volumes of demand that are changing, but also the nature of it.
For most companies that were actually relying on deliveries to operate, once they shut down, their volumes dropped as well. On the contrary, home deliveries are increasing as people are using them for food or other goods. This shift could lead to a significant increase in terms of activity or a complete shutdown.
In France, for instance, many have completely shut down their activity because they were relying on their partners. At the same time, you’ve got Amazon trying to employ 100,000 more people to face the challenges of this new demand.
When you have less B2B based demand to serve and more B2C, it’s not the same areas you visit or the same constraints. The quality of service changes, which can completely alter the way you work.
To really face this kind of challenge, you need data. But more than just data, you need ways to operate and activate the data to make the right decisions.
Unfortunately, most last-mile operators are not fully equipped with these kind of tools. Their data is often of poor quality because it’s the end of the line where all the errors accumulated along the way have a huge impact. Without good data, you can’t do much, and even with reliable data, you’re limited if you don’t have the right tools in terms of artificial intelligence, sensors, and so on.
If we add social distancing constraints that need to be taken into account to protect drivers, or the fact that there can’t be as many people in the warehouse to handle parcels, it makes everything much more complex.
Kieran Chandler: Let’s build on that idea of data. What we’re seeing are extreme statistical outliers, situations that are incredibly difficult to predict. Joannes, can technology really still help at a time like this?
Joannes Vermorel: I believe so. And it’s surprisingly much easier than what people would expect. The beauty of probabilistic forecasts is that you don’t need to know exactly what is going to disrupt you. It’s reasonable to assign a 1% chance for every 3 month period, for example, that you will experience a massive loss of demand or a massive spike in demand.
The essence of pervasive forecasting, a risk-driven supply chain management strategy that Lokad has been advocating for years, is not about knowing the future perfectly. We don’t even try to forecast things that have never been observed. It’s near impossible to approach the problem from this angle.
But if we look at it from another angle, understanding that uncertainty exists and there are tons of things that could happen, then we can prepare better. For instance, we have been advocating for probabilistic forecasts of both demand and lead times. What this does is account for the possibility that, for any reason, all your shipments could be late.
Maybe a couple of months late, you don’t need to know exactly why it’s happening. It could be a geopolitical situation, a tsunami disrupting hubs in southern Asia, an epidemic, a terrorist attack… there are dozens of scenarios. Each of them is fairly improbable, but when aggregated, these types of events occur every couple of years.
In 2004, there was a massive tsunami in Asia; in 2001, the World Trade Center was attacked. So, every couple of years, there is a massive disruption that can be very random and for completely diverse reasons. California, for example, is at risk of having a massive earthquake that could completely disrupt the entire West Coast supply chain in the US.
There are plenty of reasons, and the idea with ballistic forecasting is that you don’t need to know the fine print to inject risk into your model. You can just accept that there is some inherent degree of risk and incorporate that into your model. Then all the decisions you make are optimized against a certain level of risk.
But even doing that, and I’d like to get back to Stefan on this, the reality has a high degree of finesse. For instance, for masks, even something as basic as masks, my diagnosis of the situation is that the bottleneck is not even the production of masks anymore, it’s filtration tests. In Europe and the US, the facilities that can assess the quality and performance of masks, especially N95 in the US and FFP2 in Europe, are few and far between. They are completely overwhelmed just testing Chinese imports right now.
So, you can end up with unexpected bottlenecks that were nowhere on your supply chain visibility spectrum. You can even discover new bottlenecks, which makes it quite difficult in practice.
Kieran Chandler: Stefan, I’d be very interested to hear what you do at BCG. Joannes mentioned a few examples of these rare scenarios that occur, like the tsunami or 9/11, where there’s a real shock to an entire supply chain. So, how do you prepare your clients for these types of scenarios?
Stefan Gstettner: We encourage our clients to think through these events. Like what Joannes just said, they are very unlikely, but the probability is not 0%. Therefore, we frequently do wargaming approaches with their current supplier setup or encourage our clients to do so.
Signal sourcing is a good example of this. There is a very naive rationale to do single sourcing because if you put all your volume on one supplier and find a cheap supplier, commercially single-minded, that might be a good deal. But obviously, with respect to other criteria, it might not be a good deal. This wargaming or scenario evaluation against rare but high-impact scenarios is important.
It’s sometimes a bit cumbersome to do that because the immediate value impact, or do I have an ROI of these kinds of efforts in half a year or something like this, doesn’t apply. But times like this, like the COVID crisis, show us that it’s inevitable to go down this path to simulate those certain events.
I would add that it’s a matter of survival for the companies. If you don’t do that, it’s not a matter of ROI, because if you go bankrupt because you’ve completely disregarded a class of risk, if you stop being in business, it doesn’t matter that you had an ROI or whatever. It’s about survival.
Kieran Chandler: Many times, companies recover from bankruptcy. It’s fascinating because tail risks, although improbable, can sometimes carry economic penalties bigger than all the profits a company has ever made. Now, people are starting to realize this. There have been public cases with drugs that had negative effects, resulting in net losses that were enormous compared to the intended benefits. This has happened in the history of pharmaceuticals and aviation, with some aircraft deemed very unsafe, like the 737 max. There have been crises that led to the termination of some companies in these areas. I believe it’s essential to think the long game. One company that has been exceedingly good at this is Amazon. Jeff Bezos has been playing the long game, ramping up his infrastructure decades ahead. This preparation means that in crisis situations, while many companies are going downhill, those that have been preparing decades ahead, like Amazon, are gaining a lot of market share, which is very impressive.
Cedric, Joannes mentioned Amazon. We’re also seeing companies like Zoom and Netflix doing incredibly well out of this period of difficulty. Are there any positive effects we can focus on? Who are the companies that have done particularly well?
Cédric Hervet: There have been some winners in this game. However, it’s important to remember that most companies will struggle because the economic impact will be immense. Most companies won’t perform well in the coming months. Nevertheless, there are some winners, probably succeeding, as Joannes and Stefan suggested, by anticipating long tail risks and protecting themselves against them. If there’s a positive outcome from this crisis, it might be that it has revealed weaknesses in our supply chain practices. Stefan gave a good example of this. When you focus too much on commercial deals and cutting costs to maximize ROI, you inherently make your supply chain more fragile, adding weak points along the way. In times of crisis, this won’t hold up. Perhaps this will shift the focus from pure ROI to resilience and agility in the supply chain. This might demand more effort, but it doesn’t mean it’s incompatible with cost reduction. Being more resilient and agile in the long run can also lead to significant cost reductions.
Kieran Chandler: Joannes, hopefully, we’ll get to the end of this soon. Do you see us heading towards some sort of normality? Or are there any long-lasting consequences that you believe will permanently change the way we operate?
Joannes Vermorel: History has shown that things go back to normal, even after dramatically disruptive events. So I’m confident that we’ll recover.
Kieran Chandler: Things will go back to normal. If you look back, even one century ago, the world managed to return to normalcy even after incredibly traumatic events like wars. It’s a matter of time. I don’t know if it will take months or a few years, but a certain degree of normalcy will return.
Joannes Vermorel: What worries me is that probably the wrong lessons will be remembered. For me, I am looking at the problem from a very specific angle. We discussed in one of our previous videos that flexible safety stocks are unsafe. That’s one of the previous episodes we did. There are classes of supply chain practices that are unsafe by design, even if they are named in a way that makes them seem safe. I hope that supply chain practitioners will realize that certain practices, like safety stocks or service levels, do a very poor job at delivering what was originally intended. But I am not sure at all that it will actually happen this way.
What I believe is that we can end up with all the wrong lessons. For example, the idea of making production go local might miss completely the point of why things were moved away. From a supply chain perspective, it’s completely obvious that it’s easier to produce locally if you have the option. Everything is simpler and cheaper. So when people decide to have production 10,000 kilometers away from where it’s actually consumed, usually there are very good reasons. I hope that supply chain practitioners and maybe their governments will start wondering why many of these productions went away. Answering those questions is probably much more reliable to prepare the world against the next crisis as opposed to establishing strong tariffs to ensure that there is less trading with other countries.
Kieran Chandler: Stefan, did you want to chime in here? Do you think we’ll head towards some sort of normality or can you see some very much long-lasting consequences?
Stefan Gstettner: Actually, I wanted to build on what Joannes said. I think the current crisis can be a good trigger to sort out some of the buzzwords that we see in the supply chain. We should ask what are the underlying capabilities in the mid and long term that the supply chains need to continue to develop in order to be better equipped for the next crisis.
The first buzzword obviously is “control tower”. It’s not a tool or a solution, but a capability to have good visibility in the supply chain. The second buzzword is “digital twin”. It provides the capability to navigate in the next 12 weeks to do some sort of short-term scenario play, probabilistic simulation, and all that to be much more flexible and agile to react to short term development. The third one is AI-based scenario play in the integrated business planning. This is the capability that equips companies to plan through the next 18 months in their IBP cycles. They are preparing for the longer term pick up after the crisis. With that, the time horizon from now to 18 months in the future would be covered by world-class capabilities, not by buzzwords and not by technology, but really by capabilities. The fourth one is the agile way of working in cross-functional teams, which are also critical to accelerate decision cycles and to use.
Kieran Chandler: All those planning concepts in order to make quick and high-quality decisions are crucial in this crisis. It will be a trigger in our future discussions with supply chain leaders about whether those capabilities should be accelerated in many companies. Okay, Cédric and Joannes, let’s start wrapping up. The IMF says that the world economy is shrinking at the fastest rate for decades. How do you believe companies should prepare for this?
Cédric Hervet: I believe that companies should work on acquiring visibility into what’s happening within them. Stefan’s point about building strong and real capabilities to operate the data is crucial. This will help them react in the right way to serve multiple objectives. Take last-mile deliveries as an example, they didn’t have the tools to face the challenges presented by the crisis. With the right combination of data optimisation and machine learning tools, which we provide, you can perform short-term simulations and explore new ways to organise.
Once you’ve decided on a type of organisation, these tools can implement this new organisation for you. They can assist your operators and make your organisation more robust and agile. This is by switching from a static way of organising to something much more dynamic where you’re capable of recomputing things every day to cope with the challenge of the day.
Preparing for the next era involves finding the best way to emerge from the crisis stronger and more resilient. We have to get prepared for the next crisis, because there will be a next crisis. We don’t know what will cause it or when it will happen, but it will happen for sure.
Kieran Chandler: Absolutely, and Joannes, I will leave the last word to you. We’re obviously facing a turbulent few months ahead, so what’s your advice for a company to best prepare for that?
Joannes Vermorel: I believe the only way to be ready for a crisis like this, just like Amazon was, is to have a decade of preparation. If you don’t have that, you should start now. The mistake would be to cut all the things that would make us more ready for the next problem because we are facing a terrible situation right now.
Sometimes it’s very mundane things. For instance, in France, I’ve noticed that many major company’s e-commerce websites couldn’t handle the load. I’m not talking about something difficult to scale, like a web search engine like Google or video traffic like Zoom. In terms of IT scaling, an e-commerce shopping cart website is trivial. Many companies have been postponing investments and improvements and they should really question whether that was smart.
Access to funding is not actually that difficult in many countries, even during this period. My suggestion would be to invest in things that will make you more robust for the next crisis, even if it’s in 10 years, even if the ROI is not obvious right now. Invest in the fundamentals with a risk-aware vision as opposed to going for an immediate ROI that is very fragile to changing conditions.
Kieran Chandler: Brilliant. We’re going to have to wrap it up there, but gentlemen, thank you very much for your time and stay safe over the coming weeks.
Cédric Hervet and Joannes Vermorel: Thank you.
Kieran Chandler: That’s everything for this week. Thanks very much for tuning in, stay safe, and we’ll hopefully see you in the next episode. Goodbye for now.
