 Welcome to MIT Supply Chain Frontiers from the MIT Center for Transportation and Logistics. Each episode features center researchers and staff who welcome experts from the field for in-depth conversations about business, education, and beyond. On today's episode, center director, Professor Yossi Sheffi, speaks with two seasoned supply chain professionals about some of the business and leadership innovations that the disruptions in 2020 brought about for them and their organizations. And he asks some compelling questions as we look toward the future. Take it away, Yossi. Hello, everybody. I'm Yossi Sheffi. First of all, thank you, Linda Day, for joining me today. Let me quickly introduce the two of them to our audience. I'll start with Lynn, Chief Procurement and Supply Chain Officer at Flex. Flex is the company that used to be called Flextronics. Many of you remember Flextronics, started 51 years ago at Silicon Valley, then moved the headquarters to Singapore, and later changed its name to Flex. It's a contract manufacturing, which does and can do almost anything. Many of the things that brands are selling are actually made by Flex. The company has $24 billion in revenue and 160,000 employees, and very complex, actually, multiple supply chains. It's hard to talk about Flex and think about these supply chains. They have so many. Now, Lynn Tourette is responsible for this multitude of supply chain. She is a graduate of the University of Minnesota with an MBA from the Kerry School of Business in Arizona State. High Lynn, thank you for joining us. Hi, Yossi. Let me introduce Dave Wheeler from New Balance. New Balance was founded in 1906. So it's an old company in Boston. It's an art support company by William Riley, who actually, I don't know if it's true or not, but the urban legend is that she followed the way she can balance their gate and decide this is the perfect way to balance ones. And they say that he had the chicken leg on his desk for many years. By now, of course, the company sell athletic wear in 120 countries with $5.5 billion in revenue and 8,000 associate. It is a private corporation. David Wheeler is the chief operating officer of New Balance. He studied Merrimack College. He's an engineer and has an MBA from Miami University. I should say that both Dave and Lynn were generous with their time in the middle of the pandemic, which taxed every supply chain executive. They both allowed me to interview them about what was going on during the pandemic around the world, providing material for my book that came out in October this year, the new abnormal reshaping business and supply chain strategy beyond COVID-19. Both have operation in China. It's interesting because Flex, of course, is a B2B operation, while New Balance is a B2C operation, serving consumer directly. So they come from one private company, one public company, coming from two sides of the supply chain. So what I'd like to do now is start with a few questions. We just went through an amazing and tough period. What's the biggest insight or a moment that came out for you and for your organization? Well, I think one of the most interesting dynamics is that 10 months ago, nobody was really talking about supply chains. People just expected them to work and deliver the products. Now, supply chain is a topic on everyone's mind. And it is very pervasive in the industry today, the importance of supply chain and supply chain resiliency. I also believe that digitalization tools provided great information to allow our organization to address the supply chain challenges throughout the pandemic. But it also highlighted to me the importance of supply chain professionals making smart decisions with imperfect information throughout this challenge. And I also believe that it validated the investments that Flex has made over the past years in our digitalization tools to be able to stay as quick as we could in our decision making as we addressed all of the challenges that we were faced on a daily basis throughout the pandemic. Thank you, Lee. Dave, what was it for you, the insight and how moment that came out of the pandemic? Good morning, Yossi. And yeah, thanks for having me on here. Good to share some stories. This has certainly been a challenging 2020 for sure, a combination of loss and chaos and certainly some opportunity as well. And I think maybe two parts I'd share. One is, I guess I'm not too surprised that having a burning platform brings people together. If I think back to the earthquakes in Haiti, we rallied around our suppliers to make sure that they were supported. And we also figured out ways to get back up on our feet in fairly short order. So seeing a team come together for a common cause certainly was the story of this year for us. I also think we all surprised ourselves around the ability to come together in a virtual way using tools that have been available but certainly have come together for the masses which enabled us to work together really in a more seamless way and in many cases more effectively to get to conclusions, make decisions and take action in a way that hadn't happened in the past. So that for me, the ability to work virtually essentially was the big aha moment for me in 2020. Thank you, David. And we may come to this point because it would be interesting to know later how much of this will stay after the pandemic including working virtually and on the thing. But Lynn, you mentioned before that supply chain became people used to ask my wife what your husband's doing is they're doing research in supply chain and they said, what is it? Nobody asked what is it now? They said, oh, wow, that's important but within the company, what happened to you and your function as a result of this? Well, supply chain within the Flex organization has always been a critical aspect of our business. So it was always highlighted as a strategic importance within the Flex organization but I do think in many companies, supply chain became more prominent in the discussions and direction and decisions that companies were making. Yeah, Dave, you used to be the head of supply chain now you're running the whole operations. Right, yeah, I think New Balance is a little bit different, right? So we're a consumer facing brand so when we think about the most prominent functions in the company, it's about marketing and merchandising and those types of functions. Supply chain is there to support those efforts and in the early parts of the pandemic and actually throughout 2020, supply chain has been thrust into the forefront a lot further, very visible. Often having discussions with ownership and the CEO and the CFO and really trying to make sure that our efforts are headed down the right path to support the demand, which has really fluctuated both down and up in a significant way. So the V for us has been real. We'll still end the year on the negative side versus 2019, but certainly in the latter half of this year volume is up significantly. So we're actually chasing the supply at the moment. Oh, wow. Let me follow up on this with you, Dave. To do this, of course, the supply chain has to be not silent but work together with every other function in the organization. Can you talk more about the cooperation with other functions? Yeah, sure thing. We found in 2020 that working in an agile way really helped us accelerate change. And in the past, we had run projects in a more traditional, longer term, get a Gantt chart, really have key milestones. We created in the March, April timeframe a series of what we call pods, agile pods that were very cross functional, had a 90 day time limit and had key deliverables along the way. And so every other day that team was together in a cross functional way. And that synergy was really game changing for us because we could pivot a lot quicker given all the inputs from the various functions. So that was significant for us this year for sure. Lee? Well, when the pandemic first started in January, we were getting information out of our Chinese operations. And one of the things I did is we created a daily call with my leadership team and other areas of cross functional business leadership from our resiliency team, our legal team, our tax team. And we had a daily call at 5.30 in the morning, my time for months. And I think that was incredibly important in how we addressed the challenges we were facing. We would have a very structured agenda for the daily call. We would hear from our regional leaders what they were hearing from customers, what they were hearing from suppliers, what they were hearing from the media or local governments. We'd look at the information we had from our suppliers and our customers forecast to understand where we may have supply chain risk. And then we employed tiger teams to address the significant challenges we had. And that daily rigor of the calls and our ability to move very quickly and readjust our teams to focus on the most critical aspects that we were working on provided a great deal of resiliency in our supply chain. We had, we cover a great number of industries at Flex. So we had instances where some of our customers' forecasts were going through the roof and we were chasing our medical supply, medical business, for instance. Drop in lead time demands, shortages that we were chasing. And we had other parts of our business where the forecast were declining rapidly. So having that daily rigor, being able to deploy the vast resources that we have within the supply chain organization to both expedite orders and cancel orders and understand what other challenges we might be facing such as sourcing PPE equipment or freight and logistics challenges and making the decisions based on the discussions we were having on a daily basis was very critical. Just following on the comment that they've made, do you see the business that was down, do you see it starting to go back up? Yes, in many cases the rebound has been dramatic in the increase and like Dave, we are chasing supply right now because the demand is high and now we're certainly seeing some shortages that we're working on to make sure we clear to recognize revenue and support our customers. But, and I do think throughout the entire pandemic with the forecast going up or down, we really worked with our customers closely to validate their forecast. And I wanted to ensure when we were working with our suppliers, we were giving true demand signals and prioritizing appropriately. So they would be able to work within their organizations which were also challenged because of the pandemic. And we worked very closely and collaboratively and compassionately with our partners to try and ensure we could meet the demand. Dave, could you just comment on working with your suppliers? Sure, yeah, it certainly was challenging in that April and May timeframe as we went in and put a hold on production. But we also wanted to make sure that we had really strong relationships with our tier ones and also respecting the tier twos and tier threes as they tried to stay financially solvent. And so it was a real delicate balance actually. And we put a lot of emphasis, a lot of resources around understanding the data at a very detailed level so that we could repurpose the certain materials that were already purchased by the tier one into the tier twos rather than leave them, holding the financial liability. And so fortunately, we were able to work down a material liability of over $10 million essentially down to zero by just trying, just really using the data, again, respecting the suppliers because we need them for the long run. And I think those relationships are so critical. I would also maybe tag on there that living in this virtual world, it does certainly become challenging to maintain those relationships at the level that we have had in the past, in person really does make a big difference. So we can get 90% there, but that extra 10% makes really does make for a much stronger supplier relationship. And we look forward to getting back to at least some level of travel in the near future for sure. Yes, I mean, interesting guy. In the book I quote Lynn actually, that talks about the fact how important it is to sit at the end of the day face to face, have tough negotiations and then have dinner together. The way trust is being built. But Lynn following on other discussion that we had before, there's a lot of focus on resilience from your customer. We want you to be resilient. What are the challenges here? That's a great question. And it's actually a topic that I'm exploring in a series of blogs on the Flex website. Everybody's talking about a resilient supply chain. And we believe that there are a number of ways in which you can work with your customers and suppliers to drive more resiliency. Visibility is incredibly important. Digitalization and collaboration. So when we're looking at driving a resilient supply chain, there's numerous ways you can do it. In some cases it's like an insurance policy is that having additional inventory and if so who funds that additional inventory is it looking at alternative suppliers to de-risk the supply chain? And it's also from an internal standpoint looking throughout your entire organization to find out where you may have resiliency risks and continuously improving internally to drive improvements in that area. Thank you. And Dave, you face different challenges because you are not faced by huge customers. Each one is a large percent of your business who can exert pressure. I mean, you are facing consumers. I mean, you're facing some retail chain obviously by more than others. But so you have, how do you deal with the move to e-commerce and omni-channel? Sure, I mean, even prior to the pandemic we had seen quite a shift from wholesale into our wholesale retailers over to direct to consumer, e-com type sales. And it's certainly accelerated in a big way in 2020. I think as many companies have found as folks stay at home and can't get out to the retailers. So we have seen an acceleration in that type of sales that's launched us three years beyond where we expected to be. And as you can imagine, that puts a lot of stress on the supply chain from the way that we distribute the product and then finally delivered into the consumer's hands versus a customer of wholesale. A completely different set of processes. So we have quite an effort underway within our warehouse network and that transportation capability to make sure that we can catch up and also sustain what happens in 2021 which we expect will be continued growth in e-com. And I think on top of that we are certainly getting into the omni-channel capability utilizing our stores to ship smaller volumes of certain SKUs that consumers want in a relatively short period of time. They're used to that Amazon potentially same day within two-hour type delivery. And we are working down that path with a couple of pilot projects utilizing our brick and mortar which is super exciting for us. Thank you. Both of you have operations in China. Both of you are also setting in China. Lin, let's go to you. Are you gonna move out of China? No. No, Flex has a large- This was a setup, a setup, I know. Yeah, Flex has a large footprint in China and we are committed to our employees and other stakeholders there. And we also have a diverse and global footprint and depend on supply chain from China to support our customers. China is unparalleled in their electronics manufacturing and supply chain capabilities. And the hubs, the technology hubs that have been built have been decades in the making. And so we will continue to work with our valuable suppliers from China to support our customers. I think at the same time, we need to look at resiliency and do you risking the supply chain? So I anticipate change, but not in the short term. We'll continue to value our suppliers and our production in China. Dave? I think similar to Lin's perspective, certainly New Balance has a strong consumer base in China. So producing in China for consumer consumption in China makes a lot of sense to us in the apparel and footwear business in general. It's not as high of a value add as electronics, for example. And so across the industry, we've seen migration generally away from China, but still some volume remains there, especially for let's say high performance technical running. And certain capabilities that China has built up over the decades are outstanding that businesses like New Balance wanna stay there in particular. But China certainly has and brings a lot of great production capability to the table that we're certainly proud of for a lot of different reasons. And we source globally. We're proud that we're the only major athletic brand that produces right here in the United States with five factories in New England. So we're very diversified on our supply chain base. Thank you. And there's a lot of related question before we go to the technology, lots of technology questions, about the Trump administration and others are talking about regionalization and moving to insourcing instead of outsourcing. You see, I did not see much of this, but do you see in your company, do you have part of the strategy to bring more stuff in home, Lynn? Well, Flex has the benefit of a large global presence, large global footprint. You wrote in your book about China plus one. Yes. Flex can offer China plus 50 for manufacturing. So I do believe that talking about resiliency and regionalization, it means different things to different companies and to different industries. We believe that there's an opportunity to look at partnering with customers who potentially have done their own manufacturing and want to look at maybe de-risking by using a partner like Flex to take on a portion of their production to provide that resiliency and risk mitigation strategies. But in general, I do believe that there is a lot of talk of regionalization and resiliency and it needs to be defined exactly what that means for a customer, for their strategies and then looking at, is that something they want to do themselves? Is that something they want to partner with? We also offer services in engineering because the manufacturing is one aspect, the entire supply chain is another aspect. So if we have customers who have a single source device as part of their technology innovation, can we provide alternatives that come from a different supplier manufactured in a different region to help de-risk the supply chain? So I think there's a lot of ways in which we can drive resiliency and support regionalization as our customers want to define that. Dave? Sure, we have a real interesting combination, I think. I guess I would tie it to a key initiative we have underway and have had over the last couple of years, but especially in 2020. It's been focused on design for lead time. And so as we think about an agile, responsive supply chain, a lot of that is around lead time, shortened lead time so that we can sense demand and rapidly respond with supply. And that tends to focus our energy around localized, regionalized supply base. And our ability to open up our own capabilities there in every single country that we sell into is unrealistic. And so using an outsourced specialized capability on a regionalized basis makes a lot of sense to us. And that will certainly continue to be the trend as we design for lead time so that we can respond, shorten up our inventory turns and really get a little bit more precise around what inventory we have on hand based on our sell-through. So that would be our trend at the moment. Thank you. Every virtual conference that I'm on, every other question that I get is digitization of the supply chain. Okay, the question is, what do we mean by this? Which technology grows where? What are the technology? For example, Flex, I know develop this unbelievable NASA-like worm that looks at the whole supply chain. That's something that takes a lot of money and time to develop lead. If you can just say a word about your system that was developed actually even well before the pandemic but then about the technology that you think are critical for making the supply chain more agile, responsive, shorten the lead time, increase inventory turn and all the good things that we expect. Yeah, Flex benefited greatly during the pandemic in the investments we've made in our digital technology. And the best example is the Flex Paul Center which we started in 2015 and have been continuously innovating since. So Flex is a cloud-based intelligent platform that provides real-time visibility into our entire global supply chain. And we use it to manage all aspects of our business. We're able to go in with a click of a button and look at a global picture, drill down to a regional picture, a site level, a customer level to a part number level and understand what potential gating aspects we may have. So the insights we are able to glean from our Flex system are incredibly powerful. Prior to joining Flex, I was a supplier to Flex that I remember my first visit to the Flex Paul Center and I told my predecessor that I had data envy because it was so powerful. Coming now and joining Flex, I realized how critical and important those investments are in managing such a complex supply chain. Yossi, you mentioned it at the beginning, we have, we support over 1,000 customers with 16,000 suppliers and that translates into a million SKUs. So that working across multiple industries makes it incredibly complex. So the visibility that we have from our Paul Center is incredible. It was a significant investment in the continuous innovation and we've innovated even with lessons learned from COVID. And one of those was, and Dave, you mentioned that the tier two, tier three supplier and the lack of visibility, both from their supply chain, but as well as their financial health. And those are areas where we believe furthering the capabilities of our system will require third party partners to support us with that information because even before COVID, we had environmental issues impacting our supply chain. Then you had the trade tensions, then the global pandemic that need for resiliency and visibility is more critical than ever. And in some cases, it will require really an industry wide type of connection to be able to gather the information and provide that visibility. We have nine of those around the world, Paul Centers and their wall length across a room, digitalization tools that provide live streaming and really actionable insight towards where we may have challenges. So it is a very state of the art from what we've developed. Absolutely. Dave, can you tell us about where do you see the most important investment in supply chain digitization? What problems are we trying to solve? Sure, yeah. Now, we've made the decision to, as many companies have either in the past or at least thinking about it, to really invest in a new ERP and a new supply chain planning suite, which will bring in demand sensing, actual sell through data, point of sale information, use AI to give us a better forecast. That's the expectation because it all starts with the forecast. So we're excited about that and we're about ready to get started on it. So as far as software and the platform to help us tie end-to-end supply chain together, that's a big deal for us. I would say on the product side, there are a couple of areas that really came to the forefront in 2020. One was in the past, we have done some 3D product modeling. So our suppliers have capabilities that we have helped them get ramped up with to be able to create a 3D computerized model of a shoe that's in the design phase. And in the past, we've created physical prototypes which get produced and then sent, transportation, handling all that. All that adds about four to six weeks onto the overall production cycle. And if they get it wrong, then we start that over again. With the 3D model, which we've really invested quite a bit of money in and just in the recent past, in 2020 we were able to really turn these prototypes quickly in the virtual world. And so that's been a big, big improvement for us in the digital transformation. The next step is to be able to take that 3D model and have it blow out into a bill of material and then digitally right to the shop floor. And so there is a lot of work across a number of different suppliers to help us get to that point as well. And I know a lot of companies in our industry are working toward that. And that I think will be true product, you know, digital transformation. I'm excited about that. Good. Let me change tags. Let's go back to Lina. During the pandemic, he's changed the way that as executive, you do your job. How you lead the organization. You have a pretty large organization reported to you and did it change your leadership style? I think it probably enhanced some of the strategies that I've always employed. One of my leadership tenants has always been collaboration. I always believe that it's important to have teams working together to drive the best results because it's a very complex industry that we're in. And I think that came to another level during our pandemic. Because certainly, you know, I was relatively new to flex when the pandemic broke out. I joined of October of 2019. So when we started those daily calls with my leadership team, who are phenomenals, experts in their area, we would have a discussion and I said, I wanted to hear everybody's voice and everybody's concerned when we were having these discussions because we needed to make quick decisions to mitigate our supply chain and we would meet again in the morning in case we had to adjust them. So I would say I think collaboration was something that increased across the organization as people understood all aspects of our business needed to be in constant communication to understand the customers, the suppliers, our manufacturing capabilities. We had our manufacturing sites closed down and open up as our suppliers were closing down and opening up. So we shifted product around the world to make sure we could recognize revenue and support our customers. So collaboration was enhanced. And I think communication, one of the things I learned personally is the importance of ongoing regular communication. In some cases I thought it might be repetitive but recognizing the organization wanted to hear from the leadership team even if in cases it wasn't perfect information or we knew exactly what was going on but really learned that regular communication to the employees was very important in such an uncertain time that they would hear from the leadership team on the strategies we were employing for the business. Dave, what can you say about your leadership style and did anything jump to your doing in the pandemic? Yeah, I think I would just 100% emphasize Lin's points right on target as far as communication, collaboration. I would just maybe add an additional point that I've recognized certainly working in the virtual world with the staff folks that are working from home and in other locations. My leadership style when in the office has always been let's have a meeting and prior to that meeting there's a lot of work that actually gets done. After the meeting when you're breaking up and having hallway conversation a lot of work actually gets done there and in Zoom calls or team calls when you hit that leave button, that ends. And so that's the part that I recognize that we were missing out on even though during the meeting super collaborative people can hop on in almost on a moment's notice with no travel, which is fantastic but intentionally carving out a little bit of extra time to connect into individuals for five or 10 minutes has made a big difference because after all we're all part of the human race we like to socialize, we wanna talk about what's on our mind and as we do that we not only create new ideas and innovate but we feel connected. And so on top of what Lin said I just add that additional part. Certainly people did amazing thing during the pandemic I wrote the book usually takes me four years I wrote it in four months but that's nothing compared to developing the vaccine that thought people can do it takes 10 years people do it in eight, nine months. I mean, amazing with new technology. So I didn't mention the fact that Flex started making ventilators and Lubano started making masks. Amazing how companies just did the right thing and without much prodding and all these just I'm just mentioned that it was interesting to me that the masks that new balance develop would develop by the supply chain people not by the designers. So it looked great. But it's one thing to do on this as you say when the whole team feel that there's a burning platform it's important and people work on a lot of adrenaline. The question is, so we learn how to do things fast the question is how to keep some of this going forward. Well, it's interesting. I had a discussion about this yesterday. Flexibility is in our name and in our DNA. I think it's flex. We have, as a contract manufacturer and logistics provider, we support our customers and we have to be very agile. We are introducing new products around the world and any one of our factories multiple new product introductions at the same time that we're bringing products to end of life and managing that complexity of the supply chain. So it was, I would say, you know we always work fast in trying to be flexible and agile to support our customers because that's our business. When we moved into the ventilator production we added passion because we understood that, you know we were making products that were desperately needed around the world to save lives. And that was something I felt was really critical for the organization. I mentioned those 5.30 a.m. calls because they were really early for me when the pandemic started. We started getting ready to ramp our ventilator production. I was up before my alarm. I couldn't wait to get on the phone to understand what we could do to get the products we needed to get the engineering resources, the supply chain resources to drive that product. So certainly that, you know for our business we need to be flexible and agile but we certainly saw a difference in the level of passion during that time. Dave, how do you keep the spirit that made, I don't know, I described in the book making masks within basically over a long weekend putting together MIT and messages to general hospitals and all your manufacturing material on hand and just doing it in days really, which is amazing. You mentioned that it's a product of the supply chain and that is a true design for manufacturing because we leveraged our available capabilities and materials and there was a ton of passion around it no question about it. We did it within like you said a long weekend and really tapping into the talent that we needed to bring to the table because we weren't mask experts. We didn't work in the FDA world prior to this. We're footwear and apparel makers. And so there was a lot of learning and unfortunately folks came to the table and rallied together. I think, you know, how do we keep that momentum up? We learned a lot along the way in the mask making business that has actually helped us. There are some lessons learned and new processes to your point. I mean, we made mistakes in the mask, you know, creation. You know, we, as you recall back in March we didn't even really know what type of mask to make. Was it an N95 mask, a surgical mask, a basic face mask? What was the demand? And you know, all these changing consumer inputs and you know, we made three versions within about six weeks and we produced over a million masks and have donated those in hundreds of thousands of masks at this point. But certainly lessons learned as far as implementing certain quality processes along the way as we shorten up that timeframe so that we don't, you know, incur any additional errors on our apparel and footwear business. So kind of a combination of things, of new processes to ensure quality as we accelerate the process that's needed right now in this new, you know, consumer environment. I really want to thank both Dave and Lee for taking time out of what is a very busy and active schedule still today to share with us some of the lessons learned from this period. Thanks everybody, stay well. All right everyone, thank you for listening. I hope you enjoyed this edition of MIT Supply Chain Frontiers. My name is Arthur Grau, Communications Officer for the Center. I invite you to visit anytime at ctl.mit.edu or search for MIT Supply Chain Frontiers on your favorite listening platform. Until next time.