Orchestrating Outcomes for External Manufacturing: Arun Giddu of Thermo Fisher Scientific on Laying the Groundwork for Long-Term ROI in Supply Chain Digitalization - Part 2

There are certain other apprehensions that we have come across. One of them being like, "Hey, if I am digitally connected to my customers, there is a good likelihood that I might be opening doors to a lot of information, which I don't necessarily want to share. I might be sharing all my trade secrets or I might end up sharing production schedule information, which I don't intend to share."

How do you view this skepticism? Is this being overly protective? What's your view on these kinds of objections?

Yeah. I think it is not warranted. I think because what you share electronically, you can limit what you share, and it need not be anything more than what you share non-electronically. So, just because you share electronically does not mean you share more than what you want to. Right? And second is, in fact, I would argue that carrying this information on time, which means, most probably you're sharing it electronically, is going to make your customer dig less deep into your workings. Right?

Because you are giving them all of this information on time. Because you are digitally connected, you give all of this information on time. They're less likely to peel back the covers and look into your operations because they are getting the information that they need on time.

If you are not to do that, then in the case of helping you, they might come to say, "OK, what is it that you're doing? Where are you getting stuck?" And eventually that means you're opening up more of your operations to that. So, I would argue that being electronically connected will lower the chances that your customer is going to get deeper into your operations.

Makes sense, makes sense. So, the key here is that we need to have a secure data exchange and you need to have very clear, upfront, agreed upon rules that say, "Hey, this is what I am willing to share and this is what makes business sense for us to exchange." There is no need to share any more information than what is absolutely necessary for the business operations to continue.

And if you have those well agreed upon rules and requirements, I think the customers and CDMOs or CMOs should be good to go on that. And if you think about it, right? The customer, they engage the CMO because they do not want to get involved too much, right? So, if you force them to get involved, that means the CMO is not doing a good enough job. So, the customer's first or initial way of approaching is, "OK. I'm offloading the manufacturing of these products to them. I don't want to dig deep and manage this. I'll let the CMOs manage."

And so they'll be very happy if you can supply the product on time, not to dig deep into how you are doing it. As long as you're following the process and the quality is good, they are very less likely to dig into your operations because that is the whole point in hiring a contract manufacturer, is to get away from managing.

Yeah. Yeah. Yeah, A lot of times, when we have spoken to the CMOs, what they have been saying is, "Hey, we are in the middle of an ERP upgrade, or we are having multiple ERP instances and we are consolidating them into one." And they say, "This is not a priority right now. Come back to us after the ERP upgrade is done." I personally see a huge amount of risk in having this digital integration being sidelined. What are your views on that?

We need to be sure that the master data is there. First step. And that normally happens as part of ERP.

And it is, from what I have seen, especially if we're talking of SAP, that many times, SAP is implemented more for financial aspects in the sense that: OK, it's more like a system of record than a system of execution. So, processes happen, actions happen, and then somebody then records it into SAP. And what that does is it doesn't make your internal processes very efficient.

Maybe finance because then everything flows up and the finance department can easily get: OK. Process is done. How many units have we manufactured? How many have you sold? All of that information nicely flows to them. But it doesn't aid operations, right? So, many times when they say, "Oh, we have to do the SAP implementation or we are going to HANA and things like that."

It is because the first time the implementation was not all that great, especially in terms of master data. Vast amounts of master data are missing. In which case, you cannot use your system for integration with your customers or suppliers because, in fact, you're not able to automate processes even within the organization.

So, it is very much like, I'm conflicted here. Should we go and become the SAP consultant? Or become a consultant to the consultant to help them set up the SAP system so that it becomes automated?

The master data is so good that you can then build processes which can be automated. Otherwise, it becomes a system of record not of execution. And then you now say, "Oh OK, if you go to the next version of SAP things will get better."

But actually, the issues are more fundamental in the sense that they have not thought through: What is it that they want to achieve with the MRP implementation?

So, definitely the first layer is the MRP implementation with good master data. And 'master data' is this very nebulous term. So, what we need to make sure is that master data… We have to think about those two things which I mentioned: Is it going to help the customer, whatever I am putting into the master data? And how is it going to help?

And the second thing is, think about complete lights-out automation. Then you will collect all the right information in the master data because right now, much of the master data, even with the SAP systems, are in, maybe in Excel spreadsheets, or in sticky notes stuck to the cubicle walls. And all these things, you would have seen. And if you see these things and people using it, that means their master data is not up to date.

You cannot automate the processes and therefore you cannot make the integration between CMO and the customer, CMO and the supplier, anymore. And it will be computerized, but you will not get the return on investment. So, the right thing to do is to get your SAP system upgraded with good master data.

And then the next step will be to do the integration. So, for TraceLink, I think you need to look at: OK, how good the CMO's master data is, and then we can then say, "OK, there's a good chance that they will be able to get the return on investment on integration."

Yeah. And I like that touch of differentiation between that. You don't want to have your ERP system as a system of records. You should be looking at it more as a system of execution. It should drive execution.

Exactly right. Because otherwise, you are depending on people to remember things and start the process, instead of a need kicking off different processes in the system. Systems are much more… They don't forget. They are repeatable, error free. You want the systems to initiate the process, and as much as possible, be automated.

Yeah. Yeah. Yeah. And we have personally experienced the magic that happens when you have the right master data and you have the right integration set up with your supplier base. To me, it was a very successful project that we were able to implement at VWR.

One of the things that I want to understand is how do you define the success of your digital integration initiative? What are some of the basic metrics that you can implement to measure if you are moving in the right direction or not?

Yeah, like I said, right, customer focused. So, let's see, before you implemented, what was your service level to the customer, or on time and full, and all these kinds of metrics, right? What was it before? And what was it afterwards? And then the other thing is your back order dollars. So, what was it before? What is it now? Because the customer is only interested in: Am I getting the product on time? Right? So, if you have a good service level and your back order dollars are down, the customer is happy.

Now within your own organization, for example, in a manufacturing organization, you would want to check on: What is your schedule adherence? Right? So, are you making the products on time? Because if not, then there is a lot of perturbation, a lot of commotion within the organization which will drive down the efficiency. So, the metrics: The first thing I would see is customer-facing metrics. How are they improving? And then your internal metrics of efficiency.

How are they getting better? If they are getting better, then you would assume that your customers are happy, you are spending less on making the same amount of output, and you should be in a good position.

Yeah. I mean that almost reminds me of when we implemented this whole digital integration at VWR. We had a very comprehensive supplier scorecard where we not only evaluated suppliers against each other, but we also evaluated progress of a particular supplier over the 12-month period that where they were when we started this project versus where they are on a specific metric.

So, I think that ongoing measurement and identifying the right KPIs is a very, very crucial factor to make sure that you're moving in the right direction at the right pace, and you are able to hone on the areas which still need improvement where there might be flaws or gaps and so on and so forth.

Yeah, and in fact that is a very… It doesn't happen as often, is that the customer helping the supplier get up to speed so that it is mutually beneficial, right?

Because if my supplier is getting better and is able to get my products in on time, then my metrics to my customer will also improve because now I'm able to manufacture the products on time and then be able to supply to my customer and things get better. So, I think that is a very good example of foresight to help the supplier come up to your level. Yeah, which is an interesting point, right?

The customer caring about their CMOs or CMOs caring about the customers. This topic is so close to my heart and primarily because I've experienced both the good and the bad when we were not electronically integrated. And we then went to full electronic integration at VWR. And in my previous organization, we had limited to no electronic integration. So, we experienced those dark days again.

Just one last question is: What are the top three improvements that you think the CMOs can achieve from a KPI perspective? Or, what are three key improvement areas that you can think of if you have a perfect world where CMOs are digitally fully integrated with their customers? Maybe you can shed some light on the top three areas or KPIs that you think CMOs can benefit if they are electronically integrated with the customers.

So, let's think from the customer's perspective: What would they want? And like I said, right, where is my stuff? That is the answer they want. So, they want to have the products on time, at the right price, at the right quality, right? So, as long as we keep making improvements in that area: OTIF, service level, back order dollars. All of these are the metrics that we should measure. Now, electronic exchange of information will help in all of this, right?

So, for example, if you were to do a PO manually, you send an Excel spreadsheet. But what happens is you need the buyer on this side to not be on vacation or things like that. And then the customer service on the other side, also accepts this Excel spreadsheet and puts that order into the system.

They also need to be present and also not make mistakes while entering. It's very easy to add an extra zero somewhere and make a big mistake, right? So, that is where electronic integration is going to help. It will reduce your lead time because as soon as the need for a product is there, it is sent to your supplier.

And as soon as the customer requires a product, you, the CMO, will get to know that ASAP. So, these are the electronic integrations that make these kinds of things possible, reduce errors, and then give you time to react. So, because you're reducing the lead time, then there is no dead time between you knowing versus my customer knowing, right? I know the customer needs the product.

The system immediately shoots off a PO to the CMO, and the CMO can get to start working on it. Otherwise, there could be delays of two or three days. Even though it appears as if it is not a big delay, these add up. And if you have hundreds and thousands of products, all these delays add up. It adds to what I call the perturbance. And that kind of leads you to low efficiency.

So, electronic integration is just the basic thing and with the MRP done right, it will give you huge amounts of benefit to both the CMO as well as the customer. So, it's actually a win-win situation. Thank you, Arun, for your time today. It was a pleasure speaking with you on this Orchestrating Outcomes series episode.

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