My name is Andreas Thonig. I'm running sales for Tradeshift in the DACH and Nordics regions since a little bit more than six years now. As some of you might know, Tradeshift still is a pretty young company, founded back in 2009, and provides services across the globe for all companies, no matter of industry or size or region.
Peter, why don't we come to you now?
Great, Paddy. Thanks. Peter Bolstorff. I'm the Executive Vice President for Corporate Development with the Association for Supply Chain Management. We are the largest supply chain professional association worldwide. We hold standards like the SCOR model and the Digital Capabilities Model, as well as professional certifications across Plan, Source, Make, Deliver, and Return or as spoken. So happy to be here. Thanks, Paddy.
Great to have you. And last but by no means least, Frank, if you can give us a quick introduction to yourself. Or not. It looks like Frank's internet's maybe just dropped out at the opportune moment there. No problem. We'll make sure that he comes back in as soon as he can. Always happens live. You may notice that our last panelist, Dirk Holbach, the CSCO for Laundry and Home Care at Henkel, is unable to join us live today. But what we've done in the run-up to this session is we have recorded a Q&A with myself and Andreas here so that we can make sure we bring all the insights to you. Frank, you have returned.
Yes. Sorry for the technical disruption. So myself, Parker Hannifin, first of all, market leader in motion and control technology. We are a U.S.-based company in Cleveland, Ohio. Myself, the supply chain leader, VP for EMEA. And now, if you still don't know what Parker Hannifin stands for, it's all about enabling engineering breakthroughs that lead to a better tomorrow. And therefore, it will be really nicely into that format today. Thank you.
Perfect. Thanks very much for the introductions. As I mentioned, we'll be looking now to play this recording for you, the Q&A from a few days ago. And then we will come back here in about 15 minutes to continue with the live discussion with our wonderful panel today. Do make sure you're getting your questions in throughout the recording and then throughout the rest of the session through the software here. We'll try and get to as many of those as we can before the end of the hour. We'll also be running some polls, so it's worth keeping an eye out on those as those come through. And the panelists will then have some insights, I'm sure, to share on those. But without further ado, if we get over to the Q&A with myself, Andreas, and Dirk.
Brilliant. Dirk, thank you for joining us here today, and Andreas with us too. I think initially, Dirk, in the interest of time, if we start with a quick introduction from yourself on your role and Henkel as a business.
Yeah, hello. Welcome, everyone. Pleasure to be here with you today. Yeah, my name is Dirk Holbach. I'm working for Henkel company since more or less 25 years. And at the moment, and since seven years now, in charge for supply chain operations for the Laundry and Home Care business, one of the three business units. The company is a plus or minus Euro 20 billion business: Laundry and Home Care , Adhesive Technologies, and Beauty Care. It's almost a 50/50 split between B2B and FMCG B2C retail business.
Brilliant. Well, look, let's jump straight into it then. This is a wide topic of resilience. I think a good place to start is the conversation of transparency and visibility. Throughout supply chain operations, it's a long and well-storied discussion that different businesses are at different points of telling. But what we have noticed, certainly, is in the last 12 months, the impact on the companies that were lacking in these areas, both internally and externally when it comes to transparency, that's had a negative effect on operations and indeed their ability to resist and then to adapt to sudden shifts. If we start looking at internal operations first, and Dirk, if I come to you, and then Andreas, what are the biggest roadblocks for a company when it comes to improving visibility and connectivity between internal departments to break down these silos and limit the impact on operational efficiency?
Yeah, if I may, so then I would say you mentioned already a couple of aspects, so for me, on the one hand side, I would say a very important soft factor is when you want to create transparency and share data, of course, which is instrumental in such a situation or such situations, you need to have, let's say, also the right level of trust and openness, let's say, in the business, in the company to do so, and that is easier said than done because in the moment, you're getting fully transparent, of course. You display not necessarily only strengths, but also weaknesses and room for improvement, so I think that is a very basic factor, but very important.
And then, let's say, out of our humble experience, let's say, more from a technical point of view, of course, I wouldn't call it a standard architecture, but let's say you need to have a plan when you talk about information systems, talking about data. Yeah, of course, how you build that up and how you connect the different entities along the value chain. Of course, here, it's very helpful in the moment you operate on a broadly used standard system of records, ERP, covering really end-to-end an enterprise.
Then, of course, you build upon that layer with, let's say, latest data extraction technology end-to-end, usually cloud-based analytics platform so that you really have one single spot, one single source of truth where you, let's say, pull the transactional data in and then, of course, in many cases, enrich it even with external data and then, of course, start to analyze, read, interpret, and conclude.
Andreas, your thoughts there in terms of what Dirk mentioned?
Yeah. No, I fully agree. The only thing maybe to add to this, so what we hear or I hear when I talk to our customers and also manufacturing industries is it's so crucial or so difficult to get the data in, especially if you collaborate with your suppliers. So it typically stops at the Tier 1. So if you want to get this transparency or insights into Tier 2 , Tier 3 suppliers. But even with the Tier 1 , so we heard quite frequently, for example, yes, when I want to restart my productions, I have actually no insights or it's hard to get the insights. Is there enough products in stock? How does this impact my restart plan?
Typically, what I heard and was quite surprisingly quite frequently that people in the manufacturing industries had to pick up the phone and call the suppliers and then manually enter the data. Is this something, Dirk, you experience as well, or how have you solved this?
Yeah, I very much confirm what you say, so all that I was referring to was, let's say, the in-house picture, the entire picture, and of course, if you go upstream with suppliers, it's different industry by industry, but in principle, I agree with you. Tier 1 is usually okay. Depending also on the collaboration models, you have more visibility. Tier 2 , 3 gets difficult, and also there, let's say, what we see at the moment, by the way, certain disruptions coming in. Just reading, for instance, the automotive industry is struggling to get microchips. These are effects normally you should have seen and you would have seen already months ago in the upstream supply chain. In Tier 2 , 3, certain things are happening now. Now it's getting clearer, but it was kind of a surprise. Yeah.
For us, let's say, in our business, it is usually linked with certain predecessor materials which are used then to convert into packaging items or other raw materials we are using where the difficulties usually start. So absolutely confirmed. And here, also going forward, honestly, I expect in the year 2021 quite still some disruption because, again, here, the supply chains and value chains usually operate with certain buffers in terms of inventory and so on. And when that is getting depleted and demand signals are not going, let's say, up fast enough along the chain or for whatever reasons, these inventories are not being filled again, of course, then you're running dry and you see it then further down the chain later and in many cases with surprise. Yep.
I think when it comes to the suppliers and what you mentioned there, how important is it to sort of plan this contingency for things to be going wrong? Obviously, there's a strategy for that in the normal world 12 months ago. But now, with less visibility or more fast-paced shifts in supply and demand, has it changed in the way that you use a business and then maybe what you see from your clients, Andreas, in terms of the contingency with your suppliers to build those buffers in?
Absolutely. Let's say, of course, we have learned a lot during the last nine, 10 months, and we will continue to learn a lot, adjusting our, call it, wider sourcing strategy. Sourcing means, of course, first of all, internal, our capabilities when it comes to manufacturing conversion. Here, looking at the footprint, intuitively, we have done a lot of things right over the last year intuitively fitting to the crisis, so certain redundancy in the system when it comes to technology, supplying the markets, our business is relatively local, so anyway, you have, let's say, I kind of an implicit hedge already in because you have a lot of entities manufacturing similar products. But going then further upstream, of course, we definitely had a closer look again to certain single source situations, and I know people are talking a lot about local sourcing.
I'm not such a per se a great fan of it because at the end of the day, let's say, economies normally define where what is most efficiently being produced. Yeah, but sometimes you're lacking raw materials and then, so then it's a good wish, but you cannot do anything. But we have been looking at our portfolio when it comes to sourcing really for the, let's say, most exposed parts. But overall, I have to say, knocking on wood, in 2020, we had manageable disruption in our upstream supply chain. So we had not really any really significant product out of stocks due to missing materials. The year 2021 started a bit different, so here, a couple of non-COVID-related events, but also, as I said earlier, we see some bullwhips kicking in now and will be kicking in in 2021 will have an impact.
And then, yeah, I think whatever we learned in 2020, we are happy to apply now. Overall, our strategy has been when it comes to inventory, our own inventory, what we keep, we have been running it at pretty high levels consistently over the last six months. So once we recovered out of the really demand peaks in quarter two, we ran in Q3, Q4 with, I would say, 80%, 85%, 90% of or close to full warehouse occupation, optimizing the mix in the portfolio, also trying to anticipate what are the products more sought after and what not to be prepared more for material upstream disruption. Yeah. And some of the stuff we see now coming in.
Maybe just adding from a technology-provided point of view here. And I think, Dirk, you mentioned it in the introduction part, is I think COVID really taught us to be very open. As you said, it needs this courage to be open and transparent. And I think even if we like it or not, as an organization, we have been shown our weaknesses. And this is also something where we see the power coming up from platforms and networks and companies also opening up for new approaches. So looking back, I think as long as it works, let the system be running. So I think this was an appropriate methodology. But also with COVID and the disruptions you just mentioned, we saw a lot of companies really being much more open to rethink not only cloud solutions, but also platform solutions.
Not moving away from ERP systems, but rethinking ERP systems and what could be alternatives or additional solutions on top of this to prepare for the future here.
To take that idea of trust maybe briefly here, and Andreas, if we come to you first, with increased transparency, with more visibility across your suppliers, etc., if we look maybe beyond the actual operational manufacturing elements and the knock-on effect that might have on the supply chain, what are the benefits to maybe more business assurances as a whole, knowing how your suppliers are operating ethically, sustainably, etc., making sure they're reflecting your brand's image as well and the way that you want to be operating? Some changes coming in potentially later in the year. What's your thoughts on those?
Yeah, it's an interesting question. And I think this is also something we could talk about for hours. And I guess you're referring to the Lieferkettengesetz plan to come up maybe next year or the coming year. I think it's a balance. So at the moment, it's a balanced discussion on what's the potential negative impact, the risk, the additional efforts I have to spend as a company to fulfill all the requirements. But as you said, I think personally, I consider this as a big chance also for companies to prove that they are acting according to the local requirements, that they produce sustainable, that they have certain quality assurances in place.
And again, I think from a network and platform point of view, this is actually something where we can also support companies to provide this transparency, ensure that there is no child labor in place and people are acting according to the Modern Slavery Act and all their requirements that are in place for a good reason. And I think we have also seen in the last couple of years that also based on social media and everybody running around with a smartphone being connected globally, if something happens, no matter if it's the end of the world or we believe it's the end of the world, it will be shared across the whole world. And this has a massive impact on the brand, as you also mentioned.
There's a high opportunity, I think, or a high chance with new technology, with digitalization, to not only mitigate the risk, but also benefit out of it and make it transparent and show, "Hey, we are transacting according to all the legal requirements.
I mentioned from your personal business perspective, as you have, that's a key benefit as well of this higher transparency that Henkel have with their partners in place already to a fairly decent extent, as you would say.
If I can, sorry.
Yeah, please.
That's okay. It's more of just a comment. I suppose if I can bring us into maybe a last question here for you, Dirk. We'll discuss this with the other panelists afterwards, but it'll be interesting to see your thoughts in terms of you've alluded to a few things for 2021. But where do you see the biggest challenges facing manufacturers over the next maybe six to 12 months? The unforeseen initial impacts of the pandemic, obviously that was last year, but they still exist and the global economy is far from out of the woods. What is it that's sort of keeping your attention looking forward strategically as a manufacturer?
Yeah, if I may start first with, let's say, our business, of course, our highest priority has been and will be, of course, to take care of our people.
I think that in operations is and will remain the most important point. And honestly, we are not yet done with this pandemic. I think we see some light at the end of the tunnel, but new variants coming up and so the story is not yet over. We have to, let's say, keep full focus on that, making sure we protect our people to the maximum extent in the operations. That said, of course, will enable us to continue to deliver, again, in our industry, essential products to the market. And most of the challenges and disruptions, I said it already, I expect more on the upstream side. So here, really, bullwhips running around the world, shortage in containers. Now, air freight is still a complex topic, although we don't use it too much.
A number of force majeure events we are seeing now may be triggered due to the fact that certain assets have been running very intensively during the last year because of high demand and maintenance was not done in the right way. You pay at a certain point in time a price. Here, I expect quite some impacts going forward. Beyond our industry, of course, we are luckily in a position that our products are very much demanded and sought after, but of course, in other industries, still fighting with the demand or now with certain peaks when it comes to automotive markets catching up. All these waves will accompany us at minimum through 2021, and I'm pretty sure even into 2022 for a while.
Depending, of course, a bit on the overall pandemic evolution, further vaccines being authorized, yeah, that hopefully is as short as possible.
A sentiment probably echoed by everyone who's listening in today and indeed around the world. Well, that's probably a good place for us to conclude this initial section of the Q&A. Dirk, thank you very much for your time. Really appreciate it. And we'll now jump back to the rest of the panel for the discussion.
Thank you.
Brilliant. Well, great to have Dirk's thoughts there along with Andreas who joins us back today. I suppose maybe a best place to start is with some of the panelists who we haven't heard from yet today. And Frank, if I come to you first on this discussion of transparency across business suppliers throughout your network, this must be a key area that Parker Hannifin are paying close attention to, certainly in recent times for resilience purposes, but multiple others as well. Just need to unmute yourself, Frank, just for you.
Absolutely true, and the most important thing is if we talk about risks in that volatile environment, I would like we need to be aware about the enabler to avoid that kind of risks, and I think Dirk nicely already stated that clearly, and I would like to quote the Parker business philosophy and two pillars of our strategy. That first, stay focused on engaged people. That means keep people safe in an even more extended environment we ever did so far, and second, don't limit our customer experience to our business partner we interact means as an industrial company being capable to deliver and to stick to your promise you do towards the market, and if we just refocus on that with all the distractions we need to handle day by day, that is, I would say, best response to the biggest risk we are currently facing.
And Peter, you obviously come from a slightly different, more holistic view of the industry and multiple different companies. Along the lines of what we've already talked about, which you heard there from Frank and from Dirk, what are the key trends that you're seeing from companies and maybe the ones that are doing better and doing worse when it comes to resilience? Sorry if you can unmute yourself pretty quickly there.
Right. Thank you. Sorry about that. So again, if we think about resilient supply chains, again, my role, I'm exposed to about 300 of our corporate members each year. And as part of our engagement process, we can put people into kind of, I'll call it two buckets. Leaders, those folks that are continuing to invest, and laggards. And what I want to do is I want to kind of describe some of the key things that the leaders are doing. And by default, you can say the laggards are either going too slow or not at all. But one of the things that we found as we thought about this idea of transparency, I want to make sure we understand what the end-to-end supply chain means. And so when we think about the end-to-end supply chain, it used to be supplier's supplier to customer's customer.
I think just to reinforce Frank, Andreas, and Doug, we're seeing that expand. So it's not just the Tier 1 supplier-supplier. You're moving out another generation of suppliers in terms of transparency. What we found from a leader standpoint is people have invested in sensing. When you think about COVID, they sensed earlier. Again, so November of 2019 versus February, leveraging that kind of transparent data, they were able to balance their demand and supply better. We know that they had higher average factory utilizations from November to March. We also know that, again, based on previous disruptions in trade and other things, they were able to apply that knowledge to really improve agility. A lot of people had already started to shift second sources of supply so that they were able to absorb a little bit more of the supply shock.
And again, this idea around a shift to circular business models, and we can talk all day long around what digital investments actually did they start 18-24 months ago that actually paid off. So again, we focused a lot of our time just trying to understand what the leaders did. And of course, from a competitive advantage standpoint, they're actually proceeding through the recession here, at least in the U.S., growing share, increasing their competitive advantage.
Maybe then a question then for the whole panel, Andreas, if we start with yourself. What do you see as the key steps that manufacturers can take to ensure that their supplier and partner relationships are both secure but suitably flexible when it comes to cope with these fluctuations in supply and demand, alluding to what Peter said to give you a competitive edge potentially over people? What are the main areas that people need to be looking at in their networks?
I think there's no one general answer to this question. I think it's probably also depending on different other factors. But a couple of ideas or, let's say, suggestions also what we discussed with our customer base is actually, I think it's, first of all, super important to get access to reliable and clean data and also data across the supply chain. As also Peter, as you said, it's not only the Tier 1 , it's really the what is my supply chain and where does it start and where does it end? And really trustworthy data. And second step, it might sound obvious, is also make this data available and accessible to the entire organization. I think this is also something Dirk was referring to, that there's still some data silos within organizations for whatever reason.
So if I make this first step, I also need to make sure that my people have access to all the data. And then the third step is probably take action out of the data I can access. Just maybe one concrete example, if I find out in my supply chain that a Tier 2 , Tier 3 supplier is struggling from a financial point of view, is there a way to give them access to cheaper capital to help them to come through these tough times and avoid going in bankruptcy or any other difficult situations?
Frank, your thoughts on that?
Yeah. So first, we in Parker Hannifin are very fortunate because we have a setup of a real end-to-end supply chain responsibility, means decision-making close to customer on lowest level. So engagement and empowerment of associates plays a major role. But that is something you can't change. That's a business requirement you're in within your company. I would like to highlight what Andreas just said. It's the importance of data, what we clearly saw. So I would describe it in a five-step statement. First, sense your market trends early and know, have the relevant data accessible to fact-based decision-making and the ability to react quickly and adjust quickly if still further needed. And I give you a very specific example.
As we had the first impact out of the Corona crisis, we mapped purchasing data with transportation data because, for sure, we mainly focused financial risks of our supplier base, but we learned relatively quickly if the forwarding company we used to pick up the goods is not capable to go anymore into that zip code area. And if we match these kind of sources quickly, driven by data, decision-making by fact, we could act quickly and indeed production from that perspective gets stopped. And that is just the importance, what Andreas said, highlighting data, data, data, and being capable to analyze them smart.
Right. And I guess, Peter, that lends itself perfectly to what you said about leaders and laggards as being ahead in the thought process mind and adaptation.
Yeah. I think, let me just come at it from a different angle. Again, when we look at leaders and we think about, let's just say, key supply chain metrics, and what are those strategic areas that they're focusing on to improve those metrics? So if we just take inventory, for example, the two strategic focus areas that we find people are investing in is the idea around Synchronized Planning and Integrated Product Lifecycle Management. So those are two areas where people are really thinking about inventory. Think about cost of goods, its supply management practices. How do we continue to manage cost and minimize risk? When you think about supply chain management cost, kind of that cost around, it's again back to Synchronized Planning and this idea around how do I structure my network efficiently? We think about flexibility.
Again, it's how do I identify those second sources of supply that allow me to become more agile? So again, as we think about those kinds of bucketed investments, we have a pretty good idea of what people are focused on in the next 6 to 12 months. And again, everybody is doubling down on the digital investments they made 24 months ago that worked and helped them get through COVID.
A couple of questions in here from the audience. I'm sort of going to combine two of them as they allude to the same thing. There's questions that we've just touched on there about maybe deciding who are your critical or most relevant suppliers in the context of shift in demand, a global pandemic, whatever that may be. But then kind of the flip side of that question is given that some countries seem to be getting further ahead than others in terms of vaccinations, able to return to operations in a more short-term future, the impact that's going to then have on which suppliers are your top priorities in terms of those partnerships. It's a bit of a convoluted question, but how do you go about it?
What are the most effective ways you think in terms of going about how you rate your suppliers in terms of their importance to operations, but then what they're capable of doing, etc.? Is there a set criteria probably different for every business? Maybe Peter, if we kick off with you, as you probably have more of a perspective across multiple industries.
Sorry, Paddy, did you just say me? I couldn't hear it.
Yeah, sorry. Sorry.
Yep. Yep. So let me just use the example of the COVID vaccine supply chain end-to-end just as an example of your question. So I think one of the things, again, I'm just going to speak for the U.S., is we've not done a very good job integrating what I would call private supply chains with public policy. And I think there are countries in the world that have done a good job with that. And again, we would not be one of them in my view, we just need to work harder at that one. But if you think from a transparency standpoint, how do I understand the population or the independent demand piece, and how do I perpetuate that signal all the way back to the Tier 1 BOM suppliers supplying syringes and PPE and other things that allow that to happen?
And I think there's got to be some kind of an orchestrating piece in the middle that makes sure that everybody sees the same independent demand. And again, I think I've heard the word bullwhip a couple of times. So that you don't get people just planning the next level of demand. So as we start to think about that from an end-to-end, it's how do we coordinate the end-to-end and orchestrate it better? And there's got to be some player in that end-to-end that steps up. And I think as it relates to COVID and all the surrounding things, public policy also has to play a role in that. I probably answered more than you wanted to hear, Paddy, but it's a passionate line at the moment.
That's perfect. Frank, any thoughts to add there to Peter?
Yeah. Let me start from a different angle. So your question was already quite complex, and that is just standing for the uncertainty we are faced. That uncertainty will not much I think the next upcoming period will not get much better. So therefore, I would say in these end-to-end setup, these decentralized decision-making, empowerment, and engagement on lowest level to take the right decision for the suppliers as well as for the customer and for our own business is pretty important. But then there are fundamental we need to ensure doing business with the right business partners. So we further according to the Parker values, long-term relationships to our supplier base, actively looking again, single versus dual sourcing, decentralized setup by leveraging our cost-to-serve harmonization.
These are topics, I would say they are pretty basic, execute them well while leveraging our decentralized setup and enable the organization to decision-making at the lowest level. I think that makes us most robust for the uncertainty we are facing.
And more on the same from your side, anything that you notice coming at it from a tech provider's perspective into the ecosystem with companies when they're working?
Yeah, maybe just adding the angle from a technology provider on this, and it's all true and all solid what you said. I think it's probably also, yeah, a new way of thinking. So moving from a traditional supply chain point of view with all the focus we had in the last decades and years on cost savings, process efficiency, maybe thinking more into a supplier network structure that also would enable us to actually give you this agility and this flexibility. I know there's a lot of talking at the moment of multi-sourcing, finding different suppliers, nearshoring these alternatives. I think, yes, there's a lot of cases where this can work very well, but there's probably some cases where it's more difficult to find the right suppliers in your closer environment or in other countries.
But moving this or shifting this to a network and also allowing the transparency on is your key supplier maybe relying or your key suppliers when you do this multi-sourcing thing relying on the same Tier 2 , Tier 3 suppliers and what's the impact of a disruption here? I think this is where networks as a technology can really help and support these initiatives.
Leading off from there and to refer back to the poll now that we ran with the audience before where we were asking what's the biggest risk to a manufacturer relationship with one of their suppliers, data, data, data, to quote slightly earlier in this conversation. The top answer here with about 50% of the respondents ticking in as their main issue was a lack of consistent and clear communication, which obviously linked back to data. Again, you mentioned those actionable trends from the data as well. If I can also link back to what Dirk said, trust and openness, both internal operations and in suppliers, it seems like the component parts are all there, and you mentioned, Peter, people who have adopted technology earlier seeing successes there.
Where do you, as a panel, think the friction is here when we're bringing together this trust element, this volume of data to drive actionable insights to keep the communication between partners open? Where are the key frictions here in the supply chain? And if you feel like offering a solution for eradicating them, then please feel free. Andreas, why don't we come to you first?
How much time do we have left?
This is what a one-hour session, Paddy.
I'll keep them more concise next time.
Yeah. Maybe let me kick it off with one angle to this, and I know there's multiple angles to answer this. But if you look at the whole supply chain, I think, Frank, you mentioned this, also the subject of the transport and logistics around this. And if we look at the supply chain, there's still a lot of paper being transported and shifted around. So data that is available electronically is printed and somehow then turned back into electronic data, printed again, and so on. And there are multiple studies out there. And it starts actually even with a purchase or the purchase request and goes all the way to the invoicing part.
I know it sounds super tactical and boring maybe, but just addressing this or shifting all the paper that comes along the supply chain to a digital process, connecting the suppliers and all the partners involved, like not only the logistics partners, but also customs, harbor handling, air freight, and so on, to an open network, I think this would be not solving all the problems, obviously, but would be a great starting point.
Yep. Let me just pile on to something that I said earlier is this idea of a shift from a linear supply chain on sequentially planned, source, make, deliver, return to this idea around an asynchronous digital supply network, and so people are living in that world, not perfectly, and there are some new disciplines that people have to sort out. The discipline of how do I sense, how do I respond in an asynchronous supply chain? How do I transition plan to Synchronized Planning? How do I build in Connected Customers? How do I think about Intelligent Supply or Smart Ops? How do I deal with all of the GPS technology available today along with the drone technology on Dynamic Fulfillment?
And so again, we see, if we approach it from that point of view at a macro, it's this idea of how do I adopt these digital disciplines so that I can fully enable that DSN? There are people that are there. They're arriving. They're leveraging technology and making it happen. So it's an exciting conversation. And then we go back to something that Frank said earlier. It starts with people. How do I shift my culture from an analog culture to a digital culture? And what do those jobs look like? Because all of us deal with a robot, Alexa or Siri, but how do I teach my workforce to deal with a robot, to go clean master data or side by side in a warehouse and go fetch that order? So I'm going to come at it from that standpoint.
Sure. Frank, your thoughts there.
Let me respond to that. So, in a way, for me, the two questions here are the who and the how we respond to that challenge. The who is obviously it's passionate people and engaged leadership we need. And that boils back to talent management in supply chain, what will become even more important? And here I will stop now, otherwise we're opening another discussion about the next 30 minutes about talent management in supply chain. But then the second is the how. And here I purely trust into something we call high-performance teams. That's cross-functional, cross-divisional collaboration to master a business challenge we are facing. And if we conduct that well, bring the right stakeholder, which are passionate and engaged to each other, which are, I would say, more comfortable in that world of technology, we can make big steps ahead also in a limited time period.
Yeah. I think the beauty of this patchwork of risk and mitigating it is what makes it a big old topic that maybe our 10 minutes left that we have here doesn't quite work. Some good things coming in from the audience as well in terms of sharing your sentiments of just the volume of what needs to be done in different areas, but this proactivity into high-performance teams, or as you mentioned before, technology is key. If I can ask a bit more about the specifics of what you're seeing with your customers and maybe Frank, yourself, how your business is currently managing risk to operations compared to this time 12 months ago, so we certainly saw in March, April, May last year some task forces put together, management meeting all the time. The immediate impact is not there at the moment.
But how are you as a manufacturer, Frank, if we come to you first and then maybe the others, how are you approaching risk now? Is it something that's become embedded into every process for supply chain operations going forward, or that's still maybe something that's being implemented as we go along?
Hey, first, I need to resist because the immediate impact is still there. A lot of our workforce is still working from home in a far different environment they have ever been. And we still need to avoid any kind of business impact to the market. So I would just restate the impact is still there in a bit of a different manner than we have been facing it at the beginning of that pandemic. But sure, give you a specific example out of procurement. We managed the financial risk of our supplier base very tightly. We monitored them well. We monitored a bit less the operational output, the operational performance. And these kinds of criteria we added in the resilience journey we went through. And that is just one example. I think everyone learned, adapted.
The nice thing within Parker, we reviewed our supply chain strategy approximately end of August, and the conclusion was, honestly, we don't need to add something new. The headlines are there. They are part of our supply chain strategy, but we need to execute them maybe a bit different or if it comes to technology deployment, maybe even faster, but the mechanics have not changed much, would be my response to your question.
And maybe jumping on that point about technology there, there's a few questions coming in that I mean, we've alluded to new technologies over this conversation. But when it comes to the whole market, we have very big billion-plus companies, and then we have a big, fortunately audience that are coming from small, medium-sized enterprises. What can be done to help them embrace technology as an enabler for their supply chain to potentially be a route to solving some of these challenges that we've seen? And if we start with yourself there, what are the drawbacks they can look to overcome?
Yeah, it's actually one of the developments we observe or have observed the last nearly 12 months now. It's more openness, more flexibility to think about new technologies. So if you look back, there was a lot of this one-size-fits-all thinking, and it needed to be a big, big system covering all potential areas and processes. And we see actually a shift, and that's often benefit for Tradeshift here, to move to a platform approach, something we have used in our private life since years now, that you have a smartphone and you have apps to make your private life easier no matter what you need. And we observe the same openness here also moving into the business world. So I don't have to have a one monolith solution for all the processes in my company.
I just need one stable platform, and then I work with business apps covering certain processes for certain requirements, but all on the same subset of data. And then it's no longer a question of size. If you're a multi-billion global organization or a small, medium company, I think this also allows you to adjust and adopt a solution to your specific needs and also allows it to your suppliers to connect to the solution and actually collaborate with you in a digital way.
Paddy, if I may just pile on a little bit. So there's an emerging group. I talk about leaders and laggards. So there's an emerging group now, laggards that have woke up and smelled the pandemic, right? So they're saying, "Gosh, if I don't do something different, I'm going to go out of business or my survival is at risk," right? And what we're finding, and this sounds very simple and almost sad, but the first place they're starting is, "How do I use the current systems that I have to their full benefit?" So most of what we know is people use about 30% of the functionality that they own, right? So if you take a great big ERP system, and this is independent of small, medium, or large size of business.
They're focusing on, "How do I rapidly redesign my processes so that I can use the functionality that either I'm not using or I'm using very badly?" The second thing is they're using a standard. Again, we're a nonprofit association. We introduced this Digital Capabilities Model. It's got 32 different digital capabilities. What they're doing is they're saying, "Based on my business problem, these are the two or three digital capabilities that I want to layer on top of my now effectively operating." They're thinking big, but they're piloting those so they're not at risk of investing in technology that eventually isn't going to work anymore. I know that sounds quite simple in concept, but that's the kind of technology things that we're seeing today within our constituent base as we think about technology platforms.
Let me respond to that. Even if our main purpose is engineering breakthroughs, and I give you a very specific example, transportation is not our key competence. And my response to your question would be, utilize business partners. We do 98% of our transportation with only 12 preferred carriers. What is the individual number you need to target? I don't know. For us, the number was 12. We're doing pretty well with that number. But they deliver a business benefit to us and added value. So I can just reinforce for the medium-sized also, it's not always a matter of investment and technology. Choose the right business partner and utilize your business partner like we do, even as a larger scale company in transportation. It's not always to be done by yourself.
Given that we're sort of heading into the last 10 minutes here, so if we look for a couple of wrapping up questions, but one here from the audience that has been a theme of the last few months, and we'll see the fruits of this maybe coming up, is how to get supply chain to center stage last year, and it's still there, just given the impact that was felt for businesses. How have you noticed with your clients and in your business that take a how do you make that maintain a higher priority for board level to be used as the reason, "Yes, we can deliver in this area. We can do that," rather than maybe outstripping the abilities of a supplier logistics network that then isn't capable of moving forward? Peter, why don't you start with yourself there?
So I think the way we look at it is we're trying to say resilient supply chains put money in the bank and make the world a better place at the same time. And really educating leaders on the actual business value of managing an effective end-to-end supply chain. And that's across big, medium, and small business. And so I think what has happened in the last year where we had to describe what a supply chain was over a year ago, everybody clearly understands what a supply chain is today, right? And what a broken one looks like. And so I think we're finding a shift a little bit in terms of leadership and boardroom and chief supply chain officers being able to have what I would call a more executive-level presence at the boardroom. And so how do you effectively communicate that?
I think the challenge is going to be in the next 18 to 24 months is delivering on, again, how do I make my supply chain more resilient? How do I continue to add shareholder value and return on assets and share pricing, etc.? So that's kind of where we're seeing a center of energy at the moment.
Andreas, your thoughts there.
I tend to agree with what Peter just said. I think it's really on top of everyone's agenda, and I think it will remain there due to the fact that we will see more and more disruptions in the next years, so if you look back, not necessarily a pandemic like we have experienced in the last 12 months, but if you look at political insecurity and also in extreme weather situations we are running and so on and so on, so I think it will remain on the top of agenda, and yeah, companies, not only in the manufacturing industry, need to make sure the supply chains are maintained resilient and strong, and no matter how these changes look like in the future, some of them we might not be aware of at the moment.
From my point of view, or what I can sense out of the conversations we have, it's really just the starting point we're seeing at the moment.
Frank, for yourself as a leader in supply chain for a large company.
So I'm a firm believer personally into end-to-end setup. I think we learned that this might be the model of the future. And you clearly see more companies joining that end-to-end journey of the end-to-end setup. I think we also have been most probably, we all leaders in supply chain have been regular guests or even already participants, active participants on board discussions. So we prove that we have our seat at the board table, and that will get even stronger over the next period. And if you ask me why, it's obvious. We are responsible for a large amount of people within the organization, what ties back to engage people, keep them safe. We have a tremendous contribution to the customer experience. We can't let down production. Our risk management is essential, not just in the procurement environment, and we contribute major to the financial performance.
Free cash flow, inventories or payment terms, or at the end, just cost impact. And that qualifies us decently to have a permanent seat on the table. And I think many companies going that way, and I really appreciate it. I like it. And I think more to come. And it will be interesting to observe that further.
Absolutely. And maybe one last question then that we obviously asked to Dirk a little earlier in the panel, and it alludes or follows so nicely from a couple of things just mentioned there. If we look forward and we make some predictions, which is what everyone wants to hear, and I'll caveat everything with we don't know, which is sort of the turn of phrase for the last 12 months. But what do you see as these biggest challenges facing? Let's keep it to manufacturing, given the types of this webinar, in the next six, 12, 18 months, bearing in mind all of these different elements we've talked about, talent, digital, obviously performance on the spreadsheet too. Frank, if we start off with yourself, what are the biggest challenges that you're aware of in the sort of short to medium term now?
If you ask me as a leader, my response immediately is managing the complexity out of the topics we currently deal with. Because the amount of things we need to manage around people will not change much. We are many countries moving on a different speed, and that will impact the resilience of the individual country. Secondly, we have still major parts of our business in a very segmented approach. Some are performing very well already, most probably from a business cycle already in a slight up turn versus others might not. And that complexity just adds to the table because you need to respond not just to the corporation, to the individual businesses you are in, and that in conditions where the majority of people work from home are not connected easily, where new team members are joining.
While we face a certain shortage on various categories, I think the chip shortage nobody expected that for the automotive industry, just highlighting that one. So it will remain challenging, and we as leaders need to handle that complexity while actively prioritizing we want to see our teams working on.
And Peter to maybe elaborate on some of the challenges that you alluded to in the last answer.
Yep. I couldn't agree more with Frank. If I were to add a couple of different points of view, I think one of the things that COVID has taught us is there are supply chains that are not just privatized supply chains. And when we start thinking climate change, when we start thinking another pandemic, when we start thinking there are country-level and global-level supply chains that we just have to put in a different category. And then how do leaders work together globally to be able to prioritize that? And I mean, again, if you just look at the vaccine rollout globally, again, at the end of the day, a vaccine is intended for every person who wants it on the planet. How do you prioritize that? How do you make for that? How do you distribute to that?
You've got all different kinds of folks and different characteristics around the vaccine itself. So I think one of the lessons that the world needs to take out of this is how do I work together, public policy and privatized supply chain? And again, we're going to continue to battle that, all of us, between testing shortages and vaccine distribution and all those kinds of things. And that will continue to be a disruption for all of us, for our people, for our suppliers, and all those kinds of things. And so we can get our arms around that. Our next big lookout from a prediction standpoint is how do we take these lessons learned and then apply them to climate change? Because that's on the horizon at some point.
Absolutely, and Andreas, the last thoughts maybe with yourself then from your perspective from Tradeshift.
And since we're getting close to the end of this webinar, maybe answer this more on a general or generic level. I think the key challenge will be to work on a changing mindset, an open mindset to accept change as an opportunity and not potentially as a threat. And also accept that this reaction to COVID and what we've seen the 12 months is not a one-time exercise and we will fall back to old patterns and old habits. What, frankly speaking, I already start seeing like board members saying, "Yeah, it was great watching you working from home. It all worked well and you did a great job, but now get back to the offices." So why don't we keep this open mindset and allow people, yeah, to adopt a new style of working?
The same goes, I think, for the whole way we manage and deal with our suppliers and their suppliers. I think that's one of the key challenges from my point of view.
Perfect. It seems like a logical place for us to draw the discussions to an end. One thing that's popped out for me from all that you guys have said is operating to your full potential, be that with your digital systems, as you allude to there, Andreas, with your workforce from home or obviously in safe operations as well. Taking that mindset and becoming more resilient through higher potentialized operations. Look, that is all the time we have for today. I just want to say a massive thank you to yourselves, Dirk as well, who's not here, but for giving your time and your thoughts to the audience. I know it'll be greatly appreciated by everyone. Thank you very much, gentlemen. To the audience, thanks very much for sending in your questions, for joining us and taking part in the polling as well.
For Accenture and Tradeshift, we'd like to thank you for being involved here. And we hope you can join us on the next one in a couple of weeks. But until then, stay safe and we'll see you soon.
Cheers.
Thanks, everyone.
Thank you.