SUPPLY CHAIN RESPONSIVENESS WHEN IT REALLY MATTERS:

EXECUTING DURING A CRISIS

Steve Banker, ARC and Marisa Brown, APQC

April 21, 2020
 HOUSEKEEPING

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©2020 APQC. ALL RIGHTS RESERVED. 2

 Steve Banker
Vice President, Supply Chain
Management
ARC Advisory Group

SPEAKERS
Marisa Brown
Senior Research Principal Lead,
Supply Chain Management
APQC
 ⁄ Pandemic Success Story: AGCO

⁄ Supply Chain Disruption: Data from

the Real World

AGENDA ⁄ Demand Planning During a

Recession

⁄ Questions

©2020 APQC. ALL RIGHTS RESERVED. 4

 A PANDEMIC SUCCESS STORY:

1
AGCO

Managing during a crisis

©2020 APQC. ALL RIGHTS RESERVED. 6
 A PANDEMIC SUCCESS STORY: AGCO
» Multinational discrete manufacturer
with facilities across the world.
▪ A designated essential business.
▪ Demand for their products remain high.
» Supply side of business talks every
week.
▪ In Jan. began to hear about what we now
call COVID-19 from their Chinese facility.
» By 3rd week of Jan. a Pandemic task
force in place
▪ As China was getting ready to shut down,
they began to prepare for when the ban
ended.
» Began mass buying of PPEs in Jan.
Greg Toornman, Vice-President, Global Materials,
▪ PPEs distributed to critical suppliers Logistics,
and Freight Management at AGCO
VISION, EXPERIENCE, ANSWERS FOR INDUSTRY, INFRASTRUCTURE & CITIES © ARC Advisory Group • 7
 A PANDEMIC SUCCESS STORY, CONTINUED
» To make sure European plants stayed
supplied, they produced as many of
the critical components as possible.
▪ Shipped via train across Asia.
▪ Centralized decision making on plant
allocations
» Safe operating Conditions
▪ China safety SOPs in place globally
▪ Productivity was affected initially
» Risk early warning system
▪ Forecast the South Korean shut down two
days before it occurred. A station where workers have their
▪ Ability to forecast regional lock downs temperature tested and are issued PPE’s
improved – Italy lock down forecast 7 days prior to entering an AGCO factory in China
before it occurred.

VISION, EXPERIENCE, ANSWERS FOR INDUSTRY, INFRASTRUCTURE & CITIES © ARC Advisory Group • 8
 A PANDEMIC SUCCESS STORY, CONT.

» Customer communication
» Agility does not just happen
▪ Journey began in 2008
» Category manager’s job includes risk
assessment
▪ Multi-sourcing for risk mitigation
» Sourcing digitization
» Supplier communication
» OpX organization, sourcing continues
to improve
» Employee messaging was critical AGCO Facility in China
during the Pandemic

VISION, EXPERIENCE, ANSWERS FOR INDUSTRY, INFRASTRUCTURE & CITIES © ARC Advisory Group • 9
 SUPPLY CHAIN DISRUPTION
2 Data from the Real World
 COMMUNICATING WITH SUPPLIERS AND CUSTOMERS
In the past 12 months, have communications pertaining to supply chain » Only two-thirds of
disruptions been sent or received by your organization’s supply chain?
organizations have received
communication from their
suppliers about disruptions.
» And even worse, only 53
percent have sent
communications to their
customers about their supply
chain disruptions.
» This is a missed opportunity
to deepen those key
stakeholder relationships
and prepare your supply
chain to weather the storm.

Note: APQC data collected in March 2020. The values in the graph displayed do not add up to 100 percent because it was a “select all that apply” question.

©2020 APQC. ALL RIGHTS RESERVED. 11


©2020 APQC. ALL RIGHTS RESERVED.
SUPPLY CHAINS ARE DISRUPTED. AND
THE NEXT 12 MONTHS WILL BE MORE
OF THE SAME.
» With the global coronavirus/COVID-19
pandemic in process, it is no surprise that
82% of organizations cited public health
concerns as a current disruption to their
supply chains. And 87% anticipate it to
continue to be a disruption in the coming
year.
» As nations continue to close their borders
and restrict travel, governmental
regulations—which APQC defines as
trade restrictions, border controls, or
tariffs—are also a big disruption for
supply chains (69 percent) that is
anticipated to grow.
Note: APQC data collected in March 2020. N = 90 12
 N = 90
©2020 APQC. ALL RIGHTS RESERVED. 13
 HOW ORGANIZATIONS PLAN TO COUNTERACT DISRUPTIONS
7 out of 10 organizations are creating contingency plans with alternate sources
of supply
Create contingency plans with alternate sources of supply 71.1%

Engage in collaborative relationship management with critical suppliers 63.3%

Conduct risk analysis and quantification early in the sourcing process 58.9%

Implement risk prioritization criteria 46.7%

Increase safety stock inventory levels 45.6%

Proactively conduct an audit of supply chain vulnerabilities 44.4%

Create a disaster preparedness plan to activate in emergencies 34.4%

Require employee cybersecurity training 30.0%

Mitigate against market risks (e.g., buying commodity futures, etc.) 21.1%

Explore the use of blockchain 8.9%

Note: The values in the graph displayed do not add up to 100 percent because it was a “select all that apply” question.
©2020 APQC. ALL RIGHTS RESERVED. APQC data collected in March 2020. N = 90 14
 PREPARING FOR THE RIPPLE EFFECT OF DISRUPTIONS
Percentage of Products That Have at Least 80% of the Time to Identify Impacted Materials, Sites, Commodities, and
Sub-tier Suppliers Identified Products After an Event Disrupts the Supply Chain

40%

29%

17%
10%

3%

Within 1 day 1 week 1 month More than 1

minutes month
(N=638) (N=637)

Source: APQC’s Open Standards Benchmarking in Procurement

©2020 APQC. ALL RIGHTS RESERVED. 15
 USE OF ELECTRONIC SYSTEM
FOR RISK PROFILES

19% 21%

13% One-third of organizations are not yet

using an electronic system that
provides a risk profile of their
47%
suppliers, materials, supplier
(N=638)
manufacturing sites, categories, and
No system exists or in development products.
This gap can leave their organizations
Developing this in-house vulnerable and slower to react to
Use a system which is capable of capturing some of the risk information unforeseen disruptions and supply
chain risks.
Use a well-integrated system that is used for proactive and reactive risk
management

©2020 APQC. ALL RIGHTS RESERVED. Source: APQC’s Open Standards Benchmarking in Procurement 16
 DEMAND PLANNING
3 Reacting Quickly and Effectively
 Demand Planning in Recessions

• Demand planning breaks down during recessions

• One of the worst things a company can do is to react too slowly.
• IMF declared a global recession. This is actually good for forecasters.
• Demand planning has been based on machine learning since about 2000.

VISION, EXPERIENCE, ANSWERS FOR INDUSTRY, INFRASTRUCTURE & CITIES © ARC Advisory Group • 18
Demand Planning in Recessions

• Modern ML-based demand planning

is truly a big data solution
• But ML is not a modern wand. No
demand planning model has ever
seen anything like this pandemic.
• Companies that use downstream
data will react more quickly than
those using order history.
• Companies that create weekly, or
even daily forecasts will do better
than those relying on monthly
forecasts.
VISION, EXPERIENCE, ANSWERS FOR INDUSTRY, INFRASTRUCTURE & CITIES © ARC Advisory Group • 19
QUESTIONS
 Supply Chain Disruptions Quick Poll
01 Summary Report

Supplier Risk Management: Current State

02 Practices
ADDITIONAL
RESOURCES 03 Covid-19 Organizational Survival Guide

Procurement Practices Report: Cross-

04
Industry

©2020 APQC. ALL RIGHTS RESERVED. 21

 CONTACT US

Marisa Brown
Principal Research Lead, Supply
Chain Management

mbrown@apqc.org @MB_APQC

Steve Banker
Sbanker@ARCweb.com
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