In this episode of Conversations with the Experts, Derek Aranda, an Eleven Canterbury Supply Chain Expert, and former Global Supply Chain Head at Shell, discusses the evolution of supply chain management. Derek highlights the increasing interconnectedness of the global supply chain and the importance of risk management, particularly in light of disruptions like those experienced during the COVID-19 pandemic. He emphasizes the importance of visibility, collaboration, and technological integration to navigate modern supply chains effectively. He also stressed the importance of striking a balance between cost efficiency and robust supplier relationships and ensuring customer satisfaction.
Video Transcription
Conversations With the Experts: Future-Proofing Your Supply Chain
With Derek Aranda, Eleven Canterbury Consultant and Supply Chain Expert, and Dan Martin, Eleven Canterbury Program & Relationship Manager
Transcript
Dan Martin: Welcome to another episode of Conversations with the Experts. It’s a pleasure to be speaking with Derek Aranda today. Derek had a wonderful career at Shell, in Houston and globally, where he served as Global Supply Chain Head and General Manager of Global Supply Chain and Business Development for Shell. In that position, he worked with multinational and multicultural teams all over the world in a really interesting area of supply chain. He’s also got a degree in biology and an MBA.
Today, we’re going to talk about supply chains. When I started out, you had time to adjust things as demands changed. Things would slow down in Germany, and a couple of weeks later, it gets to headquarters. Then, you have to decide whether to readjust your ordering after a few more things slow down. There was a relentless push on efficiency and linking the way things were built – and everything was built in different places. Then it evolved. Someone would say, ‘Well, maybe we should order fewer machines in Germany,’ and within 40 seconds, an assembly line schedule is changed in Shanghai, fewer chips are made in Taiwan, and, half an hour later, some guy in Australia who’s mining rare earth elements finds himself out of a job. So, it’s a change in situation, which was a huge focus on making things incredibly efficient.
I assume that’s not the way things are now. Things have changed rather dramatically, I assume. What’s changed, Derek?
Derek Aranda: Well, first, thank you for having me. It’s an honor to join you in this session and to be part of the Eleven Canterbury team.
You know, it’s funny; some things change, and some things do stay the same. It’s always important when we think about supply chains to reflect and ask, ‘What is the point of a supply chain?’ Ultimately, it’s about making sure that customers get the products they want in their hands. That has not changed.
When we think about a supply chain, we are looking at how to get the information we need about our customers. How do we get the information we need from our suppliers? How do we get the information we need across our own internal activity? How do we plan effectively around that? How do we source the materials? How do we get the labor? How do we get the raw materials you’re talking about, the chips that we need, into our factories? How do we make the products that we need to get to our customers? And ultimately, how do we get it in their hands? How do we deliver that to them?
I think whether that’s today, yesterday, or tomorrow, that fundamentally doesn’t change. But you’re right. A lot has changed. The world has become a lot more interconnected. And I think that’s the biggest transformation over the past several decades.
You know the classic acronym of VUCA? The world has gotten more volatile, uncertain, complex, and ambiguous. That’s the world that supply chains have to be able to adjust to. The good news is, as we’ve looked over the past five or ten years, and looking ahead, technology has really accelerated in a way that actually allows us to better wrap our arms around that.
Unfortunately, that adds another degree of complexity that we have to manage. But it also offers a potential solution. That is what’s really exciting as we look ahead to the supply chain: the ability for us to fine-tune our operations, integrate upstream with suppliers and downstream with customers, and get products into people’s hands much more efficiently.
Dan Martin: You’ve talked about getting things that the customers want, cooperation with the suppliers, and you’ve talked about the world being a smaller place. It seems that there are also a lot more things that can go awry which you have to keep track of.
It sounds to me like there’s a big emphasis now in this area, also in risk management. We look at what COVID did. I have a friend who said that when COVID first started, none of his supplies were affected by countries that had COVID – this was early stages – but he said he still couldn’t get anything done because all the ships were not being unloaded in Shanghai. So, how do you keep track of that? Are there tools you can use to mitigate? It seems like it is risk management.
Derek Aranda: It very much is. Go back to the foundational element of how to get that product into the hands of our customers. You know, COVID was a great example of a situation that really elevated, in a lot of people’s minds, why and how the supply chain is critically important in the business context. The stories you’ve heard about many supply chains that had products being loaded in Shanghai and shipped to the West Coast of the U.S. – that’s how we get the gifts we need for Christmas – but COVID upended that in so many different ways.
Ironically, that persisted for years after we wrapped our arms around COVID. It showed just how connected so many different elements were that people had to think about and manage inside of a supply chain. Ultimately, what is really important in the supply chain is having visibility into what is happening. The good news is there are a lot of tools being developed today that allow us to see what’s going on upstream with our suppliers. So not just the supplier that’s loading the product in that port in Shanghai, but that supplier’s supplier, and then you go down into their supply chains to really understand where the risks are. A classic example of this is we produce some products here in the U.S., in Europe, and in Asia, which we thought would diversify us. But, using the winter freeze that we had here on the Gulf Coast back in 2021, we realized that there was one precursor molecule that was being sourced only out of the Gulf Coast. So we saw that ripple here in the U.S., in Europe, and in Asia; we thought we were getting those from three discrete sources, but it turned out there was one precursor molecule that was coming out of here.
How do we get visibility into our supply chain to understand where those single points of failure that we need to deal with are? There are tools that help us do that. How do we think about the changing needs of our customers so that we can be more proactive and anticipate where they might have demand and where they might have needs that perhaps they haven’t passed through to us in their ordering processes yet? Again, tools are starting to allow us to look and connect downstream with customers and understand where we think demand might be coming from. How do we better sense those changes in demand?
What that means from a supply chain perspective is that we now have a tech stack in place, a portfolio of tools within our own operations that we need to manage ourselves. But I think you’re right; it’s with that mindset of thinking about where those key risks that we have to manage are and how we deploy the tools around that to get the product in the hands of our customers.
Dan Martin: It sounds like in order to do that, you need cooperation between a supplier and the customer. In my career, it was a little bit of an adversarial thing at the beginning, where you just wanted to get the best price. People buying from you just wanted the best price. But I think what you’re saying is you need cooperation and to have arrangements that can win for both sides.
Derek Aranda: Absolutely. As we look at supply chains going forward, I think of three big things that supply chains need to be able to do well. They need to be commercial. That points to what you just talked about: understanding how to get the best cost to serve. This is where we have to expand our thinking about what the total cost to serve the customer is. And not just the cost of raw material one or raw material two, but at a total basis, what’s that total cost basis to get products into the hands of the customer? And that’s partly about thinking, ‘Yeah, I might get the best price, but do I get the best service?’ When something like COVID happens, do they pick up the phone when I call, or am I the last person they pick up because I’m the cheapest guy, and I beat them up on price?
So, what’s that total commercial relationship we have to think about? But beyond that, it’s thinking about how to enable revenue. It’s not just about driving down costs, but how do I open up those opportunities for me to sell more in different ways to more people? How do we think about commerciality within a supply chain?
And that points to collaboration across the enterprise. I have to work with sales and marketing. I have to think about working with my customers.
The second piece of this is the capability that’s required within the supply chain. We talked about how you mitigate risk. How do you make sure you have the differing source points? How do you make sure you have the different delivery lanes? We’ve talked about getting my product from Shanghai to the West Coast, am I going through the Panama Canal? Am I getting to the East Coast? How do I have those lanes that I need to move through? What capability do I need to have in that space?
The third piece is you really do have to be connected. This is integrated technologically, but also, are you talking and engaging with your suppliers? Are you talking and engaging with your customers? Ultimately, the currency we have to work with is information and visibility into what’s going on both inside my operations and outside in the wider environment. You’re absolutely right; cooperation, collaboration, and visibility are critical for us to be successful in the supply chain.
Dan Martin: Thank you very much, Derek. It’s really fun listening to somebody who knows what they’re talking about and really cares about the topic. Thank you for making the time to share your knowledge.
Derek Aranda: Dan, thank you. And I look forward to further conversations.
