CPO Digital Cockpit

Michael Shin

Global Vice President of Procurement at FLIR Systems

Learning Objectives

The CPO Digital Cockpit: How Artificial Intelligent Machine Learning Super Dashboards will transform the CPO’s office into the CPO Digital Cockpit; Cockpit designed to boost you with super Awareness of the total global supply chain. It delivers daily instructions to problem-solve immediate issues you didn’t know existed and pro-actively step you through problem-solving future issues before it is too late. Cockpit is armed with computerized algorithms programmed by the most seasoned and elite global procurement professionals. Global Procurement Best Practices plugged into the Cockpit to guide you with solutions to achieve Excellence in Global Sourcing by Breaking the Spend Code and the Supply Chain Bottleneck. Are you facing Spend Categories and Supply Bottlenecks you can’t break?


Key Takeaways:



  • Clarity on how AI Artificial Intelligence will transform Global Sourcing & Supply Chain Management to the next level of unimaginable sophistication

  • Global Sourcing & Supply Chain Management will become easier to achieve excellent results through application of the CPO Digital Cockpit

  • You will see the future of what Strategic Sourcing looks like by 2026. Super exciting future


"What the cockpit does is helps filter to variations to give us useful data and information that we need today to manage our time with maximum effect and impact."

Michael Shin

Global Vice President of Procurement at FLIR Systems

Transcript

Hello, everyone, thank you for joining this session on the CPO Digital Cockpit. My name is Mike shin. I had been talking about this and speaking on this concept for the past three years consistently. It’s a vision, and I want to share with you what we hear a FLIR are doing in terms of taking simple practical steps to get closer to how this CPO Digital Cockpit may one day be a reality for us and all of you. As some of you might know, FLIR Systems, we consider ourselves the world’s Sixth Sense.


The CPO Digital Cockpit is the procurement Sixth Sense, given us a super boost of supply chain awareness. Now, what is the digital cockpit? Well, it’s what I call super dashboards, super dashboards on steroids, driven by AI, machine learning, technology platform, AI-driven all the key relevant dashboard that’s important for us to navigate day to day, week to week, quarter to quarter in achieving sourcing excellence for our businesses. And every spin has a secret code in cost and supply and supply constraints. And the question is, how do we break and unlock the secret code? And how is the digital cockpit developed?


It is developed by us sourcing executives and, and spin category exports experts where we provide input of sourcing solutions, execution instructions, to a coding specialist. And with that drives the super dashboards that become the digital cockpit. And I’m working with two software companies. And I hope to engage with one of them that can help develop a working prototype and prove this concept and implement that on a practical basis. And I want to share with you some of the steps that we have taken over the past couple of years. We just need a pilot to fly this plane. And in training develop the pilot in total awareness is all about speed intelligence in doing our jobs doing it effectively.


Just to give you a little background on my career path over the past 25 plus years. I started at jack welch at GE in the 90s. And I was part of the pioneering team that develops strategic sourcing as we know it today. And a GE we drove global low-cost country sourcing. Then I went on to Stanley tours to be the Global Head of Procurement of that company. And we drove what we call best cut cost country sourcing, which means the USA can often be the best cost country from a total cost of ownership standpoint. So we have to be very wise and where we go in terms of our spend management. And then I went on to American Capital which is a private equity company and there I developed key strategic sourcing levers that work well in the private equity business model. And then I went on to three great manufacturing companies federal mogul automotive parts, Remington Arms, and Gibson guitars, where I applied the playbook from GE and standing works, and it worked pretty well on these businesses. And now what FLIR gave that we’re a high tech company, and AI is a big, important long term strategy for FLIR I naturally thought about well, how can AI technology be an enabler for procurement on how we can take it to the next level. And that’s how I came up with this concept of a CPO digital cockpit. Problem is, as procurement leads, we just have too many variables on our minds. And you know, I’m a follower of William Edward Deming.


He is the father of Six Sigma quality, as you know, and what he taught was variations are the enemy. And what the cockpit does is helps filter to variations to give us useful data and information that we need today to manage to manage our time with maximum effect and impact. Every day, we go to our offices or work from home now. How about in the future we climb in on our jet, and we strap into this cockpit that gives us super boost of awareness and the way it works every morning I’ll do my checklist before I take off. Take a look at my spin., my shopping list, and contracts that’s about to expire that I need to prepare, what are our status is our key procurement savings. What’s the pipeline look like? Are we on track to the ALP, status of our key RFP projects, suppliers scorecards, and then we get a red alert. In this case, early last year with COVID hitting us, we hit a deep recession and commodity prices pummeled. And with with a recession recessionary economy and commodity deflation, we need to shop the spend and we launched initiatives what we call rapid RPN and rapid our our rapid repricing which means that we approached our supply base across the board and asked them negotiate with them to pass the lower cost on to us. And our goal was to achieve 3% price deflation. What the Cockpit does it gives us instructions based on this environmental change. How do we cope with a COVID recessionary environment with commodity deflation? And today, you know, we do it manually, obviously with me leading the team. And the vision is is how about at the cockpit driven by AI gives a team globally instructions on how to deal with their spin. And we get on the same page quickly from top to bottom side to side and we start to execute and want to give you some examples of breaking the spin code. And if you’re looking at electronics PCB a which happens to me to be my area of expertise, I apply what I call the 8020 formula, and on travel travel expenses policy compliance. For indirect spend, you can install the spend control tower which maximizes maximizes transparency and visibility for indirect spend and establishes stakeholder accountability. And for logistics, for example, a small package parcel, you want to hire an audit firm. So it’s a theoretical step by step instructions in breaking the spend codes. And as a next layer of execution details for electronics pcba. This will be a cockpit step by step instructions on applying the 8020 formula that I mentioned. And it’s integrated with your earpiece system in our case SAP. It starts with cost intelligence, the unit cost breakdown, we need to know what the bill of material cost is what the LRP conversion rate is the total unit cost and the LLP conversion rate and developed RFP we need abl for the bomb set Target Costing with a fixed format. As we execute the RFP constructed vendor portfolio, select our suppliers make the market and build relationship with the supply base with this vendor portfolio. So the cockpit will step your team and me on how to execute this 8020 formula. And from there prepared to negotiate cherry pick the ball and negotiate LLP so we can close in on a great contract which would be 90 days payment terms from fixed price for two years in a combined inventory consignment so that we can get achieved great inventory terms. So AI now becomes an intellectual property of a commodity strategy, technique execution and closing in on in this case electronics bcba. Applying the 8020 is the cockpit that gives us the instructions as opposed to me and my teammates. Another example on the indirect side would be the say travel and entertainment. How do you break the TV spin code? What we did at FLIR was


we’ve developed a new app that went on our FLIR home page and we started with the policy and we baselined our policy looked at best practices. We found that our Tini policy was outdated and needed to be upgraded and overhauled. So we revamped and developed a new Tini policy That’s competitive for s&p 500 company, China developed a new policy with travelers and everybody around the world development webinar for the one flare site, establish spend accountability by businesses cost center and travelers digitize the travel experience by by automatically tracking costs in reference to budget, and increasing the number of expenses that expense reports that that’s submitted, and get 100% coverage. In order to do that, we purchase new SAP concur tools, because we use concur. And the concept here is make teeny policy compliance, a key KPI and track and monitor the teeny KPI via dashboards that travelers can view. It’s what I call walking the concur corridor. What I mean by that is, as travelers booked their trip going into concur dates, they see dashboards, for instance, on hotels for total number of hotel nights stayed, how many hotel nights, what percent of hotel hotel nights were at our preferred hotels were procured and negotiated great rates, our goal is 90% of hotel nights should be with preferred hotels, same with airfare, car rentals, meals, and everything else. So if I’m a traveler going in, I see that we’re actually behind the hotel. And rather than hitting 90% go, we’re at 80%. So that motivates me to make sure that I book where I can have preferred hotels, and then another dashboard and tracking travel cost versus budget. And you don’t have to show the actual dollars, but you can do it by cost indexes. So as an index of 100 as a go, if if if we’re running at this point of time of the year 110. Index, that means we’re 10% above our go. And as a traveler, I’ll recognize that and I may not travel, since it’s going to be internal meetings, I’ll cancel the trip, and just scheduled zoom meetings and, and help the team hit our team ego. And you know, flare we spend on normal year about $30 million, what we want to do, as economy grows and we start to travel a lot, we want to rein in those costs, so that so that we can, you know, meet our commitments to shareholders and meet our commitments to management and our board. So the game changer here is travel KPI, dashboards, desk display to motivate our travelers to comply to our travel and meet our expectations. Let me pause for a moment here. Before I go into the last chapter. I want to switch gears to sign up sales inventory operations planning, demand forecasting or key metrics is forecasting accuracy order fill rates, and cash flow working capital terms. The cockpit can work similarily just as procurement. I’ll go through cya. And we have what is my what I call supply chain health checklists for SCM. I want to know how we’re doing with demand forecasting accuracy and sales planning. How are we doing with customer fill rates? Or inventory terms? Are we tracking to to our objectives in our Alp? review our product skews? And are we addressing the long tail skew analysis? And how are we doing with supply chain costs? And what are our key supply bottlenecks and in our lead times for suppliers and how that how is that changing for the worse or for the better. And we get another red alert in this case post COVID we now have inflationary environment where we’re going from deflation to inflation. And similarily as I explained on how we handle deflation, the cockpit will step us through how to act and take proactive action in adjusting to this inflationary environment. And what I see is a perfect storm.


As you know, we have severe shortages on electronic chips, oil aluminum steel pricing, soaring oil up 240% since COVID, low aluminum steel up 120 150% respectively. The Perfect Storm is with with Biden stimulus initiatives, like matches a similar similar checks. But if he gets the infrastructure bill passed, you’re going to see commodity pricing go up even further. And you know, our chairman of the Federal Reserve Board, he is forecasting six to 7% GDP growth. And I expect, we hope, a jobs boom, which is great for us, we’re already living the housing boom, again. And, you know, we expect USA to lead the world out of the COVID recession. And with that, that’s the perfect storm, where there’s still supply constraints. And with the economic boom, we can see commodity inflation, staying up and sustaining. So how do we deal with this new with this new environment that is shifted so quickly. And you know, my point of view is, I had to put all this together manually. And my preferences for the cockpit to tell me this is what’s happening. These are all the key data points, so I don’t have to go find the commodity pricing. The dashboard feeds me to commodity price trends, and gives me insights and instructions on what to do next. You know what, we did a flare to pop this inflation bubble. And we did get good inflation last year, following the playbook that I mentioned, achieving record procurement savings. And I wanted this pending commodity inflation October last year, and reinforced inflation concerns December of last year. And and in March, I declared crisis management after the severe shortage of electronics shifts in electronics is a big part of our buy. Um, we saw a serious issue. Our CFO scheduled an urgent meeting with the CEO and staff, where we discussed and develop action plans to mitigate and offset this inflation. And the procurement inflation playbook is extended purchase owners longer term, so we can lock in and lower prices, and be the lead time and lock in our deliveries. And we can play on offense on indirect expenses by installing for instance, the SCT, the spend control tower, and we are actually forecasting a record indirect expense savings through various methodologies that we have deployed. So the cockpit will give us insights, instructions and solutions on how to defeat this inflationary environment, and his speed and precision of getting to commodity spend trend and being aware. So we can take proactive action, moving with a sense of urgency, deploy that mitigation plans immediately. Because time is money at this point, and implies savings in indirect expenses, and install the SCT which I believe is a best practice. The spend control tower is an apparatus, it’s a platform where we have SCT committee members, for key sites where the champion would generally be the p&l lead for the site, then we’d have a challenger the controller would would be ideal challenger, we need an analyst and a procurement professional to make up the SCP committee. And the spend case would be made on what is the purpose of the spend, prove the spend gives us the ROI. And it’s it’s essential necessary and defend the spend. So take all your indirect spend categories, whether it be legal IQ, marketing, HR travel, as I mentioned before, and other investment categories want to do the SCT. And the committee members will decide whether you approve, reject or defer defer the expenses. And the process has worked really well for us.


Michael Shin

But there are some pain points. The process is very manual. And it’s viewed as bureaucratic. And from time to time, I get some awesome complaints from my teammates. And, you know, what we want to do is digitize the SP process, in ideally through an AI driven platform, but that’s long away for now. What we can do in the short term is to develop an install a smart smartphone SCT app, digitizing the process making it faster, more seamless and natural. And yesterday commend the committee members will follow this automatic process more efficiently. Whereas, you know less was more painless and as I mentioned Faster, seamless, and natural. And we’re the process of developing this app. And I’m working with a with a consulting firm in a software firm that can that can help and assist, installing this digitized SCT. So that we can very quickly deploy the SCT across our enterprise, because we haven’t expanded it across FLIR globally. And we want to do that pretty quickly. Given that for 2021, we’re playing defense on direct materials, we’re playing offense on indirect expenses. So in conclusion, the takeaway is everything that that I’m talking about, we’re doing it manually. And what we’re talking about with a digital cockpit is with the super dashboards that’s IAA enabled, how does it give us instructions and solutions on how to deal with various scenarios and situations and spend in graphics. Today, it’s hard labor, it’s slow, it can be inaccurate, perhaps too many, too much guessing. And not always fun. Although our work for the most part is a blast, it could be a lot better, a lot more fun, if it’s less manual. And that ultimately, the scipio Digital cockpit is digitization of Strategic Procurement and tactical purchasing through this advent of a super dashboards on steroids, that talks to us, and I believe that it is the next evolutionary step in strategic sourcing, you know, before it was global sourcing, as well as like reverse auctioning. Now, clearly, it’s digitization. And I think, for the most part, it is self evident and obvious that we are now venturing in the digital world, and procurement will follow with it. And I want to thank you again for attending the session. I hope you found it insightful and, and at least entertaining. I think for the most part, it’s obvious. But as you can see, you can take practical steps in digitizing your procurement process for key spend categories. Start with low hanging fruits like travel, as I mentioned, and other direct materials, spend categories, and prove the case, get the appropriation and funding that you need to implement by by committing to an ROI, a clear line of sight to an ROI like travel and make it work make a stick. And from there, take it to the to the next level. And you know what I intend to do going forward is now got momentum now. And I hope to accelerate, and I expect to do so. And it’s a lot of fun. And it’s going to be more fun. And we see the results. And I’m pretty excited about our future. So with that, thank you again, please be safe. And we’ll talk to you next time.


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