How Artificial Intelligence Technology will Transform Procurement and Supply Chain Management

Michael Shin

Global Vice President of Procurement at FLIR Systems

Learning Objectives

Artificial Intelligence will revolutionize the technology world we live today personally and professionally. AI technology will reboot procurement to the next level where world-class procurement is expected and ubiquitous. Mike Shin Global VP of Procurement for FLIR Systems will address the next practical step in making the "CPO Digital Cockpit" a reality by 2022.


Key Takeaways:



  • The CPO Digital Cockpit is a Procurement Spend and Performance Dashboard on "steroids"

  • Commodity Strategic Sourcing will be digitized with sophisticated algorithms to "break" the spend code. The 7 step sourcing process will be automated to significantly improve speed, execution and results

  • The CPO Digital Cockpit is AI Technology Assisted Global Procurement Dashboards and Software algorithms to transform a rookie commodity leader to an advanced global commodity manager in matter of months as opposed to years. Recall how long and difficult to research history in 1970's going to multiple libraries as compared to researching history in 2020 with Google and other Apps. This is an appropriate analogy to illustrate the step functional improvement in making Procurement work easy as ordering products from Amazon


"Imagine in the near future, rather than going into our office, we're going to strap into our jet and get into our cockpit."

Michael Shin

Global Vice President of Procurement at FLIR Systems

Transcript

Hi, everyone. Thanks for joining in. My name is Mike Shin. Always a pleasure to address my distinguished peers and colleagues in Procurement Supply Chain. I like to share with you a thought and a vision and a passion that I’ve had for a couple of years on how AI technology can and will transform Procurement and Supply Chain management. The agenda for this session, I want to talk about how I’m implementing the spin control tower at FLIR Systems, how are we reducing indirect spin demand, lowering Op X, and how, through the SCT, we’re building a culture of stewardship. I’m going to talk a little bit about stewardship, and give you some background why and how I’m digitizing the SCT process, the switch gears, and talk about the CPO digital cockpit.


First, I’d like to start with my background. For the past 25 years, I’ve been a member of our community that’s been transforming strategic sourcing to the level that we know it today. I started my career with GE as the Director of Global Sourcing for GE Appliances. The key transformation in the 90s, as you know, was global sourcing. Then, I went on to be the Head of Procurement for Stanley Works, where we were driving LCC, which is global low cost country sourcing. Today, we call it best cost country sourcing. The media career change went to a $25 billion private equity firm named American Capital, where there I simply took what I learned from GE and Stanley, and applied it at the portfolio companies of ACAS, and delivered some pretty good results.


From ACAS, I went on to a variety of corporate roles. As you can see, I was the Head of Sourcing for Federal Mogul Corporation, Head of Sourcing for Remington Arms, and my last company before FLIR, I was the Head of Supply Chain and Procurement for Gibson Guitars and Philips Electronics. In these three businesses, I simply took the playbook that I learned and developed at GE and Stanley works, and brought my toolbox with a variety of tools that I have to drive pretty good Procurement and Supply Chain results.


I’ve been with FLIR Systems for two years now as the Global VP of Procurement and CPO. I switched approach a little bit where rather than taking my past and applying the playbooks of my past, I’m tinkering with how technology—AI technology—can drive leading edge change in strategic sourcing via technology.


I’d like to share with you some concepts of that, although it’s still at the very early stages. I like to start with stewardship. It goes back to my GE days when I started with Jack Welch at GE in 1987, I heard a speech where he talked about GE cultural values, and how important it is to be number one and number two, or we will fix, sell, or close the business to be lean and agile, and the importance of being good stewards. I thought it was important that the CEO of this large company would talk about how important it is for all of us to be good corporate stewards.


Stewardship means a careful and responsible management of assets entrusted upon our care. I’m installing the spin control tower to instill a culture of good stewardship across the enterprise. SCT is a centralized expense control platform, and it’s conditioning self restraint for all my colleagues who needs to spend company funds to grow the business. We monitor, measure the spin, enhanced visibility, and transparency, and I report a weekly spin dashboard on the results that we’re getting from the SCT. We measure you over a year savings by call center, and we reward the spend management success. What I mean by that is the SCT is getting a lot of visibility and high engagement from our CEO, CFO, and executive staff. When they see good results, the members of the SCT get some satisfaction out of the acknowledgement and recognition from our CEO and staff.


This is how the process works. The spin control tower is made up of committee members for each site and divisions. Committee members would encompass the champion, which is generally the [inaudible] lead for the site. Tthe challenger would be the controller, and procurement would be the facilitator. The spin requester will complete a PR purchasing request, and he or she would submit to the committee the purpose and benefit of the spin, prove it or defend it. The committee members would simply make a decision whether to approve the spin, cancel, defer, or reduce and modify the spin. This goes across the entire indirect spend categories of expenses greater than $4,000. The reason we select the $4,000 in our business, $4,000 represents 80% of the PRs that we’ve seen over the past year.


Our goal is to reduce the spin demand by 20%. We track key stats, approval, or reject rates, what is the throughput going through the SCT, and we compare side by side the approval and reject rates. We measure you over your savings and cost avoidance. The SCT is is delivering good results, but it is a manual bureaucratic process with some pain points. What I’m doing is taking this manual process and improving it. What we have discovered so far is SCT delivers pretty good results in the short term but it is a short term blunt instrument. We were questioning whether it’s sustainable over the long term.


What I am in process of doing is digitizing the process, and I’m evaluating a software that seems promising and affordable. What it will do is automate the process make it faster, seamless, and more natural, make the spin and the process more transparent and visible with post mortem analysis, making it lean and agile to adapt to changing business conditions. We track costs under budget variances, and it’s been forecasting as it relates to budgets. It’s basically an SCT app that will automate the process and just make it user friendly for the spin requester. The whole process of generating the PR and the SCT committee members on how they review the PR, approve it or reject it, and how we track the track record.


Division and what the end goal is, what we’re discovering—what I’ve known for a while is that it is not about savings, it’s really about the trust in the spender and trust is earned. It’s all about the ROI. This goes back to what I learned from GE. I recall when I was a young man in 1992, Jack was giving a speech, and he was asked, what is the most important aspect of his job as CEO of the company. I thought his answer was interesting. He said, allocating capital is his most important job as CEO of GE. What I learned from him is good stewardship is ROI. To make money, you got to spend money. To spend money, to deliver the best ROI is how we grow the company’s financials. Now, some of you know that Jack passed March 1 of this year, which was a shame. For all of us, GE alumni, his principles we take with us and his teachings on general management principles were just excellent and still valid and relevant today. This is my tribute to Jack, and obviously I’m continuing on what I learned from his great company.


The long term view of SCT is, I believe, that the SCT is a one year burn and run, and it is not sustainable over the long term. What I envision through this technology, and a pretty crude form of AI in the software that I’m embedding into the process, I envision renaming the SCT to SEC, which stands for Spin Empowerment Center. I go back to make money is to spin the money. For those individuals who have a great ROI idea, what we don’t want to do to the SCT is impede their ability to improve a good idea that’s going to generate great returns for the company. What we envision is an AI plugged in ROI measurement app. It’s in beginning stages now, but we’re making good progress. I hope, a year from now, that we have a platform where the software works, and the process is smooth. We are accomplishing our mission, which is to empower our spenders to generate great ROI for the company. SEC is trusted empowerment, is an ROI driven spinning machine with built-in AI algorithms.


Now, what I like to do is shift gears and talk about the CPL digital cockpit. As you can see, I’m sitting in my cockpit of this procurement jet fighter. The digital cockpit is all of us being strapped in with super boosted awareness of what’s happening around us, internally and externally. Every morning, we go to work, go to the office, this is pre COVID, and post COVID. We’re all working from home now, but we all go into our office and do our jobs. Imagine, in the near future, rather than going into our office, we’re going to strap into our jet and get into our cockpit. It’s akin to jet fighter flying a, let’s say, an F37, and how this pilot is totally one with his machine, and completely aware of his or her surroundings, where the opportunity is, where the enemy is, and making the right move proactively.


Every morning, we have a checklist. For us, we want to know where our spend is, what is the status of our shopping list, and contracts that’s about to expire, how are we doing on procurement saving, how we’re tracking to the ALP, what is the status of our key RFP projects, what’s happening with commodity markets and key red alerts. In this case, on December 31 last year, there was a virus that broke out in Wuhan. The digital cockpit gives us a heads up that we might want to keep a close eye on this Wuhan virus, which we know now has become COVID-19. CPO cockpit is an AI enabled super dashboards, bringing total awareness to the Supply Chain. It is also great problem solving tool. Now, all of us with our broad and deep procurement experiences, we have experiences in multiple spin categories. Over the years, we have learned how to break that spin code.


I’ll give you some examples of how this digital cockpit with AI built-in algorithms can help us break the spin code for PCB assemblies, which happens to be a one of my core competencies. Its application—what I call the 80 20 formula—for indirect spin categories, like teeny healthcare, sign up with a GPO, and logistics spend like small parcels, small package, purchase an audit software, where you can do billing audits, and the software can help you do the spend analysis and prepare for an RFP and contract renegotiations. Its AI instructions to assist us in breaking the spin code. It’s basically taking all our experiences and developing a computer program to help us guide through how we might break the spin code for that spin category. Very useful for young professionals who doesn’t have that spin category experience.


I’ll give an example of a PCBA, [Inaudible] Circuit Board Assembly. The digital cockpit will give us step by step instructions, and guide us on how to execute the 7-step sourcing process. Step one being doing the spin analysis, developing the RFP and executing, developing a vendor portfolio, and selecting the right vendors to participate in and engage in this RFP exercise, and help the professional prepare and execute negotiations, so that we can execute and close on a really good contract.


The way I look at this is, what do I do when I hire a great young talent fresh out of school, I can put him or her into this cockpit, and [inaudible] her and him through this process. It’s AI assisted commodity strategy development, execution, and closing in a contract and repeating from there, and developing this professional to be experienced commodity manager in a much more shorter ban of time. I spend most of my time teaching my teammates on how to do their jobs excellently. What I envision is a computer program that can do what I do, but the machine does it. It’s what you would expect this AI machine learning apparatus to teach our young professionals how to do our jobs very well.


Now, let’s talk about SOP. Just as you can have a a CPO digital cockpit, you can have a cockpit for SOP. It’s similar to a CPO cockpit for the Chief Supply Chain Officer. There’s a checklist in the morning. How am I doing with customer fill rates? Where’s my inventory? How are we doing on demand forecasting accuracy? Where are my supply bottlenecks? How are we doing our supply lead times? Where are the key bottlenecks? Where are we with our Supply Chain management cost per sales ratio? Making sure that that’s on track, which is about 7% of revenue. How are we doing on SKU management? Where’s my long-tail skews? What action am I taking to cut the long tail, and what progress are we making there? Similar, what are my red alerts? Now, it’s COVID-19, where are my supply bottlenecks and potential disruptions? What can I do to take proactive actions to make sure that we can deliver product on time without a lot of inventory? It’s AI driven, demand forecasting, and constraint management tool.


Now, what I envision is a demand planner that will have her or his digital cockpit. This is a demand planner cockpit. The analogy that I like to use is, how does artificial intelligence improve demand planning skills. Imagine a SKU being a stock ticker. Our demand planners are like Goldman Sachs stocks trader, and think about what a stock trader on Wall Street—all the tools that they have and training today obtain to be a great stock trader. If we can provide that level of sophistication and systems and process for our demand planners, they could be as plugged in as a Wall Street broker. But to do that would be very timely and costly. What I envision is a digital cockpit that, just like Procurement, step by step, give the demand planner a set of instructions to be really good at forecasting accuracy, and sales planning.


The future vision of where I think AI can enable the total value chain management, imagine if there’s a simultaneous blast in demand from from consumers to retailers, to manufacturers, to our tier 1 and tier 2 vendors, to the manufacturer, the simultaneous demand goes real time throughout the value chain. From there, we can be maybe nearly perfect at forecasting accuracy, taking waste out of the whole Supply Chain, and breaking that COVID-19 supply constraints.


With that, I want to thank you all for joining me. I hope you found this thought a interesting conversation. It’s obviously at the early stages, but it’s a passion of mine. I think we’re making some difference at FLIR Systems. I hope, over the course of next year or so, that we will have a real working platform that I can demonstrate in real course. With that, if you’re interested, I did interview with the Supply Chain world. You can Google Supply Chain best practices for more detailed narrative in what I just spoke about. Now, I want to thank you again for joining us, and wish all of you to be safe and take care.


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