The Digital Supply Chain podcast

Digitisation, ESG, And Sustainability In Supply Chain - A Chat With Kalypso's Jeff Miller

July 18, 2022 Tom Raftery / Jeff Miller Season 1 Episode 243
The Digital Supply Chain podcast
Digitisation, ESG, And Sustainability In Supply Chain - A Chat With Kalypso's Jeff Miller
Show Notes Transcript

Supply Chains are becoming increasingly digitised (hence the name of the podcast!).

How can organisations utilise this to to further their ESG and Sustainability goals? To cast some light on this I invited Jeff Miller a Kalypso (a Rockwell Automation company) exec to come on the podcast.

We had a fascinating conversation, talking about how supply chains are becoming far more complex, how digitisation is enabling the better management of these complex supply chains, and how this increased visibility can help with ESG and Sustainability initiatives.  

I learned loads, I hope you do too...

If you have any comments/suggestions or questions for the podcast - feel free to leave me a voice message over on my SpeakPipe page or just send it to me as a direct message on Twitter/LinkedIn. Audio messages will get played (unless you specifically ask me not to).

If you want to learn more about how to juggle sustainability and efficiency mandates while recovering from pandemic-induced disruptions, meeting growth targets, and preparing for an uncertain future, check out our Oxford Economics research report here.

And if you want to read up on our Industry 4.0 blueprint repost, head on over to https://www.sap.com/cmp/dg/intro-industry40/index.html, and if you liked this show, please don't forget to rate and/or review it. It makes a big difference to help new people discover it. Thanks.

And remember, stay healthy, stay safe, stay sane! 

Jeff Miller:

It's very hard to make decisions, optimal decisions. So now we have the tools, the AI and machine learning tools that help us. And the good news is that I see that now more often as a central part of the decision making process about sourcing strategy than it ever was before. And that's great because the economics actually do line up. This is kind of the key theme that you talk about so often with your guests. This is no longer a cost of doing business. It's a way to achieve your ESG objectives, your sustainability goals, and to be crass about it to make money

Tom Raftery:

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast. The number one podcast, focusing on the digitization of supply chain. And I'm your host global vice-president at SAP Tom Raftery. Hi everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery from SAP and with me on the show today, I have my special guest, Jeff, Jeff, welcome to the podcast. Would you like to introduce yourself?

Jeff Miller:

Thanks Tom. It's, great to be with you. Looking forward to this, my name's Jeff Miller. I'm a director in Rockwell automation's Kalypso digital business unit. I'm responsible for our digital. Performance program inside of manufacturing and supply chain management. I've been at this for a number of decades a strong supply chain background, and very much looking forward to our call today.

Tom Raftery:

And tell me a little bit more about Kalypso. Jeff, what, what do you guys do?

Jeff Miller:

Sure sure. Kalypso is the digital business unit of Rockwell automation. Kalypso is a long standing consultancy focused in innovation and supply chain. Rockwell automation purchased Kalypso a couple of years ago, which has been a, a great transaction for the firm. We have access to the resources and capabilities of Rockwell automation and one of the leading. Industrial and process automation companies in the world and the visions are aligned. And it's really great to have the strength of uh, Rockwell automation and Kalypso together. It also creates a great home for people like us, like you and me who are supply chain practitioners, and are trying to advance the state of the technology in business and driving results. So that's who uh, Kalypso is.

Tom Raftery:

And your own personal area of interest...

Jeff Miller:

Well, I've been at this, like I said, I, I grew up in capital equipment large asset manufacturing. And for the last couple decades have been focused at this nexus of IT, OT and business, specifically around supply chains trying to figure out ways to make them more efficient. I make them more visible, more transparent, more effective. And if there was ever a time for that, I, I think it's kind of now. So I, I think we're in a, something of a Renaissance for supply chain management using these technologies we have today. It's, it's an exciting time to be in this

Tom Raftery:

yeah. And more efficient. I like to think that efficiency is also synonymous with sustainability.

Jeff Miller:

mm-hmm

Tom Raftery:

The two things go hand in hand by making a supply chain more sustainable. You are defacto making it more efficient and vice versa. And well, let, let me, let me throw that at you. Do you, do you agree? Is that a fair statement do you think?

Jeff Miller:

Yeah, absolutely. I do. And in fact if we look over the last, even the most recent say five or 10 years, we've seen this move in, in the supply chain management, thinking from it being simply a, a system for mitigating risk whose value was predicated on cost reduction to a system that can actively be used to achieve goals related to environment, sustainability, recyclability, design for X now, a design for sustainability design for reusability or recycling. All these things are made possible through the technologies that we have available today. And those are all consistent with what we've always wanted to do with supply chains. It's just that the denominator now isn't just cost it's environmental impact. It's sustainability. So, it fits quite naturally, and it seems like a natural maturation of this body of knowledge that we all are concerned with.

Tom Raftery:

Yeah, it, it, it's interesting. I think, the very first time people became aware of supply chain wasn't necessarily the, the pandemic, I think before that people became aware of it with the ascendancy of Tim cook in apple, because he headed up their supply chain. And well, maybe, maybe that's a bit nerdish on my part. Maybe. Not the wider public was aware of that, but he demonstrated, the importance of supply chain in general. The combination of himself and Steve Jobs at the time really brought Apple up and up because they had been floundering and it was the combination I think, of the two of them. And then Tim took over. More recently we've seen supply chain come to the, even greater fore with the pandemic. Now we're, realizing the importance of sustainability in supply chain. Something that. Is happening in other aspects of business as well, but for supply chain, why do you think it's important that we be more sustainable?

Jeff Miller:

Well, there are are societal reasons which are significant drivers. And this is again to your point on Tim cook very briefly. My recollection is he was one of the first to tie supply chain into business to tie product design. Uh, It wasn't just Johnny Ive, it was, it was tying the idea that optimizing a supply chain actually drove a top line result. He, he made it more of a topic that was outside the realm of the box kickers. He made it, he mainstreamed it, I think more so than anybody else prior to his time. And that goes to the point today. Well, supply chain is one of the key drivers of achieving these goals related to decarbonization related to reusability, landfill reduction. I remember uh, vividly how my first exposure to supply chain in this context was around waste reduction in a manufacturing setting. So, it sort of come of age. I think you're right. There were some pivotal moments. One of them being Tim Cook Uh, in, making this something that was more mainstream to the conversation. I think the pandemic also accelerated that I used to say over the last year or so if I had a nickel for every time supply chain had been mentioned as a term by the mass media, I could retire. Where five years ago, nobody knew what a supply chain was. And admittedly many people today still misunderstand what supply chain management as a discipline is or what supply chains actually are. I think we've, we've really moved it into a point where it is now recognized as a tool with which to not only satisfy demand, but to make a difference in the environment and make a difference with respect to sovereign nation dealings, corporate governance. It's become somewhat political. That's good and bad, but I think it's it's now a central part of the conversation around how we, operate as, as societies.

Tom Raftery:

Yeah. Yeah. Yeah. I, I often think that the term supply chain is outdated because it's no longer really a chain, a chain implies A to B to C, whereas this is more of a, kind of a supply web, I wanna think, or a supply ecosystem, although neither of those really roll off the tongue as well either. Do they?

Jeff Miller:

No, they don't, but you you're you're so, so right. We grew up thinking about the supply chain being linear and sequential. Many of us are familiar with that. The supply chain operations reference the SCOR model, so-called design plan purchase, make, move, sell, and then maybe add service to the end. Well, and was linear and serial. And when we talked about the integrated supply chain, we generally meant bringing all the purchasing people together or bringing all the planners together. We didn't talk about it as a, a mesh or a web or a network. And now the body of knowledge is there. I think that actually has an important bearing on sustainability as well because the easy stuff, Tom, I think we've, we've largely done route optimization. Got it. How to decarbonize or reduce carbon in route optimization for logistics, both inbound and outbound, plenty of body of knowledge there, plenty of capability, AI tools and so forth. The more complicated piece is looking at the complete product life cycle and figuring out how to make decisions that span all of those nodes of the supply chain and arrive at the optimal sustainability footprint. It's not as easy as just picking one piece out. And I think that's where the tools. From today forward will help us a great deal.

Tom Raftery:

Yeah. And, and speaking of the tools, I mean, how do you see digital helping us become more sustainable?

Jeff Miller:

Well, what digital has done for us. And, and I guess the best capstone to use here in this in this example is the digital thread. What it's done for us is it's allowed us to connect pieces of the supply chain more efficiently, whether it's visibility and transit visibility, or it's the sharing of design information across the life cycle and across all the nodes. So now if we have an objective, for example, to improve the recyclability of a product, Okay. That's everything from its packaging to the materials that it's manufactured from to the processes themselves. It's now easier. It's it's not easy. It's easier to make decisions. In each of the nodes of that value chain, so called value chain or value network that will result in lowest sustainable, lowest environmental impact or highest sustainability. So I think that's the role that digital plays for us. And this is manifest in your company's software and the solutions that my company and many others produce. We can now answer those questions. How do I reduce the amount of carbon it takes to produce this part? I can answer that question. How much carbon is associated with these material choices I make about what I'm gonna manufacture that item out of. What is the environmental impact of it being non-recyclable or recyclable? What is the cost of actually disassembly and recycling? Is it higher or lower than the incremental savings in manufacturing? All these complex questions are now easier to answer thanks to the digital tools that we have that connect all the data together.

Tom Raftery:

Sure. And where, I mean, the supply chains are vast and enormous. Where would people get the most bang for their buck if they want to invest in becoming more sustainable?

Jeff Miller:

Well, there's still a lot of runway left in, in connectivity and manufacturing still operates collectively kind of you take a big peanut butter approach. Most manufacturing operates at an overall equipment effectiveness rate of 50 to 60%. And this is a measure of how productively the factory uses its assets, regardless of whether we're talking about capital equipment or consumer electronics might be even food and beverage. We talk about operational equipment effectiveness. So I believe manufacturing operations still is a very rich environment in which to look for opportunities to reduce. Cost and reduce environmental footprint. We had a project recently where we are building a set of AI tools associated with poultry processing to more efficiently use water, potable water, which of course is an enormously highly used resource in most kinds of food processing, but particularly. Animal processing and particularly poultry processing. So it might seem a small thing, but if the water is a resource that's scarce and should be managed. And so while we are looking at how can we affect the use of water and poultry processing all the way down through how the poultry are prac packaged, not just how they're inbound processed. So. The supply chain, the ends of the supply chain outside of manufacturing play into this. But I believe that the factory itself is still a, an area that's ripe for improvement. We're doing work like that with capital goods manufacturers and deciding how to operate the plant to reduce electrical consumption or other process parameters, wages, water, air gas, electric process steam. So there's much to do in manufacturing, operations, I think. And from there other parts of the supply chain.

Tom Raftery:

Are you seeing many people looking into circularity yet? Because the use of recycled, as opposed to Virgin goods is surely A should bring down costs you'd imagine as well as B reducing footprint.

Jeff Miller:

Yeah, we, we do. And it's interesting. You see it kind of across the spectrum. It's well known in the electronic sector. It's well known in the polymers sector, working the polymer wedge. Some challenges there because the, the reclamation process costs are, are sometimes high, but certainly we're seeing that in many industries, we, we see it in capital equipment in terms of recyclability of metals and the costs for Virgin material versus recycled material. We're seeing companies that re recycle aluminum into cans and other aluminum products, not just consumer products, but they're very busy because the demand for that feed stream of recycled aluminum and recycled steel is very, very high. So yes, we are seeing it. I think it's driven not only by supply chain, Tom, but it's also driven in some cases by just the global economics. If we can operate successful metals reclamation on a more localized basis versus going overseas for it. Where now you have the logistics costs of transport and the environmental impact of, of transport. It kind of makes the case for it. This gets political, not everybody wants some materials, a metal smelter in their country or in their state. But these are things that at least we need the data to be able to make wise decisions. So the answer to your question in my view is yes, we do see this. We see design for use of reclaimed material now We see same as except or interchangeable change in product design to accommodate changes in the raw material that is used either Virgin material with a certain spec or suitable recycled materials with a slightly different set of specifications. But we do see more and more manufacturers doing that.

Tom Raftery:

Cool. And what about doing things like looking down through your supply chain and optimizing amongst your suppliers. I mean, surely that's, that's important as well as when supply chain itself is responsible for depending on the industry, anywhere from 50 to 60 to over 90% of your emissions.

Jeff Miller:

Exactly. And the, again, back to the idea of what digital's doing, it's helping us make a more comprehensive decision. Now we can look at total cost net landed costs, the environmental impacts. We can compare localization and some of its cost drivers to importation with its cost drivers. What used to be so unidimensional, you know, you and I kind of grew up in this space, low cost country sourcing. Everybody was pursuing labor arbitrage. That was the order of the day in sourcing and procurement. And these other factors. That about which we can gather data now, thanks to these tools. Now those are part and parcel of the decision making about where to source and the, the value of, of aggregating demand in one location and optimizing that chain from an environmental standpoint, from an emission standpoint versus diversifying, which might have a negative environmental impact, but might make my factory operate better. So many of our decisions now involve data that on their faces will operate in tension with one another. It's very hard to make decisions, optimal decisions. So now we have the tools, the AI and machine learning tools that help us. And the good news is that I see that now more often as a central part of the decision making process about sourcing strategy than it ever was before. And that's great because the economics actually do line up. This is kind of the key theme that you talk about so often with your guests. This is no longer a cost of doing business. It's a way to achieve your ESG objectives, your sustainability goals, and to be crass about it to make money. So it's, it's good to see this where we are now.

Tom Raftery:

Well, that's a win-win isn't it it's you know, doing, doing good for society and also doing good for your organization. I mean, that's, that's sustainability as well because you need your company to survive. And the only way to do that is to be sustainable. You know, it has to be economically sustainable for your company to do these things as well. Or it's not gonna happen.

Jeff Miller:

And we're there. Now, this is again, back back to kind of the, the theme of the day around the role of digital and the role of these sophisticated tools. They help make that possible, but you're right. I think societies around the world, we all kind of operate the same way. If you can't sustain your business, then it's hard to commit to sustaining the environment. And I know that that might sound coarse to the ear, but that's the reality. The good news is that the tools, the technologies, the material science, the manufacturing, the availability of energy at different of different forms at different times. All these now are coming together and converging through these solutions that we, we help our clients deploy. To truly achieve those goals. They are no longer mutually exclusive. They used to be perhaps or perceived as such, but they really aren't

Tom Raftery:

And can you give us some examples, Jeff of uses of the likes of, I mean, you mentioned AI and digital thread and things like that, but can you give us some actual use cases of, of wins that you've had?

Jeff Miller:

Back the factory because I, I think this, again, continues to be, uh, there there's very little low hanging fruit, but if there is any at all, it, it may be first in manufacturing. So we've got several clients now across the spectrum, heavy goods, capital equipment, some consumer white goods. So-called white goods, all of whom are being asked the question or asking themselves. How much carbon is, does it take to make this part, how much carbon am I consuming to assemble this in this manner? So we've got several programs underway with different clients, some of which use emulation and simulation technology, where we're simulating factories entire production lines, some more focused on operations to collect data and correlate it. But we're building tools that allow them to answer the question. How much carbon am I consuming or creating? Rather, I should say how much carbon am I creating by manufacturing in this way? And then the rejoinder question and what if I change what I'm doing? And that's been the question that's been very difficult to answer. What if, for example, during changeovers on a major machining center, a metals milling machine, what if I put the machine into a different form of standby and shut the spindles down, thereby reducing the electrical usage? How much is that worth? We had a situation with a client recently where their perception without data, their perception was, ah, that won't make much of a difference. Well, what they didn't realize was how often they were changing over and how many minutes were spent with spindles spinning on these large 440 volt motored machines. It in any way, it ended up being gosh, 18 to 20 hours a week of wasted machine spindle time. Now I, I don't have the correlation to how many pounds of carbon dioxide were produced to make the electricity, by the way, this is in a factory that cogenerates so they're operating diesel generators of all things. Yes, believe it or not. So, I mean, my point is simply that by giving them data, to show that by changing the manner, which they handle changeovers, they could materially reduce the amount of electricity. They consumed, thereby making a significant contribution to decarbonizing that part of the plant. And you know what, Tom, it didn't cost them quote, unquote, anything in terms of the throughput of the factory that still produce the same amount of goods. So that's one example in the, and it's a, it's a heavy manufacturing example. There are others like that, that have focused on reducing energy consumption to manufacture everything from pharmaceuticals to heavy machine goods. And it's because we have tools that allow the factory to see their operations, not just electricity, but process steam and other things in ways that they previously had not been able to.

Tom Raftery:

That's cool Jeff most organizations now have a broader ESG stated aim or goals that investors are looking into and holding firms more accountable for. How can we in supply chain of supply chain professionals, help organizations meet those stated aims?

Jeff Miller:

is where supply chain broadens out. And, and again, you and I, as students of this for so many years, and being practitioners. Now I see connections into other parts of commerce and governance, sovereign governance as well as corporate governance and supply chain has roles there. For example, there was an article I don't know that it was today, but maybe a couple of days ago in the wall street journal related to semiconductor manufacturing. I did not realize that for example, Taiwan, semiconductor holds about 92% of the world's manufacturing of a certain category of, of application specific ICs, not commodity ones. And the point was that there's a deep concentration and we've known this through the pandemic. We've seen concentrations of manufacturing and and concentrations of availability of product in certain areas. Now part of ESG societal and governance is to look at where you're getting your materials and to make a appropriate judgements on whether you should be and want to be getting your materials from those locations. And so then the conversations come up around alternative sources of supply and the, total costs of alternative sources of supply. Supply chain is in the middle of those kinds of decisions. Whether it's for supply chain continuity. Remember the Suez canal blockage, for example, alternative routes of supply or concentration because of geopolitical concerns, national security, national sovereignty concerns. Supply chains are in the middle of that now where they perhaps were not say 20 years ago or 10 years ago. So again, the combination of the tools we have to make better decisions your guests a couple of days ago on the podcast was on this subject. As many of your other guests have been around planning, AI supported planning, AI supported and enabled logistics. I do think that we as practitioners, even though we're loathe to touch that third rail politics and so forth, it is part of the ESG agenda, at least in the S and the G components of it. So, yes, I do think we have a responsibility as practitioners to take the data and the tools that we have. And support these other aspects of decision making around corporate governance about where we get our materials and and where we manufacture again, it used to be so simple. It was unidimensional labor arbitrage, and then it became labor, arbitrage, and environmental, not in a good way. And now it's it's much broader. And the tools I think enable us to help support, the decision making.

Tom Raftery:

Cool. Cool. Jeff, we're coming towards the end of the podcast now. Is there any question I haven't asked that you wish I had, or any aspect of this, we've not touched on that you think it's important for people to be aware of?

Jeff Miller:

No Tom. I, I really not, but I would leave our listeners with, with a thought and I, I get this so often from your podcast. It's one of optimism. I think this is the coolest time to be a supply chain practitioner and a supply chain professional, because what we do day in and day out has the capability to change. The environmental that sounds cliche or changed the world. It really does though. And perhaps more so than some other disciplines and professional endeavors in the industrial sphere. Supply, chain's really, really important to us now. And the thought that animates my actions most days is this. I've got the tools we've laid the foundation. We may not have known we were doing it technologically and operationally, but we have powerful tools thanks to digital. And the way we now view the supply chain. As you said earlier as a mesh. We're able to do things that we couldn't do years ago they were either cost prohibitive or the technologies didn't exist. So I'm genuinely excited about our ability to make step changes in sustainability productions and environmental impact, stability of supply chains with these tools going forward. It's just going to accelerate. I, I wish there was a Moore's law corollary to this for what we do in supply chain, but I, I think it's an exciting time. And I appreciate the chance to say that on your podcast, Tom. Thank you.

Tom Raftery:

Oh, thank you. Thanks Jeff. Okay, Jeff, if people want to know more about yourself or about Kalypso or Rockwell or sustainability or any of the things we discussed in the podcast today, where would you have me direct them?

Jeff Miller:

Well, the best place to go on sustainability is to Kalypso.com. We have a very vibrant sustainability ESG business, more focused, really on sustainability as an industrial consultancy, where we are producing these solutions, using some of the most advanced technologies that are out there. Rockwell automation owns many of these technologies around emulation and simulation because it's an automation company. So between Rockwell automation.com and specifically around environmental. kalypso.com. And of course you can find me there as well through the Kalypso website. We'd be happy to talk more and and share ideas and contribute to the body of knowledge.

Tom Raftery:

Fantastic. Jeff. That's been really interesting. Thanks a million for coming on the podcast today.

Jeff Miller:

Thanks so much, Tom. It's great to be with you.

Tom Raftery:

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, head on over to sap.com/digital supply chain, or, or simply drop me an email to Tom dot Raftery @sap.com. If you like the show, please, don't forget to subscribe to it in your podcast application at choice to get new episodes, as soon as they are published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks, catch you all next time.