The Future of Supply Chain: Technology, Digitalization, and Industry Standards

[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Prophets podcast, where you'll hear from experts of all facets of supply chain in the auto industry to help you prepare for the future. I'm Jan Griffiths, your co-host and producer.

[00:00:17] Terry Onica: I'm Terry Onica, your podcast co-host. Let's dive in.

[00:00:23] Jan Griffiths: Hello and welcome to another episode of Auto Supply Chain Prophets. Let's check in with my co-host, Terry Onica. What have you been up to, Terry?

[00:00:31] Terry Onica: Well, I'm getting really excited. Our e-book three, based on quality and delivery, and we're now adding sustainability based on our 24-essential process, is out for feedback right now. So, hopefully, in the next week, we'll have all the feedback together, and we'll make the final edits or changes, and we'll be able to publish here in the next month.

So super excited about that. How's your book going?

[00:00:54] Jan Griffiths: That's exciting. Oh, the book's going well. We have the title nailed. Are you ready?

[00:00:58] Terry Onica: Oh, is this a first that you're announcing it on the show?

[00:01:01] Jan Griffiths: It's the first time I've announced the proper title. Yes. Yes. It is AutoCulture 2.0: Leading with Gravitas.

[00:01:10] Terry Onica: Awesome. Very exciting.

[00:01:13] Jan Griffiths: Finally. But I will tell you, Terry, what I've been doing this last couple of weeks is building a board on Monday.com. And for those of our listeners who may not be familiar with Monday.com, it is essentially a program management tool. It took me back to my roots, all those years in program management in the auto industry, really came through those, that skillset, extremely helpful in building this Monday.com. So, all of the production for the podcasts, as there's a lot of pieces to a podcast: transcript, episode art, show notes, recording, guest prep. I could go on and on. And I've built out this board in Monday.com for podcast production. And I got to admit, I'm rather proud of it. And as I was doing that, I was thinking back on my program management experience. And I have said several times on different podcasts that I learned the most about program launch new program launches in the auto industry from the German OEMs. Now, I will tell you that I hated Volkswagen when I first started dealing with them because they were overly aggressive, but I also learned a lot about this word rigor. And their approach to program launch and program management. And for that, I am extremely grateful. And I do think it is important to have a process and have standards. As much as I love to live in a creative space, you've got to have a process, and you've got to have standards. And that's why today, Terry, I am thrilled that we have got on the show today somebody who actually worked at Volkswagen, but more importantly, our guest today is the Chairman of the Odette board. He is also head of VDA, production logistics and aftermarket department. Let's welcome to the show, Robert Cameron.

[00:03:09] Robert Cameron: Thank you very much for having me.

[00:03:11] Jan Griffiths: It is so great to have you. I never thought I'd be talking to somebody about VDA because VDA was the plague of my life when I was in program launch, but here we are talking about it in a positive way and what it's going to look like for the future, right?

[00:03:25] Robert Cameron: I hope I will be able to make up for your past trauma.

[00:03:32] Jan Griffiths: Robert, tell us about Odette. What is Odette all about?

[00:03:36] Robert Cameron: Well, Odette is a European non-profit organization which is based in London. And our mission is to facilitate the digitalization in the automotive supply chain. We're trying to help the European automotive industry enter the next digital age and become more competitive in the process. As I said, we're based in London, but we're jointly owned by four different European automotive industry associations who originate in France, in Germany, in Sweden, and in the United Kingdom. But we're not only based in those countries, we also have a lot of associate members from all over Europe. And on top of that, we cooperate closely with our partners in North America, among them AIAG, and also with Japan. And our mission is to basically create a transparent supply chain in order to connect all the relevant players, stakeholders, and parties within the supply chain.

[00:04:32] Jan Griffiths: Much needed, as we're faced with this massive transformation in the industry. How long has Odette been around?

[00:04:39] Robert Cameron: This year is our 30th anniversary. We were founded in 1984. So, we have something to celebrate. We're still around, so our services still seem to be sought after.

[00:04:50] Jan Griffiths: And most of our audience will be familiar with VDA, but give us a quick refresher on VDA.

[00:04:55] Robert Cameron: Well, VDA is an older organization. We were founded more than 120 years ago. We're the German Automotive Industry Association, and basically, what sets us apart from other organizations is that we have both suppliers and OEMs in our membership. And we have several committees and work groups with specialists from the automotive industry. We're trying to create industry standards, and especially within Europe, the VDA standards in supply chain management and logistics are very well-known and very widely employed. The VDA is a very heterogeneous organization. We have three pillars: the first pillar is the classical lobbying organization. The second pillar is events. I mean, we have the IAA, the German Automotive Fair, which we organize. And the third pillar is the technical pillar, which is where I'm employed. And basically, what I'm responsible for is creating pre-competitive standards for logistics and production, but also in aftermarket, of course, but also analyzing certain developments within the supply chain and within legislation affecting the supply chain that have to be reacted to and dealt with. To give you a catalog of my topics, electronic data interchange is a big topic. Logistics standards, but also, environmental health and safety processes that we have, and semiconductors, and energy supply for production plants. It's a wide area of topics.

[00:06:37] Terry Onica: So, supply chain is really hot right now, and there's lots going on in logistics. So, what do you see are some of the big challenges, both from a German perspective and from a European perspective, right now in the industry?

[00:06:51] Robert Cameron: Well, the thing is, basically, the last three years living through the pandemic have really sobered a lot of us up to the limits of the global supply chain and the way they work. I mean, for the first time, we were really faced with the fact of how vulnerable global supply chains are and how little we actually know about them. And there were problems originating in the supply chain that we didn't even know were a part of our supply chain. And what we have to do now, what we have to focus on is stabilizing the supply chain. We will have to create redundancies within our supplier network, even though they might be costly. We will have to increase stock keeping within the supply chain, even though it may be costly. And the most important thing is we will have to increase transparency in the supply chain in order to get to know it and to be able to react to the weak points. And that's where we, as Odette, come in. That is our mission. And also VDA. We try to increase the transparency in the supply chain. We try to get these separate stakeholders and members of the supply chain to work together to communicate and cooperate for the greater good and the stability of the supply chain.

[00:08:07] Terry Onica: Are there any initiatives right now that you're working on either from Odette or VDA that you want to share with everybody that they might want to know that's either out there right now or something that's coming?

[00:08:18] Robert Cameron: I'd have to differentiate between Odette and VDA because, with Odette, our main topic at the moment is the REST-API or the API technology. Historically, we are really big on, electronic data interchange and EDIFACT messages. We have a large set of EDIFACT messages, which are widely employed in the automotive industry. However, they're limited by the fact that they only apply to 2 parties; it's a point-to-point connection. Which is good for transparency between two partners within a supply chain but doesn't really help us when it comes to transparency of the supply chain. So, what we're doing now is we're working on standards for APIs in order to connect all the stakeholders, as I said, to enable all the relevant parties, be it the supplier, be it the carrier company, be it the logistics service provider, or the customer to be informed almost simultaneously about relevant events within a logistics process. When it comes to the VDA, everything is basically under the hat or under the guise of the transformation to electromobility because we have some very stern European legislation that gives us some very demanding targets for 2030.

I mean one example is that basically 65 percent of all newly registered vehicles in the European Union in the year 2030 will have to be electric vehicles, and that's more than 9 million vehicles. So, we have a long way to go before we're able to do that, both in supply chain management and in production.

[00:09:52] Terry Onica: One thing I wanted to go back to is something that you said about the APIs for EDI. Do you think that these will replace EDI, or is it more of a supplement? Because I think a lot of listeners here, in fact, we had an episode on EDI to talk about with Fred Coe of General Motors, and it was one of our highest-ranking episodes ever. So, I know there's a lot of interest. So, what are your thoughts on that?

[00:10:19] Robert Cameron: I don't think EDI is going away anytime soon. It takes a long time to implement but is extremely stable. I mean, extremely stable. And it's partially a legacy technology, of course, so everybody's scared to touch a legacy technology. Never stop a running system, but it is so stable that it provides you security for the production process. So, I think EDI is going to be around for the next 20 years at least. So, API is basically the next step in building on the existing infrastructure. You will try to improve services. And that's basically what API is for. I mean, Google Maps is an API. And basically, what they do is they get legacy information from several different sources and give you a service. And basically, that's the way we see APIs in the automotive industry.

[00:11:08] Jan Griffiths: All right. The traditional OEMs are very familiar with VDA, very familiar with EDI, all these systems that we're talking about, but the new entrance, the new EV OEMs. What's your experience? And how do we show and share the benefits of having these systems to a new EV OEM entrant?

[00:11:35] Robert Cameron: One example which was active 15 years ago was that you had a cattle rancher in South Africa who provided the leather for high-end limousines, and this cattle rancher was not even aware that he was an automotive supplier, which he was, and there was a shortage. And certain high-end vehicles could not be built. We've always had that issue when if we are only a very small customer of a certain specialized supplier, we, as automotive, don't really get priority when it comes to processes. And we've had similar issues with semiconductors. I mean, currently, we make up about 8 percent of the global semiconductor market, but we're growing. It's becoming more important. We forecast that we're going to be up to 14 percent by 2030, and we'll have to do the same thing with the others. I mean, we have to become an important player with an important market share, and we will become an important player with important market share if electromobility grows globally. So, I think it's going to take a process, but once a supplier generates enough income with us, then our processes and our demands become more attractive, or at least become less annoying.

[00:12:54] Terry Onica: So, from a QAD perspective, I know when we work with startups, one of the things that we do for sure is mention all the standards and quality and supply chain that are out there. And what I'm finding from our perspective is that they're very interested in hearing about them, and they like the fact that they don't have to start from scratch, that there's something already there. So, sometimes, I think they have an advantage in some way because they can just take these standards. They don't have any proprietary systems and just go with them. And so, I find that really exciting about startups. One of the other areas that I wanted to ask you about, Robert, is MMOG/LE. That's how you and I met through that standard. And can you give us an update? Version 6 came out last year. I know there were some discussions with the VDA about MMOG/LE. How many assessments are out there, and what's going on in Europe with MMOG/LE?

[00:13:48] Robert Cameron: Well, I can't tell you the exact number of assessments, but what I can tell you is that it's been launched at more than 12,000 production sites worldwide. The V6 launch was very successful, especially with the larger OEMs which have been using it for a while, such as Ford and Volvo trucks. But we also have good experiences with JLR and ZF regarding version six. And we are currently talking to other OEMs, which have not been traditionally using MMOG/LE. And it looks like they are very interested to it. It's a great standard, and it's a personal goal of mine to expand the use of the standard also in the German automotive industry. It's not used as much in the German automotive industry as I would like it to be, to tell you the truth. But I've been working on this for seven years, and slowly, my efforts are bearing fruit.

[00:14:46] Terry Onica: Yes, I've seen a lot of the changes that you have made with getting more recognition in the European industry on MMOG/LE. So, that's great. Kudos to you, Robert, for doing that.

[00:14:57] Jan Griffiths: A lot of this goes back to mindset. I talked about my experience earlier on with Volkswagen and with VDA, and you simply can't do what I did, which was view it as a necessary evil.

You have to come at it with the mindset of, 'Oh, wow. These standards have been put in place after years and years of lessons learned. There are benefits to my business to really understand and implement these standards rather than think of them as a hindrance and something you've got to put resources into.'

You can integrate them into your business and learn from them, and reduce that learning curve. And whenever you can reduce the learning curve, there's a reduction in cost, there's a reduction in unplanned cost. So there really is an impact to the bottom line but seeing that sometimes is hard.

[00:15:51] Robert Cameron: It is, but my main motivation for the standards is to help our suppliers, actually, because if we have a standard employed by several OEMs or best all OEMs, you have less administrative hassle with reporting to your customers, if you have a different reporting system for each and every customer, that is going to be very tenuous, it's going to be very expensive, and it's going to basically ruin your profit margin.

So, having these standards and processes in place actually benefits our suppliers, and it benefits the OEMs in the way that their suppliers can react more quickly to their demands. So, it's a win-win situation.

[00:16:39] Jan Griffiths: We're all talking the same language. And as a recovering supply chain person in the Tier One space, I was on the receiving end of all the different launch requirements from German OEMs, American OEMs, Japanese OEMs— all had different requirements. And when you're the receiving Tier One person trying to figure out how to communicate a system, then that's standard out to your supply base, oh, that is, that is tremendously difficult. So, I feel the pain in the Tier One supply base out there but you're absolutely right. It provides consistency. It provides a common language. And again, the chance of error is greatly diminished.

[00:17:28] Terry Onica: You know, one thing I do want to say about MMOG/LE in working with a lot of suppliers around the world with it, I just can't stress enough how much it does for the business. Every company that I've ever worked with on it after taking the MMOG/LE assessment, really understanding it and applying it, in my experience, has reduced inventory anywhere from 15 to 60 percent, and that's huge. And why is that? Because MMOG/LE causes you to look at your processes and see where you're doing things and where you're not doing things. And I think it's just really important, and I think it's such a great tool right now, especially for new startups or even people new to supply chain because I know, at least here in the US, we're having to hire people that may not have any experience at the plant level and in supply chain. And so, what a great tool to start with, and the training that's offered both here with AIAG and also at Odette to have that available to kickstart you and get the people understanding it and then to be able to have that kind of benefit, I think is huge. I had one customer with MMOG/LE identify $400,000 of savings. And why is that? Because MMOG/LE looks at your processes from receiving in that customer EDI, how you automate that all through your systems, your ERP systems, and then how you get that out to the supplier. It just streamlines that inventory process. So, I can never stress enough about the value of MMOG/LE to the industry. I just hope more people continue to hear that and see that happen.

[00:19:10] Robert Cameron: I think it's a great tool, too, especially for smaller suppliers who actually don't have the overview of all the different topics that they have to take a look at. And it really helps us as an industry to raise the quality level of the supply chain as a whole. And that's why I'm in full support of it as well. Thank you very much for pointing that out, Terry.

[00:19:28] Terry Onica: You're welcome. I see that tool, and I see the transformation it makes in organizations. And I can't help but share it because I'm a big supporter of it. I've seen it so many times in action. So, with that, one of the new things in MMOG/LE Version 6 is the topic of ESG. So, we're all looking at being more environmentally friendly, and we've added that into MMOG/LE. What's new at Odette around the topic of ESG?

[00:19:57] Robert Cameron: We're not that big on into that yet. Basically, what we're doing is screening European legislation and seeing where there are new requirements for us. At the moment, we're taking a look at the European packaging legislation, which gives us recycling quotas, which gives us reporting needs for the content, how much recycled material that we have there, and so on and so forth, and we're working on a reporting there. In Germany, on the other hand, it's really big. The VDA has a lot of topics regarding environmental and safety, and we're working on the decarbonization of the supply chain. We have a joint project with our friends at ECG at the moment to create a joint reporting system for CO2 emissions. We are also working on the decarbonization of energy supply to plants, how to replace natural gas with green hydrogen, or how to go from full electrification of the plants. And as far as environmental hazards are concerned or so-called environmental hazards, we have the PFAS issue here in Europe, which I know you have it in the United States as well. But some European legislators want to have a complete ban on all 10,000 different Tesla and PFAS connections, which is simply not feasible. So, we're hoping that we can get around that one.

[00:21:26] Terry Onica: So, one of the things I think with ESG that I'm hearing from the supply base, I'm hearing it pretty loudly, and I'm hoping both AIAG and Odette can work with the OEMs, but suppliers are getting all these surveys, and they really want them to be standardized, more of a standard global process to gather this data not only for themselves internally but also for their suppliers. So, I'm hoping that we might see that come to fruition or activities around that globally to help suppliers in that area. Do you think that might be a possibility from what you're hearing? Or do you hear the same thing?

[00:22:06] Robert Cameron: Yes. The problem we have in Europe is that, basically, each country has its own legislation. So, you can't really have one European standard and one European standard reporting system. We're kind of trying to do that with the CO2 reporting. So basically, even if you have different KPIs that you have to report, the math and calculating them is the same. That is one thing that we're working on it. And on the other hand, we have two topics here, which you don't have in the US. We have a German Supply Chain Due Diligence Law, and we have a European Supply Chain Due Diligence Law coming up. The German one is basically focused on work conditions, fair working conditions, fair labor conditions, and the European one will have a very strong focus on environmental protection. So, we will see how that will go. We're monitoring the situation at the moment. And whenever we can, we will provide our members, and via Odette also, the Odette community with recommendations or German standards, which might be able to be transformed into European or even global standards.

[00:23:18] Terry Onica: You know, the other area, I think, too, that will be helpful in the area of ESG is just guidance on how for the lower tiers, especially, and even the Tier Ones, what do they need to do? What is the priority order? What should they be looking at? I think that would be really helpful from the industry standards organizations with AIAG and Odette to really help give that guidance. And actually, the e-book that I talked about earlier today that was kind of one of our ways to try to help people to be able to start to understand where they can look as they're looking at their, you know, quality in their supply chain process. Now, you want me to add a layer on sustainability, which is fine. And in our e-book, we really talk about how a lot of the things that you're doing today could count towards sustainability. So, there are ISO standards that I've already looked at that I believe it's ISO 14,001. So, you may have some things in there already that you can start to look at. So, we're trying to bring awareness and trying to steer them to be able to make a start and what should they start looking at because I see that a lot when I work with plants, they're just not quite sure where to begin with the process.

[00:24:29] Robert Cameron: We're doing the same thing with the German Supply Chain Due Diligence Law because, basically, the goals are very global and very widespread, but the actual operations are not described within the law. So, what we're trying to do is to create a handbook for small to medium-sized enterprises. What do you have to do to become compliant with that law? And we'll do the same for the European Due Diligence Law with the environmental safety. And as you said, ISO 14001, yeah, those standards are there already. They're not specifically automotive, so we will have to adapt them to become a, to fulfill our needs to a certain degree. But I'm with you completely that we have to do that because we have a large supply base with a lot of small and medium-sized companies which will need our support there.

[00:25:18] Jan Griffiths: Robert, we've covered a lot of ground today. As we bring this together, what is the one thing, one piece of advice that you would give to a Tier One leader out there in automotive, with all the standards happening, with the massive transformation that's happening in the industry, with a view to standards, what is one thing that they should start doing right now immediately to help prepare for the future?

[00:25:47] Robert Cameron: Basically, they will have to make their own supply chain transparent and help make themselves transparent for their customers. It's not always going to be easy. I know nobody wants to do that. And there's going to be unfairness in the process. I know that. You're going to have unfair customers, and you're going to have unfair suppliers which don't value your open hand. However, that's only a short-term solution. The unfair participants in the supply chain are going to learn the hard way in shortages, in crisis that that kind of behavior is not rewarded. But when it comes to fair share, I treat those who treated me well with an extra courtesy that others don't become. There's a crisis coming up. I believe the next semiconductor shortage is coming up in less than a year. We all know how the last semiconductor shortage crisis was. We will have to work together. We have to figure out where the shortage are, where the bottlenecks are together. And we will have to guarantee a stable supply chain together. This is a partnership thing. We're not going to be like the Japanese colleagues and have Keiretsu, but we have to develop into that direction a little more because we just don't have an option. The world is too fragile at the moment. It is too dynamic. And if we want to save our business model, we have to become stable on the inside to be able to deal with the chaos outside.

[00:27:16] Jan Griffiths: That is great advice. And there we have it from the Chairman of Odette. The head of VDA of production logistics and aftermarket department. Transparency is the name of the game moving forward for transformation. Robert, thank you so much for joining us today.

[00:27:36] Robert Cameron: Thank you very much for having me.

[00:27:38] Terry Onica: Thank you, Robert. We appreciate it.

[00:27:43] Jan Griffiths: Are you ready to find the money in your supply chain? Visit www.autosupplychainprophets.com to learn how or click the link in the show notes below.