Transcriber: It was a strange feeling,
walking into the local supermarket, only to find empty shelves, and, most notably, no toilet paper. We didn't have raw-material shortages
or manufacturing defects, and we didn't discover
new uses for toilet paper. It was panic buying by everyday people. Supply chains just couldn't keep up. And before we knew it,
the rumored shortage became a real one. You remember that, don't you? Well, maybe not, because
I'm not talking about COVID-19. I'm talking about the great
toilet paper shortage of 1973. And it wasn't caused by a pandemic, but by a joke told by Johnny Carson. But today's supply-chain
challenges are no joke. Those problems are real, but they're problems that we've faced,
and even solved, in the past. A supply chain is the long
and often complicated journey that any item takes
before it winds up in your home. Raw materials are mined or grown and sold to various suppliers. Those suppliers sell them
to manufacturers, who transform those raw materials
into finished goods. And those finished goods
are moved around the world by distributors and carriers, who, in turn, sell them to retailers, who sell those to consumers
as a final step. Many supply chains are simple, like when you buy strawberries
at a local farmers market. But some are almost infinitely complex. In my 14 years working with companies
on improving their supply chains, I've seen many disruptions,
from natural disasters to pandemics and geopolitical instability. And every time, the media
talks about how, from this point, companies can and will
make their supply chains more resilient, and the common prescriptions
include diversifying risk, better forecasting the future and building buffers,
like stockpiles of inventory or more manufacturing equipment. And this is good advice. But the question I keep asking myself is: “Why haven’t more companies
taken this advice?” The reason is that it doesn't stand up
against competing priorities and steep competition that occurs
between the crises and shocks. So if we want to build
more resilient supply chains that can withstand the next great crisis, then we need to bring new ideas
that can withstand competitive pressures. Let's talk about sharing risk, radical transparency
and automated recommendations. These three ideas,
if we take them together, have the potential
to help break the trade-off between resilience and efficiency. An obvious solution to supply shortages
is to build more buffers, so that if anything happens
along the supply chain, the next recipient
isn't waiting empty-handed. Retail stores can never
perfectly predict what we'll buy, so they carry extra inventory. They might run out of a particular size
or particular color, but it’s unlikely that they’ll run out
of an entire category, like jeans. But we know, across industries, companies carry less of that backup
inventory than they used to. And we have immense product variety. But much of what we buy is made in highly specialized
or automated factories, and that makes it harder to repurpose
that capacity when demand changes. That's why during COVID-19, those toilet-paper manufacturers
had enough capacity, but they didn't have
the right kind of capacity. Commercial toilet paper is very different
from what we consumers use at home. They could have met demand, but it would have meant shoppers lugging
home rolls that are nine inches wide, and clearly designed for cost,
not for comfort. (Laughter) Streamlining supply chains is a big reason why we consumers have
incredible choices at low prices. And for many companies, warehousing extra raw materials or keeping idle equipment
on the factory floor is simply too expensive. Competition is steep as it is. But buffers matter in a crisis. So how do we get similar benefits,
but in a different way? We can share or pool risk. It's much like a well-established industry
that we all know well -- insurance. It's unlikely that you'll ever get
into a major car accident, but if you do,
it will be horribly expensive. That's why, for low-probability,
high-impact events, we share risk, and in some instances, like car insurance, we even require it. We could do the same thing
in supply chains. Industry players could team up to share
the cost of keeping extra raw materials, key components or even machinery, in exchange for an ongoing shared fee, and only to be used in times of a crisis. For example, many countries stockpile
important medicines, but relatively few keep
their active ingredients, or "APIs." Pharmaceutical companies could share
the cost of storing extra APIs during normal times. Then, in a crisis, drug manufacturers
could dip into that supply to avoid running out
of these important medicines. Again, it's just like insurance, except instead of pooling money,
we're pooling a physical resource. And importantly, it would be paid for,
and so not seen as pure waste. But in order to do this, we need to know
who shares the same risks. And in order to know that, we need a radical improvement
in supply-chain transparency. Right now, seemingly everything
we want to buy is delayed because of a lack of microprocessors, even cars. But how could the auto industry -- arguably the industry that invented
supplier collaboration and supply-chain visibility -- be caught by surprise? Microprocessors power the computers that, increasingly, make our cars work
the way they're supposed to. And early in the COVID-19 pandemic, auto manufacturers canceled orders
for microprocessors out of fear that car sales would plummet. And around the same time, demand for those microprocessors
in consumer electronics went way up. Parents bought tablets
so their kids could learn from home, newly remote workers bought laptops. Then, a fire at a chip plant meant fewer of these microprocessors
were even being made. And by the time car sales
began to recover, microprocessors were on back order. In other words, the reason why automotive companies
can't get the microprocessors they need has little, if anything, to do
with the automotive industry. And this is a good example
of a broader problem. In supply chain, your risks are not tied only
to your customers or to your competitors, but also to those companies
who are using the same inputs. I doubt Ford considers the PlayStation 5
to be a competitor to the F-150, but in this case, they could have been
competing for the same, scarce resource. And that's why we need a radical
improvement in supply-chain transparency. It's not enough to know
who your suppliers are. You have to know
who your supplier's suppliers are, where those supplier’s suppliers
get their raw materials, who else is buying from those suppliers, and who else is competing
for those raw materials. Often what looks like several
unrelated product lines can be traced back to a single source. We think we have diversified
supply chains, but we don't. We have a supply web. And if key players in that web fail, then many supply chains
are in big trouble. If we want more resilient supply chains, then we need accurate,
up-to-date maps of key inputs and where they come from, in any given industry. Supply-chain managers
are, fundamentally, planners. They analyze and interpret information, and they revise their plans
to efficiently meet expected demand with a steady stream of supply. Supply-chain control towers bring
all of that information into one place, and better data should help
better decision-making. But too much data
can simply be overwhelming, and that's why we need
technology to help us. The good news is that advances
in data mining, artificial intelligence
and machine learning increasingly mean
that computers can help us analyze thousands or millions
of points of data, predict problems
before they arise, notify managers and even recommend actions to take. Right now, some types of plastics
are in short supply. Plastic resin manufacturers
decreased production, dealing with COVID-19 outbreaks. But by the time they began to recover, they were hit with a string
of natural disasters, from Hurricane Laura
on the Gulf Coast in 2020 to a brutal winter storm
in the South in 2021. No amount of data-sharing
could have told us what companies would be affected, what companies don't use plastics. But a computer could have helped
spot the problem among the data points. Decreased production
and COVID-19 lockdowns, combined with severe weather, a surge in demand for plastic packaging
as grocery sales grew, and a spike in trucking rates would have been enough to trigger
some warnings in specific areas, and then notify managers
and recommend what they might do about it. "Hey, this supplier is looking risky. Do you have a chance
to order from somebody else? Maybe start calling
other trucking companies to make sure you get
your supplies on time, and we should notify these customers
that their orders might be delayed." This is similar
to how the airline industry manages passenger delays
and missed connections. Computers analyze data
on available flights, weather conditions, passenger locations
and passenger destinations, to reroute hundreds or even thousands
of people in a day. And we could do the same thing
in a supply chain. I don’t want to sound like the things supply chain managers
have done haven’t helped, but we can do better. When the virus struck, we faced a dire need for N95 respirators
and personal protective equipment. Government stockpiles
of N95s were depleted, hospital orders were backlogged
two to three years, and health-care workers
reused single-use protective equipment. But again, I'm not talking about COVID-19. I'm talking about the 2009 outbreak
of the H1N1 flu. And we have to stop repeating
the same mistakes. So let's be imaginative about how we challenge
businesses and government to use shared risk, supply-chain transparency
and automated recommendations to make our supply chains more resilient. Because if they do, we can be more resilient too. Thank you. (Cheers and applause)
