A Coronavirus Briefing - The Impact of COVID-19 on Business and Supply Chain

Randall Stephen Wright: Welcome to a Corona Virus

briefing

with MIT. I'm Randall, director of the corporate relations program at MIT Sophos. I will be accessing your host on behalf of the MIT Industrial Liaison Program. Randall Stephen Wright: The Corona virus outbreak is, above all, a human tragedy affecting hundreds of thousands of people. It is also having a growing

impact

on the global economy. Randall Stephen Wright: This

briefing

is intended to provide

business

leaders with insight into the implications of the evolving situation for their

business

es and the steps they should take now to mitigate the

impact

of the Coven 19 pandemic.

Randall Stephen Wright : We have with us today. Three of MIT's most prominent professors, Yossi Sheffi Alex Pentland and Andrew Low Randall Stephen Wright: To give us perspectives on the organizational structure of the

supply

chain

and financial markets and insights into what companies should be doing now. Randall Stephen Wright: Let me start by introducing Dr. Yossi Sheffi, MIT engineering professor and director of the MIT Center for Transportation and Logistics. Randall Stephen Wright: Today will focus on the here and now and we will explore covert 19 disruption with us in the context of past disruptions and explain what the company should do now as the epidemic spreads, Professor Chef.

MIT CTL & SCALE: Hello everyone, I'm Yossi Sheffi, I'm the director of the MIT Transportation Center, logistics. In the next hour we will talk about the business and

supply

chain

impacts of the undercover 90s. Of course, the first thing that different people tell you is not to panic. And I'm not panicking, because my computer is not working. One moment. There is a technical difficulty here. Arthur Grau: Yes, just click on the slides once with the mouse. Oh, okay, we got it back. So the first thing everyone tells you is not to panic, which of course is the reason for all the panic.

But let's look at the whole MIT CTL & SCALE: Disruption business faces here in the context of business disruptions in general. So we have, you know, random phenomena like hurricanes and floods and natural phenomena, we have, you know, accidents, we have a government and a policy with Brexit and many other MIT CTL & SCALE: Trade Disputes and others, there are non-compliance issues and the company does not comply with regulations and results in business interruption or a supplier does not comply MIT CTL & SCALE: Comply with regulations. Well, sometimes competition comes from left field without us realizing it. MIT CTL & SCALE: Of course, economics.

We are now heading into a recession, but we have had recessions before. MIT CTL & SCALE: It comes to mind 2008 was a big disruption for all companies, there are social unrest problems when people are angry, but using for example enemies to test about the MIT CTL & SCALE: environmental problem now , of course, intent and disruption, as the attacks will be a terrorist attack. And finally we are going to talk about pandemics, that is today's topic. MIT CTL & SCALE: To put it in context. Let's look at some history of some pandemics. So, the AIDS pandemic, which is still slowly continuing with 75 million cases and a death rate of more than 40%, the American flu, in the US alone in the last year with 35 million people infected with approx. one point 1% MIT CTL & SCALE: mortality rate the one-to-one advantage was a very large disruption that had about a billion people worldwide, about 200,000 died.

MIT CTL & SCALE: The ball is one of them that is scary because two-thirds of the infected people died. MIT CTL & SCALE: Finally, we are talking about the Spanish flu, with several people mentioned during 1918 MIT CTL & SCALE: About 1.2 billion people were infected 16 million people say 57,000,070 million no one really knows for sure around the 5% mortality rate, but the numbers were enormous and so were the hospitals. And this is where the readings of mass graves appear. MIT CTL & SCALE: Now let's talk about how pandemics work and how they don't attack the entire world at once. There is an MIT CTL & SCALE: first group on what we saw in China.

Then it goes off. Then we have another dying cluster study and another MIT CTL & SCALE cluster study: This is what it looks like today. And if we look at the dashboard. You see the groups happening every day. Also, if you look at the bottom right of the screen, you will see MIT CTL & SCALE: the top line, the orange line is an infection in China, the yellow line that looks like a hockey stick is an infection in the rest of the world. , Italy and, of course, MIT CTL & SCALE: throughout Europe in general and right now in the United States.

Just to understand what he is. There is a lot of misinformation about the mortality rate. Let me mention that the problem is that there are two types of two ways to calculate the MIT CTL & SCALE mortality rate: The first is for countries that are surprised. They did not test in time, many infections undiagnosed and the results are overflowing in medical facilities. MIT CTL & SCALE: This is what happened in one in China. This is what happened in what is happening right now in Italy. This is what is happening right now in France. MIT CTL & SCALE: In China, only understand during the Adobe province.

About four and a half percent of people died. However, in the rest of China, it was less than 1% because by then they were already implementing all these measures, let's say MIT CTL & SCALE: A to stop the pandemic around the world. You can see the difference between countries in Italy. Already over 7%, the death toll in Italy is staggering. MIT CTL & SCALE: South Korea is less than 1% because they started testing people very quickly following those who came into contact with those who tested positive and then, you know, they have a very low mortality rate in Iran . MIT CTL & SCALE: Almost 5% as a problem.

But if you look at Switzerland or Denmark, they have a very low percentage because they did a lot of MIT CTL & SCALE: they took many of the Airlie measures, that is, taking them early. MIT CTL & SCALE: And only in comparison. There are several countries that have very aggressive measures. I have an experience of days where these are Malaysia, Qatar, Singapore, Israel and Bahrain. MIT CTL & SCALE: None from this country. There are hundreds of infections in this country. None of them experienced anything there yet. MIT CTL & SCALE: Now let's move on to this topic of impact on the stock supply chain.

First of all, comparisons that MIT CTL & SCALE: between this disruption and others like the Fukushima crisis. Floods in Thailand, SARS, Katrina and universities are inaccurate and underestimate the impact. MIT CTL & SCALE: The problem with the 191,119 covered is the impacts on both supply and demand, so first is the supply impact, we talk about it a little more, but its main impact will be the impact on the demand. MIT CTL & SCALE: Partly, of course, as you are reading the newspaper, China is a much larger element of the world's GDP today, so both supply and demand affect China there and they affect the rest of the world .

But the impact they may have will be reduced demand due to fear and social distancing. And, of course, the media and online advertising. We are probably facing a recession. I let the other two speakers talk a lot more about it. But this is the so-called Black Swan. What he does from the left three without any preparation. And let me suggest that although this is different. There is something that in principle I call the underlying current, what is this MIT CTL & SCALE? Thomas The wrote in this book, Anna Karenina, happy families are all the same. Every unhappy family is unhappy in its own way.

MIT CTL & SCALE: So, every disruption comes with its own litany of causes of misery and a cascade of effects that do not disrupt at the same time, yet MIT CTL & SCALE: Managing every risk, every disruption involves prediction, prevention, response detection. They are generic preparation stages that must be taken in each disruption. MIT CTL & SCALE: They are applicable to supply chain issues and we will talk about it right now. First of all, the first thing they want to explain is the so-called bullwhip effect. It tells us who will be the most vulnerable among the companies affected by the supply chain.

MIT CTL & SCALE: What happens with a bullwhip effect is the following. Suppose the retailer says consumer demand decreases, call it 10% MIT CTL & SCALE: Retailers need to think. Now, he believes demand will be reduced by 10%. I'm just using an example. The number would increase by 10% for a long time. MIT CTL & SCALE: You also have inventory, assuming it will be 100% so you have to reduce for the future. It's order and you have to lower your inventory. So instead of just ordering from the distributor. MIT CTL & SCALE: 10% less on your order, maybe 15 or 20% less, distributor sees 15 or 20% has the same problem.

Look at his forecast. Look at your inventory MIT CTL & SCALE: And ask the producer maybe 25% less than the producers ask the supplier, even less. And up and up the whip MIT CTL & SCALE: Up and down at this point we go down. Also, you know, it's also very late. But the thing is that small suppliers in the second and third tier of the supply chain are usually small and cannot withstand the initial drop in orders. MIT CTL & SCALE: So the result is harm to upstream suppliers. MIT CTL & SCALE: Just to give you some data during the height of the 2008 crisis, which was also a demand disruption.

MIT CTL & SCALE: Retail in the United States. We're down 12%, manufacturing inventory is down 15% and manufacturing sales are down 30%, according to a colleague of ours, young friends. So, in the Netherlands a study was done on the use of this data during level one or two in 2008. They are the suppliers that immediately supply the MIT CTL & SCALE: for brand owners in relation to the final consumer, the working day decreased by approximately 25%; however, people deeper in the supply chain in what we call upstream relative to end customers were down 40%. MIT CTL & SCALE: And in fact, the Chinese immediately understood that this is the China Morning Post and that this could be a death blow to small Chinese manufacturers.

So the Chinese government MIT CTL & SCALE: told the state bank to start lending money at zero to very low rates, sometimes zero, to small businesses and to aggressively reduce taxes on all small manufacturing businesses. MIT CTL & SCALE: Now, during 2008, Alan Mulally, CEO of Ford. I understood it very well. MIT CTL & SCALE: When he gave his MIT CTL & SCALE: Testimony before Congress, he did something that is in some ways surprising. He implored Congress to save his competitors, because he said that if a GM or a Chrysler fails, their suppliers will fail, their suppliers will fail, and their suppliers will fail.

MIT CTL & SCALE: These suppliers are making, for example, Johnson control make sense for all automakers, if it fails, no one will have seats, including Ford, so MIT CTL & SCALE: Called on Congress to help and ensure that these ventures will be carried out Ford was not in a position where Ted had enough money. MIT CTL & SCALE: But to summarize, you say that the collapse of one of our competitors would have a domino effect on all the automakers' suppliers in the dealerships and the loss of really 3 million jobs in the first anus. MIT CTL & SCALE: So I was trying to understand your problem, the problem very well and trying to explain to Congress that it's not just about the MIT CTL & SCALE: One to call the OEM, the original equipment manufacturer, the people who manufacture the entire brand.

In this case it is the other company, but it is the entire supplier and will affect an entire industry, we will talk a little more about this later. MIT CTL & SCALE: First of all, let me give you some forecasts, which are always dangerous because in two or three weeks. You might find out that that was wrong. But be that as it may, this is how we begin. Let's talk about supplies from China. At MIT CTL & SCALE: First of all, they understood that supplies arrive in large quantities, large quantities on ships. They are not flying through the air.

In any case, there is almost no flying, but this is not flying through the air. It comes in boats. So what happened is the following. In the Chinese New Year. MIT CTL & SCALE: All businesses in China are almost paralyzed. It runs from the second week of January to the end of January, beginning of February. So this is what happened in 2020, everyone went home. MIT CTL & SCALE: Factories around the world that source parts and materials from China are not expecting shipments during the Chinese factory closures, so MIT CTL & SCALE: However, they expected shipments to restart immediately afterward.

So what we did, what would become of this world factory? Everyone's. They had enough inventory of parts and materials to make their product and cover the downtime, but not much else. MIT CTL & SCALE: So let's see what happens. Now let's focus on China and its surroundings MIT CTL & SCALE: What happened is aweek after the end of Chinese New Year. The ships from China, loaded with parts and material, did not reach North Korea towards South Korea. Before, we probably didn't make it to North Korea either, but that was another problem. It did not arrive in South Korea.

What happened at Hyundai was announced a week after the end of the Chinese New Year. That's closing factories in South Korea. 10 days after the end of Chinese New Year. MIT CTL & SCALE: Vessels loaded with pieces of material. We are not going to Japan Nissan announced the closure of factories in Japan because it did not have spare parts. MIT CTL & SCALE: Let's now look at the United States. It takes six to eight weeks to get from a factory in China to a factory in the United States. What does this mean? This means that MIT CTL & SCALE: if we take approximately the beginning of February.

Sometimes late March, big.first part of April. We're going to start having factory closures in the United States, whether it's auto parts, whether it's MIT CTL & SCALE: cleaning supplies, whether it's airplane parts. Whatever we're going to start on many, many others. We're going to start having a MIT CTL & SCALE: closures and inability to make products in America for a while until the Chinese start moving again. But remember, MIT CTL & SCALE: It won't be possible to fly. Many of these pieces are because we lost a lot of air cargo capacity, just for those who don't realize. Most air cargo capacity is belly cargo, so-called belly cargo that flies in the bellies of passenger aircraft.

More specific planes and do not fly to China. MIT CTL & SCALE: Also, FedEx. UPS DHL reduces its services in China. So we don't even have the capacity to do it, even if we wanted to, it would be outrageously expensive. Still, it will be a while until these factories start preparing. MIT CTL & SCALE: So what are our corporate actions, what should be the corporate actions that companies should be taking right now? And we'll talk about how to set up emergency management centers, we've talked about how to set up a communication protocol for decision making. We'll talk about who has the authority, who has the authority to make decisions.

MIT CTL & SCALE: Supplier Review and Product and Customer Review. And finally, we'll do a MIT CTL & SCALE: vignette before last week talking about a topic in finance that is tied to the supply chain, injury law, my colleagues. MIT CTL & SCALE: We're going to have a whole hour talking about financial issues in the context of the

coronavirus

and the last one we should blame for the recovery we need to plan for so we can get up and go at the end of this, and I just mentioned what needs to be done, then MIT CTL & SCALE: First let's talk about the Emergency Operations Center.

MIT CTL & SCALE: So the idea is when you have a crisis. You want a central information and decision-making function. You want decision makers to have all the information in one place where people can talk to each other and maybe make decisions. Now, the images you see here are O MIT CTL & SCALE: The illustration you see here is probably not relevant to

coronavirus

because a lot of this in the case of coronavirus will be done virtually, but we need centrally informed decision making. and you can have people in a room like this but, of course, spread them out.

In this kind of MIT CTL & SCALE: From the Emergency Operations Center, you have to worry about two things: you have to worry about the employees. How are employees taken care of? MIT CTL & SCALE: And how is the business ecosystem taken care of? And in many ways, these should be two separate teams because the mistake many companies are making is this. MIT CTL & SCALE: A team looks at both and you have to worry about both being equally important at the same time. MIT CTL & SCALE: When you talk about employees, you have to think about families, you have to think about children at home, you have to think about how to connect employees.

MIT CTL & SCALE: I still pay that many of these problems have to be there by the time they are basically linked to the emergency operations center, of course, taking care of the business ecosystem is what we will talk about MIT CTL & SCALE: Later How are customers served? How are employees taken care of? How to take care of suppliers, etc.? MIT CTL & SCALE: And finally, take care of the communities. MIT CTL & SCALE: Corporations operate in certain communities and must ensure that they offer their services to the community. So, for example, Google made its MIT CTL & SCALE: Online Tools for Collaboration free for businesses for the next three months, or at least a lot of businesses are taking similar actions, donating their stuff.

MIT CTL & SCALE: Free for people so they can use it during collaboration and maintain the family business relationship during this crisis, just to give you an example. This is Walmart's emergency operations center during a hurricane. MIT CTL & SCALE: You see people sitting next to each other. It's not going to happen. Now they will see very far from each other, but this is linked to their entire system. MIT CTL & SCALE: On the screen you can see what happens in each of the Walmart distribution centers, stores and parking lot and the information reaches this place. MIT CTL & SCALE: This is the Operations Center of the somewhat similar American airline.

MIT CTL & SCALE: Let's talk now about crisis communication. Excuse me. How do you communicate what to do in the event of a crisis? MIT CTL & SCALE: First of all, you need to have communication ready for all interested parties, which means knowing who they are and having all the emails. Have everyone use similar collaboration tools right now. And as I mentioned before, you have to worry about the employees, you have to worry about the customers, you have to worry about the suppliers, the media shareholders, the community analysts. MIT CTL & SCALE: You have to communicate with them continuously, for example, MIT every morning sends a message to all its employees about what is happening and how life is changing.

MIT CTL & SCALE: What's happening, what's not happening. This is something that says: Now, of course, at MIT, everyone at MIT has an email address and text messages and so on. And it appears on all channels. MIT CTL & SCALE: It is important to speak with one voice, only one person speaks about the crisis and what we are doing about it, of course we have to decide who is in charge. MIT CTL & SCALE: We all remember that after President Reagan was shot, Alexander Haig went on television and said, "I'm in charge." It turns out that according to the Constitution it is not, but MIT CTL & SCALE: So it had to be decided a priori.

What if the CEO of wholesalers. What happens if other people in the organization cannot function? Give accurate information. This is something that we maintain in the United States, but we provide precise and accurate information about what is happening. The one voice has to tell everyone exactly what is happening, not try to spin it, not try to blame other people, just tell the truth. MIT CTL & SCALE: An example of how not to communicate is the case of the Malaysian airline The Seven. The Boeing 777 that entered the Indian Ocean. On March 8, 2014, Malaysian Airline Flight 370 disappeared. MIT CTL & SCALE: Immediately the Malaysian became nervous, they began to make contradictory announcements and spoke with multiple voices.

MIT CTL & SCALE: See, the Prime Minister of Malaysia said one thing, the Minister of Transport another, and the Inspector General. Malaysian Police, Malaysian Air Force Base, Maritime Police, Department of Energy, Civil Aviation. The airline representative or traffic control when they say that everyone gave very confusing information and no one had the trust of the people and of course the grieving relatives, but also of all the work of aviation, try to understand that we all must warn, try to understand what was happening. What happened to a sophisticated next-generation plane that fell from the sky? We do not know it yet.

And, of course, we have a problem talking about how not to communicate in the United States with the president. And I wonder what the people around me are thinking. I think this guy doesn't really believe what the president says. And this guy gets very angry. So I really don't know what they're thinking, that's what in my mind they're thinking. MIT CTL & SCALE: Now, decision making. MIT CTL & SCALE: Let me give you an example that I described in my last book on risk management and resilience in 2011. That was the final straw. MIT CTL & SCALE: From the Japan disaster.

Remember the tsunami. The EARTHQUAKE, TSUNAMI and nuclear disaster, many of them have GM suppliers in Japan. MIT CTL & SCALE: We were unable to supply parts. So, for example, at one time, GM didn't have a city module, which is the solenoid that goes under the seat to heat it up in cold weather, so anyone sitting couldn't get the part that hits. hits the seat. MIT CTL & SCALE: So, MIT CTL & SCALE: They had an Emergency Management Center, of course, but they were discussing what to do if the vice president came in and made a decision about a vehicle without heated seats.

MIT CTL & SCALE: Well, it turns out to be a disaster. The problem we use is that you didn't see it going in writing so you build more closets. MIT CTL & SCALE: So, but the fabric and lead in this combination affect the basic versus deluxe model. MIT CTL & SCALE: So what happened is that canceling legacy meant that all the subassemblies and components that went into this were stranded somewhere in the supply chain. MIT CTL & SCALE: Anyone who works in the supply chain should know that the worst thing is having too many things sent to a distribution center or warehouse and that all the legacy clogs up the supply chain.

MIT CTL & SCALE: They had it with some other points. MIT CTL & SCALE: Besides that. MIT CTL & SCALE: You said you were going to build more basic vehicles with a proper clause, but let dealers and customers do what they want. They don't care about GM's problems and they're just not going to buy MIT CTL & SCALE: So the idea now is, of course, if you're an engineer or a supply chain professional. You will notice them and you will never make a decision like this. MIT CTL & SCALE: So, finish the mantra. One of the main takeaways from this MIT CTL & SCALE: Crisis GM that they then implemented everywhere is called swimming.

His name, which means, in other words, this was Bill Belichick, our, you know, beloved coach. MIT CTL & SCALE: Calls do your job. Don't do other people's work. Don't swim in other people's lives. Just do your job. If you're an engineer dealing with MIT CTL & SCALE: Seats, you know what can and can't be done. If your supply chain manager understands where things come from and where they go, you make the decision. One of the biggest problems with MIT CTL & SCALE: in this case is actually keeping the CES with the CEO and others on track to make decisions.

MIT CTL & SCALE: They should talk to the media. They should talk to analysts and be fully informed at all times about the latest information. MIT CTL & SCALE: But they shouldn't make the decision because I'm talking about sophisticated products like cars with tens of thousands of parts in tens of thousands to hundreds of thousands of suppliers around the world. You have to know exactly what you are doing when you make decisions. MIT CTL & SCALE: Now let's talk about the next point, which is looking at the suppliers. You want to make sure you have supplies and a constant flow of parts and materials to your factory.

So you can build your product. MIT CTL & SCALE: So the first thing you have to do is map the suppliers. What do I mean by supplier mapping? You have to know where your things come from. Surprisingly, most companies are aware of MIT CTL & SCALE - what they know is who the supplier is and they know where the supplier's headquarters is because of the staging P system or other enterprise resource planning. MIT CTL & SCALE: What you have is the address of where to send the check with a supplier sending your things that are not what you need.

You need to know where the MIT CTL & SCALE supply plants are: Are they in one? Are they in South Korea or northern Italy? Where are the supply plans, not the fact that you are based in Luxembourg or Switzerland? This doesn't help you. He wants to know where the plants are to know if they would be affected. MIT CTL & SCALE: The next thing you need to know about each of these provider plans, what do they do? MIT CTL & SCALE: What parts they make that go in your product and how critical the points are, what I mean, how critical. .

There are many things that come into play, but can you create your product without this piece? MIT CTL & SCALE: Can you have two other suppliers of this part in other parts of the world who can manufacture it? It is also very important which product these parts are included in and which customers need this product. So now you have to think about the next point: which clients MIT CTL & SCALE serves: it is very important that you want to decide. Let's say you don't have enough. You have to decide which clientsThey must be attended to. And before we talk about inventory level, we'll talk later about what to do when you don't have enough supply and how to decide which customer to serve.

MIT CTL & SCALE: But you have to check the inventory level, not only in your plant warehouse but in your suppliers and their suppliers. Who has inventory, who can keep building parts and shipping them to you. MIT CTL & SCALE: Capacity. Are they working at full capacity? Are they working at 80% capacity or 50% couples? This will give you an idea of ​​how many pieces and how much material you can expect to arrive at your One Affect facility. In you want to have what we call visibility. MIT CTL & SCALE: This is something. This is not something new. Most companies are desperately trying to gain visibility.

MIT CTL & SCALE: In their upstream supply chain, what comes to them. I mean you know what you are sending to your customers. MIT CTL & SCALE: What's much more difficult is knowing what's coming to you, surprisingly, even though every consumer receives FedEx. UPS or USPS package can track the package and track it. MIT CTL & SCALE: Most companies can't follow something from a factory in China. All the way in the truck along the ship's railing he goes to go play sports. Go to customs, go along the railing, go along a track and arrive at your destination. MIT CTL & SCALE: It turns out that it is very difficult to follow this, we can talk about why so many people are investing a lot of money.

It is getting better. The problem is what happened to the second year's supply. What happened to the things that have to get into your supply? Can they know what's going on? Can you know what's going on? Even if it doesn't reach you. That's what we talk about when we mention visibility and with. There are some. There is a lot of work on this with the Internet of Things with new sensors and new capabilities. What to pay attention to Well, there are many things to pay attention to in the event of an outage. MIT CTL & SCALE: Supplier may degrade quality, may be under pressure.

They want to serve you. They need the money and these things they build for us do not have the same quality as us and are not approved, we have to be careful. MIT CTL & SCALE: Delivery in May. They promised to ship on a certain date but they just can't. Then the liver will be late. That's why you want all this visibility. MIT CTL & SCALE: A big problem is solved When there are not enough supplies and supplies run out, companies start looking everywhere for alternative suppliers. MIT CTL & SCALE: Suddenly, many new providers appear online and on the Internet and offer fake things.

They may offer us chips, for example, that we can repaint and sell their new chips, but they will fail so soon, you know, shortly after we install them. MIT CTL & SCALE: There are many problems with this. And we saw this in a big way. We saw this with the horse meat scandal in Europe, we saw during the week we saw that the US Air Force, the MIT CTL & SCALE: The market and the people will be some of the most advanced, just in the United States we discovered that they have There are fake chips in some of the systems.

There are many cases like this. But the important thing is to be aware of interruptions, because that is when they increase. MIT CTL & SCALE: financial health, you must ensure the financial health of your suppliers. If you depend on them, they better be in business. So stay tuned to MIT CTL & SCALE: waiting until the end of the quarter is not enough here. The best thing you want is to see the news of your city in your area. MIT CTL & SCALE: To find out if there's too much talk about layoffs, bankruptcies, and bankruptcies, things like this, of course, they get called all the time, reach out.

MIT CTL & SCALE: Finally, prepare to support critical suppliers. In 2008, we had many automotive companies in many other countries supporting critical suppliers during the week by investing in them. extending your own MIT CTL & SCALE - your own terms for this, your own credit terms for these suppliers and many other ways. But the important thing is to make sure that critical suppliers don't go bankrupt because then they have a business and can't be employed. Think about it. MIT CTL & SCALE: Now, there are several problems with the supply chain structure. This is what a sublicensing structure looks like at the top, you'll see the original equipment manufacturer OEM.

Let's say it's Ford Chrysler and GM, so MIT CTL & SCALE: The first problem is opacity, companies don't really know who is at the bottom of the top tier of the supply chain. So if we look at the OEM, let's imagine General Motors. MIT CTL & SCALE: It is known who the first tier supplier is. Suppose one of them is that we say that Johnson's control makes sense. This is not going to be an assembly assembly planted by GM, the cars, but MIT CTL & SCALE: Into Johnson control. There are companies that manufacture all kinds of parts for seeds.

These would be the heating modules we talked about before. MIT CTL & SCALE: And upstream in the supply chain, there are many suppliers who would make screws, and by the way, these are them. MIT CTL & SCALE: When it comes to cars, especially bolts that are actually regulated and treated, but they are sold to all the other companies and the OEM doesn't know who is sending them to them. Where, where does this thing come from. MIT CTL & SCALE: You know, every OEM knows who's there, it's still a supplier, some of them would know, but a lot of tier ones in a lot of industries wouldn't reveal who they are.

MIT CTL & SCALE: They are and become very opaque. When you go upstream in the supply chain. So the first problem is that it is very difficult to even know what to observe in MIT CTL & SCALE. The second problem is that there could be vulnerability throughout an entire industry. MIT CTL & SCALE: For example, it could be that, unbeknownst to these three OEM points, they all depend on some parts. MIT CTL & SCALE: In one provider, a level three. They don't even know who they are. We call it diamond structure in the supply chain example, as this was in 2012 a factory of Ivana MIT CTL & SCALE: Ivana Chemicals.

It is a factory in Germany that increased its supply of more than 50% of the automotive needs of the word automotive need, which is called plastic 12. It is a certain type of plastic that is very resistant to corrosion. You know, fluids for many other things. . Between 40 and 50 pounds of this are used in each car worldwide. MIT CTL & SCALE: It was a disaster that almost brought the entire automobile industry, terrorism, industry to its knees. MIT CTL & SCALE: To its credit, it brought together all the competitors under the guise of the automotive industry group and in Detroit it brought together many other chemical manufacturers, DuPont, and many others who started making this product.

So the automotive industry did not stop. MIT CTL & SCALE: I mentioned before, what do we do if there's not enough supply? MIT CTL & SCALE: So if you have a limited supply, you can do several things. You can assign the assets. You can auction them. You can dilute them and you can shape demand. Let's talk about each of them. Let's talk about our location. Excuse me, let me. First of all, when we talk about location it is Product. Product triage. MIT CTL & SCALE: In many cases, the same parts can go into many different products that you make.

Again, what product do you get the part? How do you do it based on financial contribution, i.e. the product with the highest margin based on the product of which you already have many products in the field? Based on products that go to the most important customers. Based on justice for all. MIT CTL & SCALE: Based on which client really depends totally on you and closes the business without you. There are many, many considerations about which product you get the part and you should decide this now before so you don't have to make the decisions and the crisis.

MIT CTL & SCALE: Of course, it works best if this consideration, like margin, varies by production customer. If they are, if you have them, if they are all the same, they run the product. So you just do it with filaments. You don't care about everyone. MIT CTL & SCALE: Same percentage of the product. But that is never the case. It is generally very different between customers and the product. MIT CTL & SCALE: Give an example again with General Motors in 2011 during the Japanese crisis. Therefore, there was a shortage of engine controllers, air flow sensors and brake control modules for all trucks.

These parts are the same for all trucks. GM MIT CTL & SCALE: GM made the decision to close the Shreveport truck mix that makes the Colorado truck. This is the truck shown here. MIT CTL & SCALE: Why did you do it? Because it is a small truck. GM makes a lot of money on big trucks and with very few wins it loses some money on small trucks. MIT CTL & SCALE: In addition to this, I had a lot of field inventory, because I was not setting up when I had a lot of inventory, so it won't affect customers. So Jim decided to close the Shreveport plan for a week, of course, the falling skies MIT CTL & SCALE: Wall Street Journal New York Times GM is closing the plant.

He was completely and utterly MIT CTL & SCALE: he planned an orderly shutdown. It turns out that once they decided to close it and start the process, they discovered enough additional pieces that they didn't need to close it, but at the moment when a plant begins to close. They had to close it for a week and then reopen it. But it is an example of a product reaction. MIT CTL & SCALE: And an example of an auction is in Thailand, France, in 2011 there were major floods in Thailand, as seen in the flooding factor. MIT CTL & SCALE: Thailand is the number one producer as 70% of the world's disk drives are produced in this part of Thailand.

MIT CTL & SCALE: So companies that tend to separate decided to take it to the most desired customer. Now economists will tell you that this is the right way to make a decision. Western Digital was hit hard and saw demand eliminate supply, so cigarettes held auctions and monks to customers. Whoever pays me the most will get it. Economists believe it is the right way to do it because it delivers the product to the customer who needs it most. Unfortunately, the client's response was that he was taking advantage and once decided to resort to secrecy, but when the crisis subsided, everyone went back to Western Digital, so it worked in the short term, but not in the long term.

Dilution, that is an example, there are many other examples, but the demand and the great demand for their bourbon leave their mark. So he decided to add. Well, they said, add more water to the 90 degree loads. 84% of CEOs explain that to maintain the test, they had to water it down a bit. There was a client that evolved, a client or my variable is being diluted, so do it. MIT CTL & SCALE: Confetti and the wallet, a little more and they have lowered their demand by not buying more customers stopped buying MIT CTL & SCALE: The CEO. A week later, the CEO said, we have been tremendously honored over the past week.

By the way, this was not the MIT CTL & SCALE - many other companies diluted many products, for example, they interviewed some of the materials that are too cheap, but of course they tested well in work. It wasn't a problem. MIT CTL & SCALE: There is another one. The last thing is that the replacement for the Taiwan earthquake was excellent. In April they will present a new model to estimate demand, 460,000 specific computers were ordered. This specific component. MIT CTL & SCALE: Dell had no pre-orders. So each one could not sell what they promise, so they would use the so-called tragedy of postponements, it would not be a computer until I told it an order in hand.

MIT CTL & SCALE: So you simply raised the price of those computers that had scarce components, lowered the price of those computers you targeted, and continued selling without problems. Let me say a few words about finance, and Andrew MIT CTL & SCALE will say much more: First, during recessions, when it seems like we're going into cash, cash is king. MIT CTL & SCALE: So in terms of the supply chain, you have to think about paying suppliers who hold cash later, you have to try to get payment earlier from the customer. Once you ship the Product to them, you have to reduce inventory.

There is a lot of dead cash in MIT CTL & SCALE inventory - any capital investment needs to be delayed and of course payment time to suppliers increases. MIT CTL & SCALE: For the health of the supplier, you can do it with some suppliers, no, not with a week, of course, make sure the line of credit is secure. MIT CTL & SCALE: And start thinking about recovery right now. I don't talk about it anymore because Angelo. We will talk more about finances. But let's talk about planning for recovery. MIT CTL & SCALE: So the idea is to keep expertise in-house to continue to pay for family care and allow for part-time work.

MIT CTL & SCALE: Germany, Holland, change the label. For example, they want to ensure that experienced workers do not leave the market if they work elsewhere. That's why they allow part-time work. But the big change was that unemployment would be paidfor part-time work. And then let's not forget that it is terrible to waste the crisis and that during a crisis it is an opportunity to make difficult business decisions. It's a reorganization opportunity that you always wanted to do, but there was a lot of resistance within the organization, there is an opportunity to eliminate products and customers that are not working.

Under these circumstances, MIT CTL & SCALE: Finally, a note on the long term because I get a lot of questions about whether more companies will shift manufacturing procurement to China away from other places, the short answer is yes, but not by much. MIT CTL & SCALE: The reason is that Chinese manufacturing has become so sophisticated. It is not easy to replace and Southeast Asia still has a cost advantage as Vietnam Banga Banga is lavish in Indonesia and Malaysia so it is not easy to move forward. Sure. MIT CTL & SCALE: So, but at the margin companies will not move.

Totally, but it will balance its supply base and include supplies in different parts of the world, and maybe MIT CTL & SCALE: also in the United States, or in North America, but not the companies that source in the United States will do the same. same. . MIT CTL & SCALE: By the way, they will be afraid of something happening in the United States, as is happening right now, and they will have some dual foreign sources like other sources elsewhere. So the company will pay to have more than one source. Some of them will be in North America. Some of them will be the answer.

MIT CTL & SCALE: Finally, let me stop here and try to answer a few questions. If I get some and just for reading. I wrote two books on supply chain disruption after 9/11. I wrote The Resilient Enterprise, which came out in 2005. It's called My Glasses. MIT CTL & SCALE: But it's overcoming a vulnerability to gain a competitive advantage and in 2015, 10 years later, many of the companies I spoke to MIT CTL & SCALE: A came to me and said: Look, there are a lot more risks but also They did it much better, we know what we are doing. Then we should write another book.

So I did it. And in 2015 I wrote The Power of Resilience, How the Best Companies Manage the Unexpected. MIT CTL & SCALE: None of these talk about coronavirus over many analyzes of past pandemics. Finally, what you see down there. MIT CTL & SCALE: HTTPS Sheffield or mit.edu is my website. And if you go there and look at the influencer's post link and many others, you will see it on the main page. Many publications of television appearances were magazine articles and others. Things I wrote about coronavirus in recent months. So with that, let me see if we can answer some questions.

Well, I have a question from Solomon. Let's say we've been pushing for decentralization and taking decision-making to the lowest possible level for quite a few times, but we scrapped all of this with the move to centralization in a crisis. MIT CTL & SCALE: Good question. Many companies have adopted a decentralized way and moving downward in decision making. And by the way, it's absolutely the right thing to do, especially in a crisis. MIT CTL & SCALE: But let's separate two things that separate the flow of information, we have to focus the information and focus the high-level decision making. But the idea of ​​whether something happened at the low level is particularly important.

Not for this type of MIT CTL & SCALE: Disruption in this case is global so MIT CTL & SCALE: know what is happening in part of the world, learn from what is happening in other parts of the world. MIT CTL & SCALE: Focusing on this information in one place is a good thing, but then moving this information to the decision maker at the lower level of the organization. So in general, moving decision making to a lower-level organization is absolutely the right thing to do. But in this case, since it is affecting the entire world. That was not a particular place in the west to act quickly.

We have to learn from everything and understand what is happening in the world. Move the information down and unless it is a decision, the fake Corporation-wide decision, which must be made centrally, can be made locally. With that, let me move on to the other question. Phillip asks a given the information overload to the president, Oh my God, I hope I'm not a part of that. And what are the reliable sources of information on maritime and air logistics from China to the rest of the world? Well. MIT CTL & SCALE: Right now we have one. The idea is to call your favorite suppliers, call your favorite shipping company.

MIT CTL & SCALE: Airline that you should be mostly forwarding errors, those who are forwarded is for those who are not familiar with them are the intermediaries that you MIT CTL & SCALE: organize international sea or air shipping for you, they They will have much better information because they talked to the actual airlines and shipping nine of the times. So, for me, the best source of information is this intermediary: the third party, between the customer, the retailer, the manufacturer, the distributor, who owns the products. And the customer to whom you want to send the goods in the middle, there is a reshipment.

There are third parties that may have information everywhere. So I assume this will be the source of this information. Well. MIT CTL & SCALE: Unfortunately, I'm signing off. Now I'm going to leave this now because MIT CTL & SCALE: I want to finish five minutes early because we have to clean the surfaces and I'm sitting in a very small, you know, audio booth and we want to clean it and air it out before it comes the next presenter. Let me stop here and invite Cindy in and thank you very much. Go to my site. If you have any questions, you can send them to My email [email protected] My site has more information [email protected] thank you very much for listening.

Bye bye.