Thomson Reuters Corporation (TRI) Earnings Call Transcript & Summary

[Audio Gap] Maximizing Supply Chain Resilience as a Manufacturer. I'm Paddy Le Count, the Project Director here at Reuters Events. And today, I'm joined by a wonderful panel of expertise. I think it's probably best if we run through a quick introduction from everyone going around the room. Andreas, why don't we start with yourself?

Yes. Thanks. Sure, Paddy. My name is Andreas Thonig. I'm running sales for Tradeshift in the DACH and Nordics regions since a little bit more than 6 years now. As some of you might know, Tradeshift still is a pretty young company, founded back in 2009 and provides services across the globe for all companies, no matter of industry or size or region.

And Peter, why don't we come to you now?

Great. Paddy, thanks. Peter Bolstorff. I'm the Executive Vice President for Corporate Development with the Association for Supply Chain Management. We are the largest supply chain professional association worldwide. We hold standards like the score model and the digital capabilities model as well as professional certifications across plan, source, make, deliver and return. So happy to be here. Thanks, Paddy.

Great to have you. And last, but by no means least, Frank, if you can give us a quick introduction to yourself. Or not. It looks like Frank's Internet maybe just dropped out at the opportune moment there. No problem. We'll make sure that he comes back in as soon as we can, always happens live. You may notice, our last panelist, Dirk Holbach, the CSCO for Laundry & Home Care at Henkel. He is unable to join us live today. But what we've done in the run-up to this session is we have recorded a Q&A with myself and Andreas here so that we can make sure we bring all the insights to you. Frank, you have returned.

Yes, sorry for the technical disruption. So myself, Parker Hannifin, first of all, market leader, motion and control technology. We're a U.S.-based company in Ohio, Cleveland. Myself, the supply chain leader, VP for EMEA. And now if you still don't know what Parker Hannifin stands for, it's all about enabling engineering breakthroughs that leads to a better tomorrow. And therefore, it will be really nicely into that format today. Thank you.

Perfect. Thanks very much for the introductions. As I mentioned, we'll be looking now to play this recording for you, the Q&A from a few days ago, and then we will come back here in about 15 minutes to continue with the live discussion with our wonderful panel today. Do make sure you're getting your questions in throughout the recording and then for the rest of the session through the software here. We'll try and get to as many of those as we can before the end of the hour. We'll also be running some polls. So it's worth keeping an eye out on as those come through, and the panelists will then have some insights, I'm sure, to share on those. But without further ado. If we get over to the Q&A with myself, Andy and Dirk.

Brilliant. Well, Dirk, thank you for joining us here today, and Andy with us, too. I think initially, Dirk, in the interest of time, if we start with a quick introduction from yourself with on your role and Henkel as a business.

Yes. Hello. Welcome, everyone. Pleasure to be here with you today. Yes, my name is Dirk Holbach, working for Henkel Company since more or less 25 years. And at the moment -- and since 7 years now in charge for supply chain operations for the Laundry & Home Care business, 1 of the 3 business units. So the company is a plus/minus $20 billion business, Laundry & Home Care, Adhesive Technologies and Beauty Care. So it's almost a 50-50 split between B2B and FMCG, B2C, retail business.

Brilliant. Well, look, let's just straight into it and discuss this topic of resilience. I think a good to place to start is the conversation of transparency and visibility. It's -- through our supply chain operations, it's a long and well-storied discussion, the different businesses are at different points of telling. But what we have noticed certainly is in the last 12 months, the impact on the companies that were lacking in these areas, both internally and externally when it comes to transparency, that's had negative effects on operations and indeed their ability to resist and then to adapt to sudden shifts. If we start looking at internal operations first, and Dirk, if I come to you, and then Andy, what are the biggest roadblocks for a company when it comes to improving visibility and connectivity between internal departments to break down these silos and limit the impact on operational efficiency?

Yes. If I may, sorry. I would say, you mentioned already a couple of aspects. So from me, on the one hand side, I would say, and a very important soft factor is when you want to create transparency and share data, of course, which is instrumental in such a situation or such situations. You need to have, let's say, also the right level of trust and openness, let's say, in the business, in the company to do so, and that is easier said and done. Because in moments you're getting fully transparent, of course, you display not necessarily only strengths but also weaknesses and room for improvements. I think that is a very basic factor, but very important. And then, let's say, out of our humble experience, let's say, more from a technical point of view. Of course, I would I wouldn't call it a standard architecture, but let's say, you need to have a plan when you talk about information systems. Talking about data, of course, how you build that up and how you connect the different entities along the value chain. Of course, here, it's very helpful. In the moment you operate on a broadly used standard system of records, ERP, covering really end to end and enterprise. And then, of course, you built upon that layer with, let's say, latest data extraction technology and then usually cloud-based analytics platform so that you don't really have one single spot, one single source of truth, where you, let's say, pull your transactional data in. And then, of course, in many cases, enrich it even with external data and then, of course, start to analyze, read, interpret and conclude.

And Andy, your thoughts there in terms of what Dirk has mentioned.

Yes. I fully, fully agree. The only thing maybe to add to this, sort of what we hear or I hear when I talk to our customers and also manufacturing industries is it's so crucial or so difficult to get the data in, especially if you collaborate with your suppliers. So it typically stops at the Tier 1. So if you want to get this transparency or insights into Tier 2, Tier 3 to suppliers. But even within Tier 1, so we heard quite frequently, for example, yes, when I want to restart my productions, I have actually no insights or it's hard to get the insights. Is there enough products on stock? How does this impact my restart plan? And typically, what I heard and was quite surprisingly quite frequently that people in the manufacturing industries have to pick up the phone and call the suppliers and then actually manually enter the data. Is this something Dirk you experienced as well? Or how have you solved this?

Yes. I very much confirm what you say. So all what I was referring to was, let's say, the in-house picture -- the entire picture. And of course, if you go upstream, with suppliers, it's very -- it's different industry by industry. But in principle, I agree with you. Tier 1 is usually okay, depending also on the collaboration models, you have more visibility. Tier 2, 3 gets difficult. And also there, let's say, what we see at the moment, by the way, certain disruptions coming in just reading, for instance, automotive industry is struggling to get microchips. These are effects. Normally, you should have seen and you would have seen already months ago in the upstream supply chain in Tier 2, 3. Certain things are happening down now. It's getting clearer. But it was kind of a surprise, yes. So -- and for us, let's say, in our business, it is usually linked with, let's say -- yes, let's say, certain predecessor materials, which are used then to convert into packaging items or other raw materials we are using, where, yes, the difficulties usually starts. So absolutely confirmed. And here also going forward, honestly, I expect in the year '21, quite still some disruption because, again, the supply chain, the value chains, usually operate with certain buffers in terms of inventory and so on. And when that is getting depleted and that demand signals are not growing, let's say, up fast enough along the chain or for whatever reasons, these inventories are not being filled again, of course, then you're running dry, and you see it in further down the chain later. And in many cases, with surprise. Yes.

I think when it comes to the supplier side and what you mentioned there, how important is it to sort of plan this contingency for things to be going wrong? Obviously, there's a strategy for that in the normal world 12 months ago. But now with less visibility or more fast-paced shifts in supply and demand, has it changed in the way that you view the business and then maybe what you think of your [ highs ], Andy, in terms of the contingency with your suppliers to build those buffers in?

Yes. Absolutely. Let's say, of course, we have learned a lot during the last 9, 10 months, and we will continue to learn a lot, adjusting our, call it, wider sourcing, strategy sourcing, means of cost. First of all, internal, our capabilities when it comes to manufacturing conversion. Here, looking at the footprint. Intuitively, we have done a lot of things right over the last year, intuitively fitting to the crisis so certain redundancy in the system when it comes to technologies, supplying the market. Our business is relatively local. So anyway, you have, let's say, a kind of an implicit hedge already in because you have a lot of entities manufacturing similar products. But going then further upstream, of course, we definitely had a closer look again to certain single-source situations. And then I know people are talking a lot about local sourcing. I'm not such a crazy and great fan of it because at the end of the day, let's say, economies normally define where, what is most efficiently being produced. But -- or sometimes you're lacking raw materials and then so then it's a good wish but you can not do anything. But we have been looking at our portfolio when it comes to sourcing, really for the, let's say, most exposed parts. But overall, I have to say, knocking on wood, early 2020, we had manageable disruption in our upstream supply chain. So we have not really -- any really significant product out of stocks due to missing materials. The year '21 started a bit different. So here, a couple of non-COVID-related events, but also, as I said earlier, we see some bullwhips kicking in now and will be kicking in, in '21, will have an impact. And then, I think whatever we learned in 2020, we are happy to apply now. Overall, our strategy has been when it comes to inventory, our own inventory, what we keep, we have been running it at pretty high levels consistently over the last 6 months. So once we recover out of the really demand peaks in quarter 2, we ran in Q3, Q4 with, I would say, 80%, 85%, 90% of -- or close to full warehouse occupation. Optimizing the mix in the portfolio, also trying to anticipate what are the products more sought after and whatnot to be prepared, prepared more for a material upstream disruption, yes. And some of the stuff we see now coming in.

Maybe just adding from a technology provider point of view here. And I think, Dirk, you mentioned it in the introduction part, is I think COVID really taught us to be very open. As you said, it needs this courage to be open and transparent. And I think even if we like it or not, as an organization, we have been shown our weaknesses. This is also something where we see the power coming up from platforms and networks and companies also opening up for new approaches. So looking back, I think as long as it works, let the system be running. So I think this was an appropriate methodology. But also with COVID and the disruptions you just mentioned, we saw a lot of companies really being much more open to rethink not only cloud solutions but also platform solutions. And not moving away from ERP systems, but rethinking ERP systems and what could be alternatives or additional solutions on top of this to prepare for the future here.

To take that idea of trust maybe briefly here, and Andreas, we come to you first. With increased transparency, with more visibility across your supplies, et cetera. If we look maybe beyond the actual operational manufacturing elements and the knock-on effect that might have on the supply chain. What are the benefits to sort of maybe more business assurance as a whole, knowing how your suppliers are operating ethically, sustainably, et cetera, making sure they're reflecting your brand image as well and the way that you want to be operating with some changes coming in potentially later in the year. What's your thoughts on this?

Yes. So it's an interesting question, and I think this is also something we could talk about for hours. And I guess you're referring to the [ etiquette and gazettes ] plan to come up maybe next year or the coming year. I think it's a balance. So at the moment, it's a balanced discussion on what's the potential negative impact, the risk, the additional efforts I have to spend as a company to fulfill all the requirements. But as you said, I think, personally, I consider this as a big chance also for companies to prove that they are acting according to the local requirements, that they produce sustainable, that they have certain quality insurances in place. And again, I think from a network and platform point of view, this is actually something where we can also support companies to provides this transparency, ensure that there is no child labor in place and people are acting according to the Antislavery Act and all the requirements that are in place for a good reason. And I think we have also seen in the last couple of years that also based on social media and everybody running around with a smartphone being connected globally. If something happens, no matter -- if it's the end of the world and -- or we believe it's the end of the world, it will be shared across the whole world, and this has a massive impact on the brand, as you also mentioned. There's a high opportunity, I think, or a high chance with new technology, with digitalization to not only mitigate the risk but also benefit out of it, make it transparent and show, hey, we are transacting according to all the legal requirements.

I imagine, Dirk, from your personal business perspective as you have, that's a key benefit as well is this higher transparency that Henkel have with their partners in place already to a fairly decent extent, as you would say.

If I can... sorry, yes. Yes, please.

That's okay. It's more of just a comment. I suppose if I can bring us in to maybe a last question here for you, Dirk. We'll discuss this with the other panelists afterwards. But it will be interesting to see your thoughts. In terms of -- you've alluded to a few things for 2021. But where do you see the biggest challenges facing manufacturers over the next maybe 6 to 12 months? The froze of the initial impacts of the pandemic, obviously, were in last year, but they still exist and the global economy is far from out of the woods. What is it that's sort of keeping your attention looking forward strategically as a manufacturer?

Yes. If I may start first with, let's say, our business, of course, our highest priority has been and will be, of course, to take care of our people. So I think that in operations is and will remain the most important point. And honestly, we are not yet done with this pandemic. I think we see some light at the end of the tunnel, but new variants coming up. And the end of the story is not yet over. So we have to, let's say, keep full focus on that, making sure we protect our people to the maximum extent in the operations. That said, of course, will enable us to continue to deliver, again, our industry essential products to the market. And most of the challenges and disruptions, I said it already, I expect more on the upstream side. So here, really bullwhips running around the world shortage in containers. Now air freight is still a complex -- a topic order, we don't use it too much. A lot of -- a number of force majeures we are seeing now may be triggered due to the fact that certain assets have been running very intensively during the last year because of high demand and maintenance was not done in the right way. So you pay at a certain point in time a price. So here, I expect quite some impacts going forward. And beyond our industry, of course, we are luckily in a position that our products are very much demanded and sought after. But of course, in other industries, still fighting with the demand or now with certain peaks when it comes to automotive markets catching up. So again, these -- all these waves will accompany us minimum through '21 and I'm pretty sure, even in 2022 for a while. So -- and depending, of course, a bit on the overall pandemic evolution, further vaccines being authorized, yes, that hopefully, is as short as possible.

A sentiment probably echoed by everyone who's listening in today and indeed around the world. Well, in fact, that's probably a good place for us to conclude this initial section of the Q&A. Dirk, thank you very much for your time, really appreciate it. And we'll now jump back to the rest of the panel for the live discussion.

Thank you.

Brilliant. Well, great to have Dirk's thoughts there along with Andy, who joined us back today. I suppose maybe a best place to start is with some of the pallets who we haven't heard from yet today. And Frank, if I come to you first on this discussion of transparency across business suppliers throughout your network. This must be a key area that Parker Hannifin are paying close attention to, certainly in recent times for resilient purposes, but multiple others as well. Just need to unmute yourself, Frank, just for you.

Absolutely true. And the most important thing is now if we talk about risks in that volatile environment, I would like -- we need to be aware about then able to avoid that kind of risk. And I think Dirk nicely already stated that clearly. And I would like to quote the Parker business philosophy and 2 pillars of our strategy that first, stay focused on engaged people. That means keep people safe in an even more extended environment, we ever did so far. And second, don't limit our customer experience to our business partner we interact means as an industrial company being capable to deliver and to stick to your promise you do towards the market. And if we just refocus on that with all the distractions, we need to handle day by day, that is, I would say, best response to the biggest risk we are currently facing.

And Peter, you obviously come from a slightly different, more holistic view of the industry in multiple different companies. What are -- along the lines of what we've already talked about as you heard there from Frank and from Dirk. What are the key trends that you're seeing from companies and maybe the ones that are doing better and doing less when it comes to what they're doing so far? Sorry, if you can unmute yourself really quickly there.

Right. Thank you. Sorry about that. So again, if we think about resilient supply chains, again, my role, I'm exposed to about 300 of our corporate members each year. And as part of our engagement process, we can put people into kind of, I'll call it, 2 buckets. Leaders, those folks that are continuing to invest in laggards. And what I want to do is I want to kind of describe some of the key things that the leaders are doing. And by default, you can say the laggards are either going too slow or not at all. But one of the things that we found, as we thought about this idea of transparency, I want to make sure we understand what the end-to-end supply chain means. And so when we think about the end-to-end supply chain, it used to be a supplier's supplier to customer's customer. And I think, just to reinforce Frank, Andreas and Dirk, we're seeing that expand. And so it's not just a Tier 1 supplier's supplier. You're moving out another generation of suppliers in terms of transparency. But what we found from a leader standpoint is people have invested in sensing. So when you think about COVID, they sensed earlier. Again, so November of 2019 versus February, leveraging that kind of transparent data, they were able to balance their demand and supply better. We know that they had higher average factory utilizations from November to March. We also know that, again, based on previous disruptions in trade and other things, they were able to apply that knowledge to really improve agility. So a lot of people had already started to ship second sources of supply so that they were able to absorb a little more of a supply shock. And again, this idea around a shift to circular business models, and we can talk all day long around what digital investments actually -- did they start 18 to 24 months ago that actually paid off. So again, we focused a lot of our time just trying to understand what the leaders did. And of course, from a competitive advantage standpoint, they're actually proceeding through the recession here, at least in the U.S., growing share, increasing their competitive advantage.

Brilliant. And maybe then a question then for the whole panel. Andy, if we start with yourself. What do you see as the key steps that manufacturers can take to ensure that their supplier and partner relationships are both secure? But suitably flexible when it comes to cope with these fluctuations in supply and demand, alluding to there what Peter said, to give you a competitive edge to potentially over people. What are the main areas that people need to be looking at in their networks?

I think there is no one general answer to this question. I think it's probably also depending on different other factors. But a couple of ideas, or let's say, suggestions also what we discussed with our customer base is actually, I think it's, first of all, super important to get access to reliable and clean data. And also data across the supply chain is also, Peter, as you said, it's not only the Tier 1. It's really the -- what is my supply chain and where does this start and where does it end? And really trustworthy data. And second step, it might sound obvious, is also make this data available and accessible to the entire organization. I think this is also something Dirk was referring to, that there's still some data silos within organizations for whatever reason. So if I make this first step, I also need to make sure that my people have access to all the data. And then the third step is probably take action out of the data I can access. Just maybe one concrete example. If I find out in my supply chain that a Tier 2, Tier 3 supplier is struggling from a financial point of view, is there a way to give them access to cheaper capital to help them to come through these tough times and avoid going in bankruptcy or any other difficult situations.

Frank, your thoughts on that.

Yes. So first, we in Parker Hannifin are very fortunate because we have a setup of a real end-to-end supply chain responsibility, means decision-making exposed to customer on lowest levels. So engagement and empowerment of associate plays a major role. But that is something you can't change. That's a business requirement you're in within your company. I would like to highlight what Andreas just said. It's the importance of data, what we clearly saw. So I would describe it in a 5-step statement. First, sense your market trends early. And now, have the relevant data accessible to fact-based decision-making and the ability to react quickly and adjust quickly if still further needed. And I give you a very specific example. As we had the first impact out of the corona crisis, we met purchasing data with transportation data because, for sure, we mainly focus financial risks of our supplier base but we learned relatively quickly if the forwarding company who would pick up the goods is not capable to go anymore into that zip code area. And if we match these kind of sources quickly, driven by data, decision-making by fact, we could act it quickly, and indeed, production from that perspective gets stopped. And that is just the importance, what Andreas is highlighting, data, data, data and being capable to analyze them is part of it.

And I guess, Peter, that lends it so perfectly to what you said about leaders and laggards. It's being ahead of -- in the whole process [ mine ] and the adaptation.

Yes. I think -- let me just come at it from a different angle. Again, when we look at leaders and we think about, let's just say, key supply chain metrics. And what are those strategic areas that they're focusing on to improve those metrics. So if we just take inventory, for example. The 2 strategic area -- focus areas that we find people are investing in is, the idea around synchronized planning and integrated product life cycle management. So those are 2 areas where people are really thinking about inventory. If you think about cost of goods, it's supply management practices. How do we continue to manage cost and minimize risk. When you think about supply chain management costs, kind of that cost around, it's again back to synchronized planning and this idea around how do I structure my network efficiently. We think about flexibility. Again, it's how do I identify those second sources of supply that allow me to become more agile. So again, as we think about those kinds of bucketed investments, we have a pretty good idea of what people are focused on in the next 6 to 12 months. And again, everybody is doubling down on the digital investments they made 24 months ago that worked and helped them get through COVID.

A couple of questions in here from the audience. I'm sort of going to combine 2 of them as they allude to the same thing. It's questions that we've just touched on there about maybe deciding who are your critical and most relevant suppliers in the context of shifts in demand or global pandemic, whatever that may be. But then kind of the flip side of that question is given that some countries seem to be getting further ahead than others in terms of vaccinations, able to return to operations in a more short-term future. The impact that's going to then have on which suppliers are your top priorities in terms of those partnerships. It's a bit of a convoluted question, but how do you go about or what are the most effective ways you're thinking in terms of going about how you regulate suppliers in terms of their importance to operations, but then what they're capable of doing, et cetera? Is there a set criteria, probably different for every business. Maybe Peter, we'll kick off with you, as you probably have more experience across multiple industries.

Sorry. Paddy, did you do say me? I couldn't hear you.

Yes, sorry. Sorry. I did say you.

Yes. Yes. So let me just use the example of the COVID vaccine supply chain end to end just as an example of your question. So I think one of the things -- and again, I'm just going to speak for the U.S., is we've not done a very good job integrating what I would call privatized supply chains with public policy. And I think there are countries in the world that have done a good job with that. And again, we would not be one of them in my -- we just need to work harder at that one. But if you think from a transparency standpoint, how do I understand the population or the independent demand piece? And how do I perpetuate that signal all the way back to the Tier 1 bond suppliers supplying syringes and PPE and other things that allow that to happen. And I think there's got to be some kind of an orchestrating piece in the middle that makes sure that everybody sees the same independent demand. And again, I think I've heard the word bullwhip a couple of times, so that you don't get first people just planning the next level of demand. So as we start to think about -- as we start to think about that from an end to end, it's how do we coordinate the end to end and orchestrate it better. And there's got to be some player in that end to end that steps up. And I think as it relates to COVID and all the surrounding things, public policy also has to play a role in that. I probably answered more than you wanted to hear, Paddy, but it's a passion of mine at the moment.

That's perfect. Frank, any thoughts to add there to Peter?

Yes. Let me start from a different angle. So your question was already quite complex, and that is just standing for the uncertainty we have faced. That uncertainty will be -- will not much -- I think the next upcoming period will not get much better. So therefore, I would say, in these end-to-end setup, these pieces for decision-making, empowerment and engagement on the lowest level to take the right decision for the supplier as well as for the customer and for our own business is pretty important. But then they are fundamental. We need to ensure -- doing business with the right business partners. So we predicate according to the Parker values: long-term relationships to our supplier base, actively looking again, signal versus dual sourcing, decentral setup by leveraging our [indiscernible] harmonization. And these are topic, I would say, they are pretty basics, execute them well while leveraging our decentral setup and enable the organization to decision-making at the lowest level. I think that makes us most robust for the uncertainty we are facing.

Andy, more and more of the saying from your side, anything that you noticed coming out from a tech provider's perspective into the ecosystem with companies when they're working?

Yes, maybe just adding the angle from a technology provider on this, and it's all true and all solid what you said. I think it's probably also -- yes, a new way of thinking. So moving from a traditional supply chain point of view, with all the focus we have in the last decades and years on cost savings, process efficiency. Maybe thinking more into a supplier network structure that also would enable us to actually give you this agility and this flexibility. I know there's a lot of talking at the moment of multi-sourcing, finding different suppliers, near-shoring these alternatives. I think, yes, there's a lot of cases where this can work very well. But there's probably some cases where it's more difficult to find the right suppliers in your closer environment or in other countries. But moving this or shifting this to a network and also allowing the transparency on is your key supplier maybe relying or your key suppliers when you do this multi-sourcing thing, relying on the same Tier 2, Tier 3 suppliers? And what's the impact of a disruption here? I think this is where networks as a technology can really help and support those initiatives.

Leading on from there. And to refer back to the poll now that we ran with the audience before, where we were asking what's the biggest risk to a manufacturer relationship with one of their suppliers. Data, data, data, to point to a slightly earlier section in this conversation. The top answer here with about 50% of the respondents ticking as their main issue was a lack of consistent and clear communication, which will obviously impact data. Again, you mentioned those actionable trends from the data as well. If I can also link back to what Dirk said, trust and openness, both internal operations and in suppliers. It seems like the component parts are all there. And you mentioned, Peter, people who've adopted technology earlier are seeing some successes there. Where do you as panel think the friction is here when we're bringing together this trust element, this volume of data to drive actionable insights to keep the communication between partners open? Where are the key frictions here in the supply chain? And if you feel like offering a solution for eradicating then please feel free. Andy, why don't we come to you maybe first.

How much time do we have left? Because to answer that, it will take some...

I know, right? This is a 1-hour session, Paddy?

I'll keep them more conservative next time.

Yes.

Maybe let me kick it off with 1 angle to this, and I know there's multiple angle to answer this. But if you look at the whole supply chain, I think, Frank, you mentioned this, also the subject of the transport and logistics around this. And if we look at the supply chain, there's still a lot of paper being transported and shifted around. So data that is available electronically is printed and somehow then turn back into electronic data, printed again and so on. And there are multiple studies out there. And it starts actually with a -- even with a purchase or the purchase request and goes all the way to the invoicing part. And I know it sounds super technical and boring maybe, but just addressing this or shifting all the paper that is -- that comes along the supply chain to a digital process, connecting the suppliers and all the partners involved, like not only the logistics partners but also customs, harbor handling, air freight and so on, to an open network. I think this would be not solving all the problems, obviously, but would be a great starting point.

Yes. Let me just pile on to something that Andreas said earlier, is this idea of a shift from a linear supply chain on sequentially plan, source, make, deliver, return to this idea around an asynchronous digital supply network. And so those -- and so people are living in that world, not perfectly, and there are some new disciplines that people have to sort out. The discipline of how do I sense, how do I respond in an asynchronous supply chain. How do I transition plans to synchronized planning? How do I build in connected customers? How do I think about intelligent supply or smart ops? How do I deal with all of the GPS technology available today along with the drone technology on dynamic fulfillment? And so again, we see -- again, if we approach it from that point of view at a macro, it's this idea of how do I adopt these digital disciplines so that I can fully enable that [ DSN ]. There are people that are there. They're arriving, they're leveraging technology and making it happen. So it's an exciting conversation. And then if we go back to the -- something that Frank said earlier, and it starts with people. How do I shift my culture from an analog culture to a digital culture? And what do those jobs look like? Because everybody -- all of us deal with a robot, Alexa or Siri or -- but how do I teach my workforce to deal with robots, go clean master data or side-by-side in warehouse and go fetch that order? So I'm going to come at it from that standpoint.

Frank, your thoughts there?

Let me respond to that. So in a way of -- for me, the 2 questions here are the who and how we respond to that challenge. The who is, obviously, it's passionate people and engaged leadership we need. And that boils back to talent management and supply chain, what will become even more important. And here, I will stop now. Otherwise, we're opening another discussion about the next 30 minutes about talent management and supply chain. But then the second is the how. And here, I purely trust into something we call high-performance teams. That's cross-functional, cross-division and collaboration to master business challenge we are facing. And if we conduct that well, bring the right stakeholder, which are passionate and engaged to each other, which are, I would say, more comfortable in that world of technology, we can make big steps ahead also in a limited time period.

Yes. There's -- I think the beauty of this patchwork of risk and mitigating it is what makes it a big old topic that maybe our 10 minutes left that we have here doesn't really quite work. Some good things coming in from the audience as well in terms of sharing your sentiments of just the volume of what needs to be done in different areas. But this proactivity into high-perfomance teams. So as I mentioned before, technology is key. If I can ask a bit more about the specifics of what you're seeing with your customers and maybe, Frank, yourself, how your business is currently managing risk to operations compared to this time 12 months ago. So we certainly saw in March, April, May last year, some task forces put together, management meeting all the time. The immediate impact is not there at the moment. But how are you, as a manufacturer -- Frank, I'll come to you first and then maybe the others. How are you approaching risk now? Since some of this will become embedded into every process for supply chain operations going forward? Or that still maybe something that's being implemented as we go along?

First, I need to resist because the immediate impact is still there. A lot of our workforce is still working from home in a far different environment they have ever been. And we still need to [ evolve ] any kind of business impact to the market. So I would just restate the impact is still there in a sort of a different manner than we have been facing it at the beginning of that pandemic. But sure, you have specific example out of procurement. We managed the financial risk of our supplier base very tightly. We monitored them well. We monitored a bit less the operational output, the operational performance. And these kind of criteria, we added in the resilience journey we went through. And that is just one example, I think everyone learned, adapted. The nice thing within Parker, we reviewed our supply chain strategy approximately end of August and the conclusion was, honestly, we don't need to add something new. The headlines are there. They are part of our supply chain strategy. But we need to execute them maybe a bit different or if it comes to technology deployment, maybe even faster. But the mechanics have not changed much, would be my response to your question.

And maybe jumping on that point about technology there. There's a few questions coming in that -- I mean we've alluded to new technologies over this conversation. But when it comes to the whole market, we have very big billion-plus companies and then we have a big portion to audience that are coming from small-, medium-sized enterprises. What can be done to help them embrace technology as an enabler for their supply chain to potentially be a route to solving some of these challenges that we've seen? Andy, if we can start with yourself there. What are the -- more of the drawbacks they're going to have to overcome?

Yes. Actually, one of the developments we observed or have observed the last nearly 12 months now, it's more open, there's more flexibility to think about new technologies. So if you look back, there was a lot of this one-size-fits-all thinking, and it needed to be a big, big system covering all potential areas and processes. And we see actually a shift, and that's one benefit for Tradeshift here, to move to a platform approach, something we are used in our private life since years now, that you have your smartphone and you have apps to make your private life easier no matter what you need. And see the -- we observed the same openness here also moving into the business world. So I don't have to have a one monolith solution for all the processes in my company. I just need one stable platform. And then I work with business apps covering certain processes for certain requirements, but all on the same subset of data. And then it's no longer a question of size. If you're a multibillion global organization or a small, medium company, I think this also allows you to adjust and adapt the solution to your specific needs and also allows to your suppliers to connect to the solution and actually collaborate with you in a digital way.

Paddy, if I may, just to pile on a little bit. So there's an emerging group -- I had talked about leaders and laggards. So there's an emerging group now, laggards that have woke up and smelled the pandemic, right? So they're saying, "Gosh, if I don't do something different, I'm going to go out of business, right? My survival is at risk, right?" And what we're finding -- and this sounds very simple and almost sad. But the first place they're starting is how do I use the current systems that I have to their full benefit? So most of what we know is people use about 30% of the functionality that they own, right? So if you take a great big ERP system, and this is independent of small, medium or size of business. And so they're focusing on how do I rapidly use -- redesign my processes so that I can use the functionality that either I'm not using or I'm using very low. And then the second thing is they're using a standard. And again, we're a nonprofit association. So we introduced this digital capabilities model. It's got 32 different digital capabilities. And what they're doing is they're saying, based on my business problem, these are the 2 or 3 digital capabilities that I want to layer on top of my now operating -- effectively operating. And then they're thinking big, but they're piloting those, so they're not at risk of investing in technology that eventually isn't going to work. So I know that sounds quite simple in concept, but that's the kind of technology things that we're seeing today within our constituent base as we think about technology platforms.

Let me respond to that. Even if we -- our main purpose is engineering breakthroughs, and I give you a very specific example. Transportation is not our key competence. And my response to your question would be utilize business partners. We do 98% of our transportation with only 12 preferred carriers. What is the individual number you need to target? I don't know. For -- the number was 12. We're doing pretty well with that number. But they deliver a business benefit to us and added value. So I can just reinforce, for the medium-sized also, it's not always a matter of investment and technology. Choose the right business partner and utilize your business partner, like we do, even as a larger-scale company in transportation. It's not always to be done by yourself.

Given the -- we're sort of heading into the last 10 minutes here. So if we look for a couple of wrapping up questions. But one here from the audience that there has been a theme of the last few months, and we'll see the fruits of this maybe coming up, is how to get -- supply chain took center stage last year and it's still there, just given the impact that was felt for businesses. How have you noticed with your clients and in your business, that take -- how do you make that maintain a higher priority for Board level to be used as the reason, yes, we can deliver in this area, we can do that rather than maybe outstripping the abilities of a supplier logistics network that then is incapable of moving forward? Peter, why don't we start yourself there?

So I think the way we look at it is we're trying to say resilient supply chains, put money in the bank and make the world at a better place at the same time. And really educating leaders on the actual business value of managing an effective end-to-end supply chain. And so -- and that's across big, medium and small business. And so I think what has happened in the last year, where we had to describe what a supply chain was over a year ago, everybody clearly understands what the supply chain is today, right? And what a broken one looks like. And so I think we're finding a shift a little bit in terms of leadership in boardroom and Chief Supply Chain officers being able to have what I would call a more executive-level presence at the boardroom. And so how do you effectively communicate that? I think the challenge is going to be in the next 18 to 24 months is delivering on, again, how do I make my supply chain more resilient? How do I continue to add shareholder value and return on assets and shareholder price, et cetera. So that's kind of where we're seeing a center of energy at the moment.

And Andy, your thoughts there?

I tend to agree to what Peter just said. I think it's really on top of everyone's agenda. And I think it will remain there due to the fact that we will see more and more disruptions in the next years. So if you look back -- not necessarily pandemic like we have experienced in the last 12 months. But if you look at political insecurity and also in weather -- extreme weather situations we are running and so on and so on. So I think it will remain on the top of agenda. And yes, companies, not only in the manufacturing industry, need to make sure the supply chains maintain resilient and strong and no matter how these changes look like in the future. Some of them, we might not be aware of at the moment. And from my point of view or what I can sense out of the conversations we have, it's really just the starting point we are seeing at the moment.

And Frank, yourself as a leader in supply chain for a large company.

So I'm a firm believer personally into an end-to-end setup. I think we learned that this might be the model of the future, and you really see more companies joining that end-to-end journey of the end-to-end setup. I think we also have been most probably -- we -- all leaders in supply chain have been regular guests or even already participant, active participant on Board discussions. So we proved that we have our seat at the Board table, and that will get even stronger over the next period. And if you ask me why, it's obvious. We are responsible for a large amount of people within the organization, what ties back to engage people, keep them safe. We have a tremendous contribution to the customer experience. We can't let down production. Our risk management is essential or not just in the procurement environment, and we contribute major to the financial performance, free cash flow, inventories or payment terms or at the end, just cost impact. And that qualifies us decently to permanent seat on the table. And I think many companies going that way, and I really appreciate, I like it, and I think more to come. And it will be interesting to observe that further.

Absolutely. And maybe one last question there that we obviously asked to Dirk a little earlier in the panel and it alludes or follows on nicely from a couple of things just mentioned there. If we look forward and we make some predictions, which is what everyone wants to hear, and I'll caveat everything with we don't know, which is sort of the turnover phrase for the last 12 months. But what do you see as the biggest challenges facing -- let's keep it to manufacturing, given the title of this webinar, in the next 6, 12, 18 months? Bearing in mind all of these different elements we've talked about, talent, digital, obviously, performance on the spreadsheet, too. Frank, if we start off with yourself, what are the biggest challenges that you're aware of in the sort of short term to medium term now?

If you ask me as a leader, my response immediately is managing the complexity out of the topics we currently deal with. Because the amount of things we need to manage around, people will not change much. We are -- many countries moving on a different speed, and that will impact the resilience of the individual country. Secondly, we have still major parts of our business in a very segmented approach. Some are performing very well already and most probably from a business cycle already in a side up. [indiscernible] versus others might not and that complexity just adds to the table because you need to respond, not just to the corporation, to the individual businesses you are in. And that in conditions where majority of people work from home are not connected easily, where new team members are joining while we face a certain shortage on various categories. I think the chip -- nobody expected that for the automotive industry. Just highlighting that one. So it will remain challenging, and we, as leaders, need to handle that complexity while actively prioritizing we want to see our teams work upon.

And Peter to maybe elaborate on some of the challenges that you alluded to in your last answer.

Yes. I couldn't agree more with Frank. If I were to add a couple of different points of view. I think one the things that COVID has taught us is there are supply chains that are not just privatized supply chains. And when we start thinking climate change, when we start thinking another pandemic, when we start thinking there are country-level and global-level supply chains that we just have to put in a different category. And then how do leaders work together globally to be able to prioritize that. And I mean, again, if you just look at the vaccine rollout globally, again, at the end of the day, a vaccine is intended for every person who wants it on the planet. How do you prioritize that? How do you make for that? How you distribute to that? You've got all different kinds of folks and different characteristics around the vaccine itself. So I think one of the lessons that the world needs to take out of this is, is how do I work together, public policy and privatized supply chain. And again, we're going to continue to battle that, all of us. Between testing shortages and vaccine distribution and all those kind of things. And that will continue to be a disruption for all of us, for our people, for our suppliers and all those kinds of things until we can get our arms around that. Our next big lookout from a prediction standpoint is how do we take these lessons learned and apply them to climate change? Because that's on the horizon at some point.

Absolutely. And Andreas, the last thoughts maybe with yourself then from your perspective from Tradeshift.

And since we are getting close to the end of this webinar, maybe answer this more on a general, generic level. I think it's -- the key challenge will be to work on a changing mindset, an open mindset. To accept change as an opportunity and not potentially as a threat and also accept that this reaction to COVID, what we've seen in the 12 months is not a onetime exercise and we will fall back to old patterns and old habits. What, frankly speaking, I already start seeing like Board members saying, yes, was great watching you working from home. It all worked well, and you did a great job, but now get back to the offices. So why don't we keep this open mindset and allow people, yes, to adopt a new work -- or style of working? And the same goes, I think, for the whole way we manage and deal with our suppliers and their suppliers. I think that's one of the key challenges from my point of view.

Perfect. Well, it seems like a logical place for us to draw the discussions to an end. One thing that's popped out for me from all that you guys have said is operating to your full potential, be that with your digital systems, as you alluded to there, Andreas, with your workforce from home, or obviously, in safe operations as well. So taking that mindset and becoming more resilient through higher potentialized operations. Well, look, that is all the time we have for today. So I just want to say a massive thank you to yourselves, Dirk as well, who's not here, but for giving your time and your thoughts to the audience. I know it will be greatly appreciated by everyone. So thank you very much, gentlemen. And to the audience, thanks very much for sending in your questions, for joining us and taking part in the polling as well. Reuters Events, Tradeshift, we'd like to thank you for being involved here, and we hope you can join us on the next one in a couple of weeks. But until then, stay safe and we'll see you soon.

Thanks, everyone.

Thank you.