Paul Keel, the Sr. Vice President of Supply Chain Management at 3M, was gracious enough to explain to me how 3M was working to improve their supply chain capabilities, particularly with a digitization strategy. 3M is a global company headquartered in St. Paul, Minnesota in the United States. This $30 billion multinational runs a global supply chain that includes around 200 manufacturing plants, 100 warehouses, and 25 customer-facing divisions.
“For many years,” Mr. Keel said, “the world has thought in linear terms.” If we invested more in certain areas, we would get certain predictable returns. But in a competitive, global economy that is just not good enough anymore. “We are trying to shift from a linear to a geometric curve.” 3M has recently intensified their “digitization” efforts.
There are many opportunities. 3M can focus on equipment reliability, on plant optimization, on better synchronizing production across a group of plants, or on optimizing an end to end supply chain that includes upstream suppliers and downstream customers.
But whichever level 3M focuses on, Mr. Keel says there is a common theme: “Friction occurs at the connection points.” And part of that friction is due to a lack of “trust” across different internal and external groups. Digitization provides the information that allows different parties to get to a point where they can more efficiently work with each other. “I don’t mean ‘trust’ in the emotional sense. We all work very well together and ‘trust’ one another to do our very best. I mean ‘trust’ is the empirical sense. A statistical track record that our suppliers will perform as they promise us they will, and 3M in turn will perform as we promise our customers that we will. This is data. Digitization.”
Mr. Keel provided some examples of digitization at the connection points in different portions of their supply chain. 3M has a large specialty chemical business that purchases chemical feedstocks and creates intermediate adhesive components that then get used to manufacture many of their finished products. “In our old supply chain materials from the supplier would have flowed barrel by barrel, truck by truck, and tanker by tanker. It would have been a linear flow.”
3M is establishing a “geometric network” with one of their largest upstream chemical suppliers, BASF. They have a physical supply chain that connects BASF factories to 3M factories. And to support that physical supply chain they have also invested in digitization. “Their systems talk directly to our systems. Our planning system speaks directly to theirs. They see our consumption, and we can look upstream at their capacity.” This helps secure and protect supply even in instances when unexpected demand events occur.
3M has similar digital connections to other partners. In some cases, if both companies are using the same brand of ERP for instance, the two systems can talk directly to each other with no middleware. In many cases, there is cloud middleware in between the two companies that translates and makes intelligible the signals and responses that flow back and forth.
3M is well known for its Post It notes and other paper-based products. Digitization also applies to the 3M sustainability program. One part of that program includes a commitment to sustainable forestry. This report explains that “The 3M Pulp and Paper Sourcing Policy is designed to ensure all the virgin wood fiber going into our paper-based products and packaging comes from sources that protect forests and respect the rights of workers and people who live in or may depend on forests for their livelihood. 3M will only accept virgin fiber that can be traced to the forest source, proven to be obtained legally, and protective of high carbon stock forests, high conservation values, and workers’ and indigenous peoples’ rights.”
Mr. Keel explained how the company seeks to enforce sustainable sourcing by working with paper suppliers that can track back where the trees they harvest came from. A digital, partner-to-partner information flow is needed to support these efforts. Many paper suppliers have forestry partners that put bar codes on trees and then their loggers use handheld devices to scan the tag to connect the tree to a specific order. The scanned bar codes get transmitted into the mill’s ordering system. If 3M orders a jumbo roll from a mill, traceability information is attached to the information flow surrounding the delivery of that roll. 3M can now track back 85 percent of their global production paper supply to the mill level and 40 percent down to which forest the wood fiber came from. Over time, their goal is that all of their sourced material can be traced back to the forest. Partners include The Forest Trust , a not-for-profit organization specializing in sustainable forest product supply chains, and a cloud-based application called SupplyShift for responsible sourcing and traceability.
3M also seeks to increase trust across all the internal information hand-off points. Those hand-offs include not just supply chain teams – production and logistics – but also finance, sales, and marketing, and other groups as well. The information hand offs also encompass different planning horizons – daily plant scheduling, weekly production planning, monthly integrated business planning, quarterly communication with financial stakeholders, and longer term strategic and capital planning. The key, Mr. Keel stresses, is not just a common platform – 3M is standardizing on SAP – but also a rigorous statistical-based approach to developing one version of “the truth.”
Finally, there are the downstream connections to customers. Like many big manufacturers that sell to the largest retailers, 3M can access point of sale data on how their products are selling and how much inventory resides in different portions of a retailer’s network.
But more interestingly, 3M seeks to be engaged in co-innovation and joint research and development with large customers. For example, large consumer electronics firms purchase optical films that go into their electronics products. To ensure that 3M can deliver what is needed, when it is needed, 3M needs to know what film components a new version of a smart phone will need, and a rough idea of how much inventory will be needed at least 18 months in advance of the product launch. “That requires great trust,” Mr. Keel asserted. “We seek to build trust through both (digital) information management and consistent supply. In short, consistently good service earns us the right to jointly innovate new products.” And, unsaid but almost certainly true, becoming a co-innovation partner makes 3M a core supplier to these companies.
Personally, I hate the term “digitization.” What I think we are seeing in the supply chain realm is a convergence and maturation of a variety of technologies and processes. But while I hate the term “digitization,” I love how 3M is thinking and what they are doing to improve their capabilities.
And, further, while I hate the term, my firm does not. ARC Advisory Group’s Annual Forum in Orlando is titled “Industry in Transition: Realizing the Digital Enterprise.”