How Microsoft is Helping Their Customers Mitigate Supply Chain Challenges

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Transcript:

Daniel Newman: Hey everybody. Welcome back to another episode of the Futurum Tech Podcast. I’m your host, Daniel Newman, Principal Analyst, Founding Partner at Futurum Research. Excited for this interview series. I’ve got Ray Smith, VP for Supply Chain at Microsoft, joining me today to talk about a topic that I’ve been out talking about a lot over the past year. I think I did 100 TV appearances in 2022 and I think, like, 85 of them were about the supply chain. It’s been a big year for this part of the world, part of the business. And in the technology space we have all heard about supply chain. It became part of our Thanksgiving conversations in 2022. So without further ado, Ray Smith, welcome to the Future Tech Podcast. How are you?

Ray Smith: Cheers. Thanks, Daniel and thanks for having us on the show. Delighted to be here.

Daniel Newman: Yeah, it’s a lot of fun to have you here, Ray. We’ve worked together a little bit. Congratulations on the launch of your Supply Chain offering. I had a lot of fun hanging out with you guys at the Supply Chain Reimagined event. Seemed like a great success. My inbox blew up. I had people messaging me from all over the internet, on LinkedIn, another Microsoft thing, and then of course, I saw a lot of articles come out. There’s been a lot of attention on it. So give us the quick background about yourself and your area of expertise at Microsoft.

Ray Smith: Yeah, thanks Daniel. And definitely, there’s been lots of buzz since the launch and as you talked about it, a huge level of interest across the public in supply chains. The last couple of years we’ve just all been burnt by it in some shape or form. I remember writing those letters of IOUs to my kids on behalf of gifts and presents. So supply chains is very much a hot topic.

So bit of backstory to me. I’ve probably been in the business application space about 20 years, but a deep supply chain expert of 10 years or so. So I started out my career implementing big systems in Accenture. Then I went on to create a startup in the CRM space, largely trying to leverage data in the CRM or relationship space, trying to unlock more predictive pipelines or kind of bringing in early stage AI capabilities, ultimately to help guide workflows for sellers, managers and so on in the sales space.

So that’s kind of bit of the background. I’ve come from a product background. I created a startup as a founder. Ultimately, sold that business onto SAP and came to Microsoft three years ago. And when I came to Microsoft, I was first in the business application space within Dynamics 365, so in the sales arena again. And about a year ago or a year and a half ago, I got tapped on the shoulder and said, “Hey, supply chains and sustainability, two the hottest topics that’s going on in the world, we’d like you to kind of take a look and see if you can really drive them to a next level of strategic importance, but also execution and product innovation.” And that’s really what brought me into the supply chain space. And I’ve never been more excited because I think for me, a bit of my DNA is loving to see difficult problems out there. That’s where the entrepreneurial sphere comes from.

And seeing how we were running our supply chains was quite simply fundamentally broken and we needed a different way. So when I stepped into this role, as I said, my key ask was, “Hey, let’s look across the full canvas of Microsoft. Let’s look at all the customers. Let’s look at what’s happening in the market.” And ranges from investments in hyperscalers data platforms, power Power BI or analytics solutions, AI, workload solutions, it was all happening across the board. And when you talk to customers, they’d simply say, “It’s broken. Help me with visibility. Help me make better decisions in my business.” And I was like, okay, this is going to be a monster wave of investment going on for customers and a real opportunity for disruption quite openly.

Daniel Newman: Yeah, it’s always fun to have an entrepreneurial background. And when you’re floating between big tech and entrepreneurship, you tend to have a different way of looking at the world. And that’s a lot of what I do because obviously Futurum Research, we work with most of the world’s largest technology companies, but yet here I am as an entrepreneur. So I’m always kind of juggling between the role of…you’re doing that every day, you’re like living inside of it. So you went for that entrepreneur role now working kind of entrepreneurial within a really large organization and you’re solving a problem that, by the way, business is big and small have all felt the pinch. Businesses big and small, and people big and small. I still get asked, my number one question I think I get asked on interviews is when can we get that widget, whatever it is, phone, computer, gaming system, because they want to know when are there going to be enough chips and when is there enough supply chain.

And there’s so many misnomers about the supply chain because some people think it’s like, oh, it’s just the leading edge chips or the new chips. And it’s like actually it’s not everything from chemicals required to build fabs or to incorporate into a plastic molding injection that’s going to be utilized to build the console, not the chip itself. So much has happened there. So tell me what you’re hearing though. I have to imagine you’re getting a lot of feedback in this process of building this solution in terms of what their supply chain struggles are from your customers.

Ray Smith: Yeah. I think it’s obviously the semiconductor, the chips, that was much publicized, but I think we’ve all seen the frailties of the supply chain across the board. Down at local Costco, swing and demand all of a sudden, you can’t get toilet tissue or whatever it may be. So across all businesses, they’ve seen under-supply or shortages or impact in raw materials or just even key ingredients in the process. All the way to now, what’s probably even happening in the market is a little bit of oversupply. So they’re over-indexed on being burnt a year ago and now they’re saying, well, based on our demand plans, we need to now, buy as much of it as we can. And then they’re saying, well, now we have all this excess inventory and it’s affecting their margins and so on.

So I think for me, the universal thing when I talk to customers, and I always laugh because most engagements with customers always start out with, “We’re different. Our supply chain is like a snowflake. It’s very customized. We’re very different to anything you’ve seen before.” And the irony is yes, supply chains can be differentiators and we’ve kind of got unique nuances in our processes. But at the very core of it is the very same, which is there’s a multitude of systems that have originated largely from on-prem origins that never really moved to the cloud in a very cloud-native interoperable way. And there’s a lot of data silos, there’s a lot of really poor interoperability across those systems and tools. And then what that manifests to the business is maybe individually across, say transportation management, how we run our warehouses, how we do manufacturing, how we optimize our orchestration, it could be best in class or run really well. But across end-to-end in the business, they fail.

So as soon as there’s a breakage, then they realize, wait a minute, all these systems are broken. They’re not talking to one another. And that’s at the system level. You layer on top of that the people and the processes and how you interact with your suppliers and then you start to really appreciate the scale of the problem. It’s like the left hand doesn’t know what the right hand is doing, yet alone, what our suppliers do or don’t share with us by way of information. So I think at the core of it, the problems I’m hearing from customers is they have a lot of legacy investments. They can’t afford, both in time and money to go do big bang, rip and replace projects for five years because they need to solve problems here and now and they really just need to unlock the data and unify their kind of end-to-end processes so that they can make business decisions to optimize in some shape or form.

And what I see some customers doing is they’re trying to like, okay, what will we do is we’ve all these disparate tools and systems, let’s start extracting data and dumping them into data lakes. And then even if they’ve achieved that with success, they’ve got a data lake that maybe has some data, the comparison analytics, but it’s not changing what they’re doing in the day-to-day. So it needs to get back on the workflow. It needs to get operational to allow the business outcomes to happen. So I would say at the core of it all is the pain point of end-to-end visibility. And this gets talked about a lot in supply chains and it kind of makes me laugh a little bit, Daniel, because if I go back 10 years ago, 15 years ago and I was in the startup world, if someone said the goal in CRM or seller productivity was just to help them see more lists of data or access to more data, I wouldn’t have had a startup. Because it has to be around outputs or outcomes more than just data and AI. So that’s the key.

Daniel Newman: Yeah, absolutely. What you’re finding here and the data that you’re sharing makes me think a lot about research I’ve been doing for years about digital transformation as a whole. There’s some stats that are always staggering to people when you say them. But there was a CIO study that went out and it said something like 50% of IT projects fail. And that doesn’t mean 50% of the solutions that people buy from companies like Microsoft or SAP or two companies you’ve mentioned aren’t workable solutions. It’s that companies transform really slowly, you’ve got a lot of cultural challenges, you got implementation problems, you’ve got lack of understanding of how to do the technology.

And then of course, one of my favorite is the digitalization of really poor old processes where people literally try to mimic a process using digital, like, can we put this on the computer? It’s like that’s not really the point. Because it’s really all about imagining what’s possible and then thinking about how does technology enable us. So you kind of gave me what you’re hearing in the barriers, technical debt culture, communications problems, siloed organizations. Talk to me about how you’re helping the customers overcome these challenges.

Ray Smith: Yeah, you’re absolutely spot on. It’s always kind of people processing technology. We’ve talked with digital transformation for over maybe a decade, maybe two decades now at this stage. And a lot of it as you point out, does fail because of people just trying to lift and shift old processes or build all these customizations. And that kind of view of the North Star or the art of the possible is key. And I think what we’re really doing here at Microsoft is enabling that next generation supply chain and more interconnected rather than a linear, siloed, point to point connection between our supply chain. We announced the supply chain platform, which was really to unify all our assets here at Microsoft across Azure, the power platform, our AI investments, Teams for collaboration and of course our Dynamics 365 investments.

But it wasn’t just a case of, hey, we’ve got all these great ingredients in the pantry, let’s offer these to our customer and our SIs and let them go build some stuff with it. So we created a product called Microsoft Supply Chain Center, which is an application, it’s a product, that focuses on helping our customers and our partners really ingest all this data really quickly from all their existing systems. So it means they don’t need to rip and replace whether that’s their existing ERPs across SAP, Oracle, Dynamics, whatever it may be, ingesting all the data so that they have a unified and structured data store that does not just power analytics, but it powers orchestration, action, into taking whether that’s human or automated steps to take remediated action in their supply chains.

So at the core of it, we’re offering this single application that acts like a command center. It allows all the data to be unified and then from that, really either to collaborate across their four walls or inside their business, across planners, warehouse managers and so on, all the way to the distributors. So open downstream. And then on top of that layer in basically opinionated modules to help them maybe improve supply and demand mismatch. It could be around order fulfillment or order management. And then on top of that is our low-code capabilities so that they can really take this data, the AI insights and drive it into action. Everyone will be able to get the example of, well let’s wait for Mary or Jim to come in on Monday morning, they know how to resolve this issue. And they take manual steps where instead we’re moving towards a future where we start codifying these steps in low code so that we start to streamline our supply chain.

So we start to spot these patterns with AI that says, “Hey, why don’t we just automate a rule that says we fulfill this within 100 miles if this criteria is met, it’s above this weight and we take these steps.” And I think that’s where we’re going in supply chain is just more intelligent, more interoperable. And that’s a key point is making sure that we acknowledge the market that’s out there. There’s market leading solutions. Our customers do not want to have to start ripping out every part of those solutions. So the underpinning platform has to work with those solutions, not just from an ingestion standpoint, but it has to work in terms of the orchestration or getting the action, making sure those steps for action are taken. Does that make sense?

Daniel Newman: Yeah, absolutely. That kind of brings nicely to my next little block of thoughts that I want to get your take on, Ray, is you’re starting to insinuate what happened with the launch of the Microsoft Supply Chain platform. That’s really what you’re offering to help your customers overcome these barriers. I’m going to group this into a little bit more of one big answer here because I want to talk about the positioning, I want to talk about the benefits and I want to talk about the vision. Because you said something in your last comment. You are not the only company out there. In fact, most companies have a supply chain solution, and I’ve talked a lot to the press and the media about this. There is a layer in terms of offering a platform that provides value to customers knowing the amount of data and where it all lives.

So kind of talk about the platform, the supply chain center and the vision of where you see this going, that’s going to enable you to help your customers really get to that level of visibility that… What’d you say in the green room? That if you had a penny for every time that you get asked for that end-to-end visibility, you’d be a very wealthy man. Are we going to be able to answer that question and say yes?

Ray Smith: I do believe we are. And I think that’s exactly what we have today with Supply Chain Center, and we’ve had this experience ourselves at Microsoft. So we’ve got a great internal supply chains across the data centers and devices. We’ve been investing heavily in across all our systems, both systems of records, systems of optimization and planning and making sure we were trying to get that data into data lakes and into kind of orchestration and action. And I often hear from customers, “My data lake’s starting to turn into a data swamp. So help me make sense of it so that I am turning to my supply chain leads and saying, ‘I’m helping you move the needle with your business outcomes rather than playing with tech.'” So at the very core of it is those business outcomes, whether it’s improving your on-time and in full, reducing your operation costs, making sure that you’re driving the top line growth by expanding into new markets, getting direct to consumer in a much more efficient and affordable way to meet the two-day promise and ultimately hit those brand experiences that starting to expect as consumers.

So I think the big difference, to your point is, what we’ve seen in the market is there’s lots of hyperscalers saying, “Hey, we’ve got a compute platform. We can help you store some data and crunch some numbers.” There’s obviously market needing solutions and ERPs that have been in the market for a long time, but kind of operated like a wall garden, a little bit siloed, a little bit specialized. Even if there’s multiple instances, they often don’t even talk across instances well. So there was this gap in the middle, I’ll call it a glue, but it really is a platform-based approach to connect across all these tools and systems. Not just to connect it to the infrastructure or the kind of compute and storage layer, but actually offer more intelligence, more orchestration on top of that.

And when I took on this role over a year ago, I was like, we’ve got market leading assets here that no one can compete with. And that’s the advantage of having capabilities where we can help collaborate with Teams, where we can help build very quick analytics with Power BI, where we can help with the low-code agility with power apps and power automate and so on. So I think the key was not just to bring these kind of components together, but to really put a supply chain lens and productization on top of it so that it helps our customers ingest that data quickly, get into orchestration quickly so that it is not the big lengthy implementations that they probably know of today.

Daniel Newman: Yeah. When I was reviewing the solution, and of course it’s still early days, I really liked the fact that it gave customers the opportunity to sort of evolve and be agile, but do it at the pace that they’re most comfortable with, leveraging the data within proximity, gaining telemetry, gaining visibility, but gaining scale. Rip and replace is too scary for most companies. And something as delicate as a supply chain, the ability to say, we’re going to do this a layer, like a cake and we’re going to do this a layer at a time. And your foundational layer is already there and you’re not going to ask you to tear that up because first of all, it’s too important to your business every day. But there are gaps in visibility in your current supply chain offering. And that’s like, hey, there’s no frosting on this cake.

And you guys kind of said, we’re going to put the fruit, the strawberries, hopefully everybody out there likes a strawberry in their cake. I’m more of a strawberry and vanilla guy, but whatever you are. But the point is there’s all these layers that need to be added and as more data, as edge continues to scale, as connectivity continues to grow, there’s going to be greater levels of immediate visibility that’s going to give companies that invest an advantage. And that’s all it comes down to. But the problem is a lot of these solutions, these point solutions aren’t particularly nimble. And so this is where what you’re building is really going to give that flexibility to build that proverbial cake at their own pace. Just a little bit from maybe, and if you want to build on that, go ahead. But what I was going to say is now that you’ve got a solution and you’re talking to customers, what are you giving them in terms of their advice to start their supply chain journey?

Ray Smith: Yeah, I think there’s two key points that I’d probably add on top of that and get to the customer experiences of how they get started. But I think first and foremost, you’re right, everyone’s looking for iterative transformation. It’s like they just cannot get big bang, rip and replace, three to five year implementations. They’re looking for quicker wins with lower TCO and they kind of almost prove it out. And I would say a number of companies have probably been burned by investing in old data warehouse technology and storing data to try to solve the end-to-end visibility challenge. So I always think step one is, prove that it is a platform that can unify the data and connect all these tools together. Step two is probably show that will interoperate with my existing systems. I don’t need another siloed application or data lake or platform that promises everything but doesn’t actually connect back into how I run my business.

And then really the step three is, okay, now that you’ve kind of proven that you’ve given me a foundation that I could build on and I think is going to future proof where I’m going with my strategy and I’ve got plenty of choice to pick different ISVs and other solutions, prove to me that you can deliver on some outcome or a win that helps me build a case to keep going with this investment. And that’s really where you pick off customer by customer the workload that they have the biggest pain point on. And it could be something simple like inventory visibility or it could be like optimization of last mile and preventing rush orders that are very costly for the business and that impacts their margins. It could be anything. But the point is proving out those foundationally layers and then giving the customer a key project or pain points that they want to go solve.

And that can be a capability we have ourselves in Microsoft with our first party applications or it could be with one of our key partners that we work with and say, “Hey, now that we’ve unlocked this and we’ve given you agility around it, you’ve got a great partner here that will help you solve this problem.” And that flexibility is, I think, key to the customers to say, I’m not going to be locked in for another seven to 10 years. I’m not going to have choice and I won’t be able to be agile.

Because maybe just one last point and I’ll kind of hand it back to you, is the difference that’s happening in the world now, and it’s not just OT and the tsunami of data from sensors. There’s a tsunami of data that we know we need to now process from external world signals, whether it’s shipping lane data, the information of ports, weather information, all of these things start to factor into how we’ve run our supply chains. And before, all we did was look at really historical data in our transactional system and I think over the last couple years everyone’s describing it as our old way of doing demand forecasting is broken. It’s like looking in a rear view mirror and trying to drive your car. And so therefore, there’s more of these external signals and the data tsunami that needs to be handled and processed essentially and then given into some sort of guidance or predictions to users so that they can take action on it.

Daniel Newman: Well, that’s very thoughtful, Ray. So as we come into the end of the show, I want to do a little rapid fire segment with you. So I’m going to do three questions in say 30 seconds. Now I’m not going to start a timer. This is self proctored. But as we kind of wrap this up, let’s just recap. What are the main supply chain trends and pain points that you’re seeing today across industries?

Ray Smith: I think visibility. End-to-end visibility is what they often say, right? That’s the kind of catchall term. I think if you start drilling into that in say manufacturing for example, it’ll be supplier visibility. I need to know across tier N of my suppliers what is and isn’t happening. Can they meet demand? I think in the retail space we see a lot more moves to go direct to consumers rather than just through marketplaces and platforms. And they’re really trying to deliver on that brand experience, today delivery promise, whilst maintaining their kind of profit margins and doing that in a cost effective way. So there’s a kind of long list of both top line growth levers of how the supply chain can help them grow the business. And then there’s also bottom line, help me be more efficient, be leaner and meaner in our operations.

Daniel Newman: All right. Quick chance to plug what you’re doing. For everybody out there that’s interested in learning more in these changing economic times, what business outcomes can Microsoft supply chain solutions drive to help supply chain leaders impact their bottom line?

Ray Smith: Yeah, I think it’s not necessarily just as a plug, but it’s like the key goal here is those business outcomes and to achieve any business outcomes, I think 15 years ago I was pitching VCs and Sandhill Road and I said, the future of business applications is three key pieces. It’s a data layer, it’s an AI or intelligence layer, and then it’s a workflow layer. So it all starts with unifying all that data, bringing more intelligence because we just discussed the tsunamis of data coming from everywhere.

And our people will tell us they’re too busy firefighting to be looking into systems and tools, which really brings us to the third part, which is the workflow. And that can be automated more because there’s more intelligence, more ability to automate, there should be more collaborative. And I think once we achieve those, this is when we start delivering on those business outcomes across on time and in full rates, better forward stocking of inventory so that we reduce our operations or our shipping costs and so on. So there’s a long list we see with customers of different business KPIs or metrics that they want to drive. But ultimately, it does stem back to driving top line or reducing their costs to improve their margins.

Daniel Newman: All right, and then the final one is versus the traditional control tower solutions, lower control tower solutions, what’s the differentiator? By the way, I got asked this by the media a lot, not this exact question. I got that question then. Obviously, your friends in Seattle area also launched a supply chain solution was what’s the difference? What’s different? So you get your choice, it’s just it’s rapid fire. So pick and go quick.

Ray Smith: I’m happy to pick all of the above. I think that our key differentiator is really on the collaboration, the low code and the interoperability with the ecosystem. So Microsoft is a platform company that works with key partners and ISVs. So we want to make sure that in addition to unifying the data and making that super easy to connect across all these systems, is that so what factor is followed up? And what I mean by that is no one needs another data store with some pretty visualizations that no one does anything with. And I think that’s the key, going back to your control tower point, which is what I saw in the industry was there’s all these thoughts of control towers and it really stopped at maybe the visualization or some insights. It didn’t go all the way to orchestration and action.

And that’s I think the key difference with the supply chain center approaches is getting it into orchestration, getting it into collaborative action, and also working with market leading ISVs and solutions. So working with what are customers may be using today already. So I kind of covered both of them in one fell swoop. I think I covered it in 30 seconds.

Daniel Newman: Yeah, you did really good, Ray. And like I said, I was glad you were able to give us a little bit of the recap. This is a topic we could probably spend a lot more time on, but it’s also a topic that is going to be fluid for most enterprises and organizations over the next… This isn’t like next 12 months, right? This launch and why I think it’s so important, this is going to be like the next 12,000 years. The ability to actually have a product and idea and be able to get it to the customer as flawlessly and as quickly as possible is everything now. And in a world where there’s certain types of things we need, construction and vehicle, these are not things you can send in email.

So we need to build very resilient supply chains. It’s for national security, it’s for technology leadership, but it’s also just to be able to get the things we need safely, make them available, make sure they’re high quality. And I think you’re onto something and I think this is going to be a really significant opportunity for Microsoft and of course, for the technology industry in the coming years.

Ray Smith: Yeah, I think you’ve nailed it, Daniel. The last couple years we can talk about all the disruptions, but I think what really happened was there was a great wakeup that happened in the supply chain space in terms of the old way being kind of broken. And the old view of, if I go back 10 years ago, building a startup of someone said build it in the ERP or supply chain space, I would’ve went, “No way, it’s wall gardens, it’s siloed,” there’s maybe a lack of investment, startups didn’t want to go in there. And that’s all been fundamentally turned on its head at the moment. The amount of investment money from VCs going into supply chain startups, the realization that supply chains are a growth driver for most businesses and not just the criticality of making sure products arrive on time. It goes beyond just the old view of if it ain’t broken, why fix it? There’s ways to optimize and improve your business.

Daniel Newman: Ray, I thank you so much for joining me here on the Futurum Tech Podcast. This was a lot of fun. Like I said, I am so passionate about this topic and the intersection of technology and real world may not be more real in any other part of our lives than the supply chain. When you can’t get your bread, you can’t get your car, you can’t get your PC, this is all the supply chain and technology will be the solution. By the way, inflation even that can be tied to the supply chain. So, so many things that are near and dear to our hearts, our minds and our wallets are tied into this supply chain. So, Ray Smith, this won’t be the last time, I hope, that you join me here on the Futurum Tech Podcast.

Ray Smith: No. And thank you, Daniel. Thanks for having me and look forward to being on again.

Daniel Newman: All right, everybody there you had it. Ray Smith, Vice President of Supply Chain at Microsoft. Great conversation. If you like what you heard, hit that subscribe button. We’d love to have you back. Check out all the episodes of the Futurum Tech Podcast. We have lots of great interviews like the one with Ray Smith today that you should be listening to. So much information here on the show. But like all good things, this one too has to come to an end. So for the show, for myself, see y’all later. Bye now.