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April 11, 2024

Marelli’s Journey to an EV-Focused Supply Chain (aim10x digital 2024)

If the supply chain is the circulatory system of the business, S&OP—or SIOP+—in automotive supplier Marelli’s case, is its digital heartbeat.

Join Marelli CEO David Slump as he explores the company’s EV-focused supply chain journey and improving collaboration with N-tier suppliers.

David, welcome to aim to next digital. You know, super excited to have you. Let's start over with an introduction.

Well, I'm also excited to be here. Thank you. I'm David Slump, CEO of Morelli and a client of o nine. Marelli is an automotive technology partner, so we provide a lot of technology in the car. I'm sure everybody in the audience has a car. So we do lighting, it's what we're most famous for.

People are aware of their nice lighting systems. Mhmm. But we do the electronics of the cockpit, exhaust, suspension, number of parts in the car.

And, excited with what's going on in the industry with electrification.

Yeah. Totally. Now, you joined Mirelli two years ago.

Correct.

What made you excited about the opportunity?

So before Mirelli, I was in, the consumer and automotive industry with Harman. So Harman is a company that owns brands like JBL and Harman Kardon, but also an automotive tier one. Prior to that, I spent twenty years in energy.

Always the jobs that I've been, excited about are the biggest problems.

And at Harmon, I had a variety of roles. Our CEO used to say, there's a problem that's your role.

Mhmm.

So I felt like this was a big opportunity.

And, KKR is a great owner, as you would know. Yep. And, and it needs, it needed a turnaround. So I joined to to take advantage of the problem and make a solution.

I love that. Now, you're two years in. Are you satisfied with the progress today? And, what will be your focus in the next couple of years?

So I'm happy with the progress. I'm satisfied. We still have more to do, but, you know, we're profitable now. Yep.

We're growing almost double digit. I'd like to get right to that double digit growth. Most importantly though, innovation has been renewed. So our order book's strong, and that's super important.

With the right innovation and the right execution, I know we'll talk a lot about execution. Mhmm. Then it we can just I see the end is no sight.

Oh, absolutely. Maybe before we go to execution, double click on innovation.

I saw you at CES as well this year.

You You know, what are you mostly excited about when it comes to new innovation?

So a couple things. The automotive industry, as I said, is going through huge change.

Electrification gets the biggest sound bite of that. And for us, that's important, but we're trying to focus a lot of our portfolio on power train agnostic. So it doesn't matter if it's an EV or a a combustion engine, still needs lights, still needs electronics. But what's really exciting for us is the software defined vehicle.

And what we focused mostly on at CS is design led innovation. So how do we really help the OEMs cater to the consumer on what matters from a design led innovation on the vehicle personality, the HMI, the displays, etcetera.

And then separating hardware and software to help them realize this vision of the software defined vehicle. So our whole exhibit was around that including digital twin and things that, you know, your tech industry is more used to than the automotive industry. But the aviation industry has done it before.

Yeah. Super exciting. Now, obviously, you mentioned it already, the big transformation and disruption in the industry with EV.

What is your point of view on how that change and disruption will evolve in the next couple years? And what is the role that you want Verily to play?

So short term, it's very chaotic. As you probably can read in Wall Street, you know, Tesla sales, discounts, China.

But long term, we kind of analyze this and created our own point of view. That the shift of power trains is a regional battlefield, meaning it's gonna go faster in China and Europe than it's gonna go in US or India or South America.

And we realigned our supply chains, our footprint capabilities around that belief of those shifts because, you know, this is a long cycle industry and a lot of restructuring is occurring. So big restructuring in Europe, for example.

We have to equip ourselves for the new reality of EVs in Europe, but it's gonna be really slow in the US or South America. So we're equipped to to supply long term their traditional technologies. But it's it's gonna happen. It's just gonna be bumpy. I think the second thing, and this relates to what we're doing is content per vehicle of electronics is skyrocketing because of the features that people want and electrification.

And we all know what happened in the semiconductor industry Yep. And how those are very long cycle problems to an industry that EDI's were very short cycles. So that's, you know, I'm sure we'll talk more about that. But that's the focus area also on electrification. What does it mean to our supply chains?

Yeah. For sure. And that's also why, you know, we have started the journey together.

Big supply chain, digital transformation journey. Why is it important to you, David?

So for me, it's really more about the SIOP plus process, I'll call it.

It. So I'm sure everybody knows sales, inventory, and operations planning. As a business leader, that to me is like the heartbeat of an organization.

Just many people don't realize. Or like the drummer of a band. If the drummer's offbeat, the whole band's offbeat.

I believe SIOP is that cross functional drummer of the band for an enterprise. And it's not as well understood as you would expect from a board down. Yeah. But you gotta get it outside the four walls of the plants. So I believe in it deeply.

And when I joined Marelli, I could tell with a hundred and forty plants at the time, the lack of integration, if we're honest, how the company was being run, antiquated systems, semiconductor prices. We will live in an Excel.

How do you expect to have low employee turnover in your supply chain team if they have to live in chaos and Excel?

So we needed a partner to digitize this and make us world class.

No. That makes total sense. If we look at supply chain transformation from your customer's point of view, the big OEMs, how would you like them to describe Maneli's supply chain performance?

Resilient would be one word and, and reliable. So resilient and reliable.

No. That makes total sense. If that's the end goal, the North Star, where are we today? And what do you expect in the next twelve months?

I would say, you know, if I kinda go back to factor physics, you can you can achieve on time delivery with high inventory. Correct. So in our industry, and one of the root cause of the semiconductor crisis was who carries the buffer inventory.

And I think the industry right now learned that that that's an end to end supply chain problem, And that's something we're working on with our customers. So in the past, the OEMs would just say David, here's your sixteen weeks ADI secure supply chain. Chain. Now we're looking out more than one year. We're looking not at the chip, but the fab.

I think during that crisis, it was not just who your supplier is, but who's their supplier of the fab and down to who's their supplier of the lead frame. I mean, nobody knew what lead frames were until there was a semiconductor crisis. So the interaction and collaboration of data has gone beyond four walls, And that is exciting and scary at the same time. So that's, you know, putting a lot of pressure on the change.

So where are we on that? Well, that's improving resiliency because it's making us think much farther out and secure supply and think about buffer stock and, you know, not dual sourcing the chip if they're the same fab. But are you multi sourcing across that, which in the end is making it reliable? But I'd say reliability, we're doing good.

We are really responsive to a crisis, But the resiliency is more forward looking, and I'd say there we still can do better.

Understood. Now getting the entire organization rallied, behind the transformation program like this is obviously a critical success factor.

What is your approach to that? And what recommendation do you have to fellow CEOs that are embarking on a similar journey?

So in a nutshell, I'd say just do it. So meaning user adoption, master data, deployments, all these things can be laid out very sequential.

But if we don't use it, we don't make it better. So I'm probably more of a minimal viable product sprint one. Let's just get it out there, and then when people are using it, it'll naturally get better. This belief that living in excels better is to me a fallacy.

So my deployment methodology here and lessons learned advice from prior prior would be really go as fast as you can on user adoption Mhmm. To clean up the master data and get the the habits built.

Now you already touched on user adoption. The other thing that we often hear from organizations that they're nervous about is the change management component.

How is that in an organization like Marelli? And what is your approach to driving the change in your organization?

So awareness that there's an opportunity to be better. Okay. So for me, it starts with the customer data. If we're not green on our customer scorecard because delivery, that's an awareness part of the change management.

Second is, our internal awareness around inventory levels. If we're not world class in our inventory, it's it's just covering up the fact that our process is no good. And, you know, cash in a private equity world is king. So we're really focused on cash generation, and inventory is, a big change management agenda.

So that those are the I'll call it the leadership tone. So it's not about the tool. It's not about the process. It's about customers and cash, but without a fundamental execution.

And then final I'd say is empowerment of the plants.

With so many plants here, you know, often this is a central function supply chain. No. It's the four walls of the plant starts first.

One of our customers had shared that, you know, we weren't the best in the semiconductor industry. And I said, well, who did the best and why? Mhmm. And one of their feedback was the competitor who had did the best, the why was their plant manager was looking out and could demand engineering do alternative part changes at the plant level, which is kind of unheard of in our industry.

So, yeah. I think empowerment at the plant level is where the change starts.

I love that. Now we and, actually, you already mentioned that, but for any tier one supplier like Marelli, you're obviously dependent on your supplier ability to deliver. What we are seeing, not only in automotive, but across industries, is an increased need to collaborate, with suppliers, but not only the tier ones and tier twos and so forth to get a better understanding of capacities, inventories, and so forth. What is your point of view specifically to the automotive sector and the value chain collaboration?

And specifically, when it comes to Marelli and its tier one, tier two suppliers.

So Marelli is probably no better or worse than the average in the industry now. But the industry compared to other industries got a lot of room for improvement.

So traditionally, this industry has been very tier one, tier two, tier three, tier n.

Yep. If you look at kind of world class consumer electronic companies, you know, I had the benefit of when Samsung bought Harman, what they looked at. They looked at end to end inventory. Meaning, what did they have at their dealers?

What did they have in their four walls? What did they commit to their suppliers? And they had visibility to that. I thought that was pretty world class.

Now automotive won't quite get there. But in theory, we need to know what is our commitment that we're making to suppliers. But turn around, two way EDI. Two way EDI is not a common thing.

Mhmm. Meaning return to forecast commitment. So we release it to a supplier. Did we get a return?

Did we get a documented commitment? Or we just assume if we released it, it's coming?

And then the traditional automotive sixteen week window, not a big problem. But when we're looking out now fifty two weeks, what's committed, what isn't, where where does accountability lie, that still has room for improvement.

And what is the key constraint in getting there?

That's a good question. You know, I don't wanna say technology, but that's what comes to mind. Meaning, why is it so hard to get these things done? Why is two way EDI hard?

Why is a return to forecast commitment hard? Is it the company's culture? I don't hear suppliers when you ask for it. They won't say, no.

We won't give you that. So what makes it hard? Why are these hard? Or sometimes they make it too hard.

Oh, you have to join an industry collaboration, and all suppliers have to put the data up and then it's some big data lake. Well, that makes sense too hard. So I don't know, or maybe we're not aware of simple solutions.

Okay. That seems to be very solvable, but we'll we'll talk more about that.

Now back to the program, the S and OP plus that we're working on.

Yes.

By the way, tell a little bit more about the plus. And then, you know, what should the program deliver and what have you seen so far?

So the plus for me was because traditionally, it looks at what you're shipping today or what's in the ERP today. But often the mistakes, you learn from mistakes. The mistakes I've lived through are often in the new product launches.

And the pre SOP started production programs on automotive are outside your ERP. So by definition, they're not flowing through your normal. And then you have material shortages. You have ramp up shortages.

So the first thing we were focused on is let's not forget that we're in business to launch new programs.

And that supply chain readiness, safe launch planning has to be part of SIOP even though it's not in the normal process of SIOP. So that was the first plus. Yep. We are in deployment Yeah.

In a stage process with our divisions.

And I don't think we're quite there for the plus.

It'd be where we're at.

Yeah. That's definitely what we're working on. Yeah. Now, what do you expect from a technology, supplier like o nine? And, also, where do you want us to be innovative and put investments to better serve Major League?

So what I would expect is a partnership.

Okay? Not just a tool.

And I appreciate that's what I'm getting. Okay? So that's the first thing I'd compliment because of my prior job, we've got a tool, we didn't get a partner, in in what we deployed. And why do I say that?

Because this is cultural change. It's user adoption. It's a journey. I also don't want to, give you our process and you customize your tool and we find out we're customizing the wrong thing.

So in that partnership, I love that you guys push back. You help us make sure what we're doing is best in practice, and we're reusing, you know, things you do for other industry. So in that partnership, I think the transparency, the trust, the ultimate shared performance, and I really respect how you guys have, taken that on.

Yeah. No. That's that I think incentives are completely aligned. So we we appreciate that too. Now, last question. What I would be interested in is your perspective. Will we see more CEOs with a supply chain background?

And there's, you know, many chief supply chain officers, SVP supply chains, you know, listening in today. What can we do to get into a CEO position? What's your point of view there?

Do other functional positions.

So if you grow up in supply chain, will you make it to CEO? The odds are pretty minimal. Okay? Let's just be frank. You know, I think most CEOs have to sell, have to deal with finance markets, etcetera.

That's not to say you shouldn't understand supply chain. I would turn around and say, how come more CEOs or division presidents or, business leaders don't understand SAOP is the drummer of the band for their business? And they don't even use it in their five quarter rolling forecast.

So I I almost would turn around and say, how do we get more potential CEOs to understand supply chain? And if you're a supply chain expert wanting to be a CEO, then go do other functions. Learn the business from different points of view.

That's what it would take.

Oh, amazing. Look, David, thanks for joining here at M10X. Appreciate the conversation. And, also very much appreciate the partnership.

Yeah. Likewise. Thanks to the whole o nine team.

Amazing. Thanks, David. Thank you.

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