Ron Castro, IBM’s Chief Supply Chain Officer, believes the manufacturing industry is at an inflection point in its history where the opportunities for disruption are enormous.

“The explosion of data, the incredible insights we can gather, combined with advanced new technologies and new ways of working and collaborating, these will really define how supply chains are managed in the future.”

 Ron Castro, Chief Supply Chain Officer
IBM Corporation

“Think” is perhaps the most famous motto of Thomas J. Watson Sr. who, in 1914, took over the leadership role of the technology company that is today known as International Business Machines (IBM). It was a motto designed to inspire the company’s employees to think more about what they were doing, how they were doing it, and how they could do it better.

Over a hundred years later, that’s still a motto that’s applicable to IBM. The difference is that a lot of the thinking is now being done with the help of machines, especially IBM’s eponymously-named Watson deep learning artificial intelligence (AI) system, which is now helping the company to redefine the future of its business.

Winner of the Manufacturing Leadership Council’s 2018 Manufacturer of the Year Award for large enterprises, IBM’s multiple award-winning projects ranged from transformational M4.0 projects in Singapore, to AI-powered visual inspection systems, to a systematic approach to developing the right kind of advanced manufacturing talent to support the next stage in its supply chain development. IBM calls it the “Cognitive Supply Chain”, and its future relies significantly on the power of the company’s Watson AI capabilities to help make it happen.

Leading this ambitious new supply chain initiative is Ron Castro, recently appointed as IBM’s Chief Supply Chain Officer. In our latest Dialogue with a manufacturing industry thought leader, Castro talks with Manufacturing Leadership Executive Editor Paul Tate about harnessing data analytics and AI technologies to augment human knowledge and expertise across the supply chain, the need for co-creation and collaboration to drive progress and innovation in an increasingly data-driven world, and how new skill sets, from leadership teams down, will be essential to successfully manage disruption in an M4.0 world.

Q: What excites you most about your current role?
A:
I’ve never been more excited than now to be a supply chain leader. I love the adrenaline of all the variables we need to optimize every day, in every decision we make across the supply chain. It’s a wonderful roller coaster. The explosion of data, the incredible insights we can gather, combined with advanced new technologies and new ways of working and collaborating, these will really define how supply chains are managed in the future. We are seeing a major trend where supply chain operations are becoming much more than just the traditional cost center, but are really helping to drive value for the enterprise. These are very exciting times in supply chain.

Q: What challenges still keep you awake at night?
A:
There are many challenges, but if there’s one overall theme, it’s all around our transformation. Are we being bold enough? Are we moving fast enough? Are we giving our people the right tools they need to be successful? Are we eliminating the barriers to progress by creating engaged and self-directed teams, and an organizational culture that can leverage new technologies and embrace innovations that challenge the status quo? Do we have the right skills for the future? Supply chain expertise continues to be critical, but we now also need data scientists who also understand technology. It’s a highly competitive marketplace, so we need to find ways to leap frog, while always keeping a focus on our end clients and our overall value proposition.

Q: Has IBM adopted a formal roadmap for this digital journey into the future?
A:
Absolutely. We started several years ago as we built a digital thread across our supply chain processes and systems. We called this a Transparent Supply Chain. It gave us an excellent platform to apply data analytics and help manage our business by exceptions and smart alerts. Then, around two years ago, we set a very clear goal to become the first Cognitive Supply Chain in the world. This was based on our strong belief that, with machine-human interaction and artificial intelligence techniques, we can augment our supply chain professionals in their daily decision-making. We brought our supply chain initiatives together, looked at our supply chain domains, created several persona as examples, and identified our deepest pain points. In the end, we built a roadmap that prioritizes key use cases that we can address accordingly.

We didn’t start with technology. Our road map started with the areas of opportunity where our supply chain professionals can help, and, what’s best for our business processes, by design. This enabled us to then apply technologies to focus on solving our biggest business problems and drive high adoption rates within our user community.

Of course, the roadmap is never set in stone. It’s a living document that we verify on a regular basis. But having a clear strategy and vision is fundamental because it enhances our effectiveness and speed of action.

“Around two years ago we set a very clear goal to become the first Cognitive Supply Chain in the world.”

Q: What transformation initiatives are top of your agenda today?
A:
Our strategy is focused around four key areas. First, culture and people. How do we create the right mindset? We are building a culture based on more open and collaborative ways of working. And we have a strong focus on education and skills development to ensure we have the right kinds of technology-savvy professionals, all in a culture of engagement and inclusivity that fosters innovation.

Second is supply chain transparency. This is how we leverage value from data insights through analytics. Using both unstructured and structured data, we’re driving more transparent supply chain networks with our partners, including complex transactions with things like blockchain, and leveraging IoT with its additional data insights, both inside our four walls as well as with our distribution network.

Third is about harmonizing our processes, systems, and data. For example, we’ve gone to a single ERP system, in our case SAP. We deploy global processes and commonalities where it makes sense, and use a common data layer and enterprise data lake to truly get end-to-end data where we can then apply analytics to give us more insights.

Finally, and this is where it really starts to get interesting, it’s how we augment the capabilities of our professionals, our teams, our subject matter experts, by leveraging things like AI and machine learning to improve our capabilities across inventory, supply, order management, quality, and many other areas. Machines trained by our best subject matter experts help us make better decisions. Leveraging machines for visual recognition, for example, helps us see better and faster to improve quality. Machines that help us read and analyze changes in engineering documents help us to identify critical production implications.

This is where the future of supply chain is getting very exciting. It’s becoming more cognitive. We’re just at the early stages but, in my opinion, this will continue to accelerate at an exponential rate.

Q: So what do you mean by a Cognitive Supply Chain?
A:
I ran into this quote from our CEO, Ginni Rometty, “Man and machine always get a better answer than man alone or machine alone.” That’s the essence of our journey to a Cognitive Supply Chain.

There are several emerging technologies that provide incredible opportunities today – AI, machine learning, blockchain, IoT, augmented and virtual reality, 3-D printing, and we’ve now started to strategize on how Quantum could help solve complex supply chain challenges too.

Today we are using the AI capabilities of Watson to augment what we do. Our best supply chain experts are now training Watson and weaving into it key decision-making and digital resolution rules so Watson can actually learn in real time with us. That way, Watson can help us analyse things then suggest a course of action. For example, by learning how human processes or issues were handled in the past it can help identify what are the risks. What alternatives do we have? Even advice and potential playbooks based on previous situations. This will help us be smarter, better, and faster.

Another beauty of artificial intelligence, and Watson, and cognitive systems is they continue to learn. They never forget. It continues to get exponentially better as time goes by.

So as we map the future of our supply chain, it’s crystal clear that we will be getting the most value of our AI capabilities as we start to stack multiple technologies together. For example, the amount of data you can gather from IoT devices that can be fed into an ecosystem and the blockchain, will provide us with better real-time status. Then on top of that, you can apply advanced analytics and AI to get real-time insights and best courses of action for any disruptions you may get in your supply chain. This has to become a very powerful value proposition.

“Our best supply chain experts are now training Watson and weaving into it key decision-making and digital resolution rules so Watson can actually learn in real time with us.”

Q: What measurable impact has the new approach had so far?
A:
This is an area of pride for me. Our journey to becoming the first Cognitive Supply Chain has already yielded significant benefits. Key indicators such as inventory, cash, supply management, total cost, client satisfaction, and being able to enable revenue, have all improved. For example, we experienced significant inventory and structural cost reductions while increasing our serviceability levels. We’re also able to collaborate with and manage our supply base much more effectively, increasing our data retrieval and insights. And from an overall cost standpoint, we’ve seen reduced working capital and significant reductions in freight logistics costs. But perhaps what excites me most are our new capabilities to protect our clients and our revenue from supply chain disruptions. We’re now solving issues in hours that in the past took days.

Q: If a cognitive platform is going to be so transformational, not just for IBM but for supply chains across multiple industries, what challenges do you see ahead?
A:
Transformation is a team sport. It needs a clear vision and objective. It involves everyone, external and internal, across all silos, all going in the same direction. I cannot overemphasize the importance of cultural transformation and effective communication because the process requires engagement and a change of mindsets across the entire organization.

We also need to revamp skills and talent for the new roles of the future and ensure some level of technical savviness. We also have to change our ways of working, how we collaborate, and how we deploy transformation. We are moving away from large, multi-year, big-time deliverables to a much more agile approach, while we experiment with new processes, new technologies, and new APIs. So we need to learn fast, and where we fail, we need to course-correct with speed. From there, we can then scale up.

Q: So how are you ensuring you have the right kind of talent for the future?
A:
We believe that talent attracts talent. Our Competency and Talent Acceleration in Advanced Manufacturing program, which won a Manufacturing Leadership Award this year, is critical because it creates a systematic and structured approached to identify, collaborate, coach, and groom the required skills and talents we need. It also helps us create a platform for recognition and ensure mechanisms for on-the-job training to apply the learning in real-life environments. I guess you can also call it “paying it forward” for the next generation. This creates a virtual circle. Folks want to be a part of a talented and skilled team, which helps us attract the best talent as well. Developing our people’s focus on technology-savvy skills, attracting the best, and a vision and culture that will drive innovation, is a winning formula here.

 “It is an awesome opportunity for us, as supply chain professionals, to define new roles for the future.”

Q: How are you engaging your supply chain partners in your cognitive journey?
A:
We always look for a win-win value proposition, a collaborative approach. Let me give you an example. With one of our suppliers we just agreed on a co-development of a parts provenance blockchain deployment. What this will enable us to do is to fight counterfeits, together with them, and keep us from paying wrong warranty claims. Ecosystems are key for working blockchain installations. Gaining a win-win situation for all participants becomes essential. We’re building a blockchain that will enable supply chain networks to ensure trust at the transactions level and, quite honestly, take significant inefficiencies out of the system, out of our supply chains. Of course, not everything has been defined yet for blockchain and we’re in the process of working that out with our partners. Co-creation and collaboration will become most critical in this new world.

Q: What are the next steps along your Cognitive Supply Chain journey at IBM?
A:
What we’re really trying to envision is what Manufacturing 5.0 and 6.0 might look like in the future. We believe that we’re truly at an inflection point in our industry today and the opportunities for disruption are enormous. Winners and losers will emerge faster than ever. It’s about continuing to embrace new technologies, new ways of working and collaborating, to ensure we have a clear vision of how to transform the organization with the right skills and talents for the future. So it’s about accelerating the road to value for us.

From a technology perspective, we’ll continue to see exponential improvements in the advanced technologies we’re deploying now. What is to come? There are many possibilities, but we will see much more comprehensive and real-time data insights driving the business. One area we’re looking into today is quantum computing. One sweet spot, for example, is the way it could be used to overcome complex optimization problems. Real-time, end-to-end supply chain optimization is a very promising use case. There’s clearly more to come in this space.

Q: What do you see as the biggest challenges for the manufacturing industry over the next few years?
A:
The biggest challenge will be to become a disruptor versus being disrupted. It is an awesome opportunity for us, as supply chain professionals, to define new roles for the future supported by big data and all the new insights we’re gaining across multiple industries. It’s a moment in time when we can really take a lead and step up. So we need to drive innovation, move boldly, and move fast.

Q: What new skills will leaders need to succeed in this fast-changing, digitally-driven future?
A:
We need leaders who have passion and perseverance, are global and holistic thinkers, who are collaborative, and who value diversity. They need to drive a culture of feedback and continuous improvement. All of these are elements of high-performance. If anything, they become even more critical in the digital world. The basics may remain similar, but the speed and the ability of the leadership team to gain the hearts and minds of the organization to accelerate their vision will become even more critical. We need leaders who take risks, who can drive a clear vision around digital supply chains. They need to be innovators, lauding experimentation over perfection, are willing to try new things, and can course-correct as fast as needed.

Trust will also become a fundamental building block of a future digital enterprise, both for the employees and in the development of ethical and transparent algorithms across diverse artificial intelligence and other advanced technologies. The leaders of the future need to complement their supply chain expertise with a deep understanding of these technologies and where the trends are heading. Disruptions are coming and they will hit us faster than ever. The ability to react will be essential.

Q: Finally, if you had to focus on one thing as a watchword for the future of manufacturing, what would that be?
A:
It’s the Cognitive Supply Chain, leveraging augmented intelligence for higher value.   M

FACT FILE: IBM Corporation
– Location: Armonk, NY, USA
– Business Sector: Technology
– Revenues: $79.1 billion (2017)
– Net Income: $5.75 billion (2017)
– People: 397,800 Employees
– Market Presence: approx. +175 Countries
 -Production: 11 Manufacturing &
Customer Solution Centers

EXECUTIVE PROFILE: Ron Castro
– Title: Chief Supply Chain Officer, IBM Corporation
– Nationality: USA / Costa Rica
– Education: BSc and MSc degrees in industrial engineering and operations management, Purdue University
– Languages: English, Spanish, Portuguese
– Previous Roles Include:
-Vice President, Operations and Supply Chain Execution
-Vice President, Global Manufacturing & Customer Solution Centers, Shanghai, China
-Director, Integrated Supply Chain, Growth Market Unit,
Shanghai, China
-Director, Supply Chain Global Operations
-Director, SCM Transformation Executive, Melbourne, Australia
– Other Industry Roles and Awards:
-2018 Large Enterprise, Manufacturer of the Year, Manufacturing Leadership Council
-Chairman, IBM CognitiveSupply Chain Executive Board
-Executive Board Member, DBMA’s Supply Chain Leaders in Action
-Board Member, University of Tennessee Global Supply Chain Institute Advisory Board
-Member, IBM Hispanic Council
-Member, Board of Directors, Heaven House Services
-APICS: Certified Production and Inventory Management (CPIM)