Doubling down on supply chain resiliency pays off for CyrusOne
Procurement, inflation and an economy teetering on recession have made the already complicated arena of supply chain even more challenging. To put it simply, supply chain resiliency is now vital given the market headwinds.
On June 15, CyrusOne Vice President of Procurement Andy Isaac joined Insight Sourcing Group’s fireside chat on LinkedIn with Insight Sourcing Group Manager Sahil Ramakrishnan and Insight Sourcing Group Vice President George Rhymestine for an hour-long discussion focused on evolving from reactive supply solutions to building true competency in supply chain resiliency.
CyrusOne began its relationship with Insight Sourcing Group in 2015, when it partnered to assess CyrusOne’s procurement organization, diving into our spend stack and sourcing some of our key equipment categories. The relationship blossomed to include standing up our supply chain in the U.S. and Europe. And in 2018, Isaac helped bring the partnership to new levels.
“As a procurement person, you want to build an organization and put your own people around you, but we’ve got a really good mouse trap with the relationship we have here,” Isaac said. “I’ve got the ability to scale up, scale down. I can pull in certain SMEs when I need them, and I keep my internal team really lean and mean. So, it’s something that works well for us and has helped us to do many of things.”
According to Rhymestine, this has included supply chain resiliency, which itself includes external risks largely out of our control, such as market conditions, industry dynamics, natural disasters, geopolitical conflicts, and things that happen within our suppliers or supply partners’ organizations. It also includes internal risks, such as our own procurement or supply chain strategies and how our goals and culture impact the decisions we make.
“It’s the ability of an organization to avoid, absorb and recover from a major business impact or a major disruption through a balanced risk approach that looks at both the products as well as the supply chain strategy,” Rhymestine said. “It’s about how do we build that ecosystem, as Andy would say, in a way that we can have the capacity to absorb a major hit like COVID-19 or the Ukraine/Russia unrest.”
Ramakrishnan wondered how organizations should not only think about the immediate supply base, but also their suppliers.
First, Insight Sourcing Group and CyrusOne examined our tier-one suppliers and set up a performance program around them to assess their financial, legal and geopolitical environments to understand what’s going on in their organizations. But recently, we’ve double-clicked into their supply chain to examine tier-two – their suppliers – to get deeper into the supply chain to really make an impact and improve resiliency.
That decision more than a year ago gas been a game-changer, particularly over the past six to nine months, Isaac noted.
“We started to see the initial craziness in our supply chains 14 months ago,” he said. “Major pieces of equipment that we could get in 10 to 12 weeks were going to 20 weeks and 30, and then 40, 50 or 60. We saw early on this worrying trend in terms of how we could get things or how we couldn’t get the equipment we needed.”
So, CyrusOne doubled down on resiliency.
“We looked at the market we were in, our suppliers and our supply base, and we figured out there were a couple of dynamics there,” Isaac continued. “One was the disruption that was just in the supply chain through lack of availability of labor, components, raw materials and those sorts of things. But that was coupled with a perfect storm where we’d seen demand like we’ve never seen before across the whole industry. So, we made the conscious decision to early on take these dynamics to the executive for CyrusOne and talk about what we can do. We discovered we’ve got a problem, but we thought we could probably create a competitive advantage if we could figure out how to solve it fairly quickly.”
That was the birth of CyrusOne’s resiliency program.
“Couple that with some pretty significant capital investments as well, and that allowed us to mitigate a lot of the risk we saw and put ourselves in a good position compared with many others in our industry,” Isaac said.
Ramakrishnan pointed out resiliency is expensive. It demands a lot of investment and resources, and it typically contradicts traditional cost-saving strategies and levers, such as supplier consolidation. He asked Isaac how he thinks about calculating and communicating the value of the resilient supply chains to CyrusOne leadership and make the pitch for it?
“We were all about fewer, larger and more strategic relationships to leverage those for volume and value, and that was our go-to-market strategy,” Isaac said. “Clearly, when you’re thinking about resiliency, you’ve got to add more suppliers and there is a cost associated with doing that. You’ve got to find the suppliers, qualify them, negotiate contract on board and manage through life. There’s a total cost model there that says you’ve got to put procurement resources against it to get value out of it.”
He and CyrusOne remained conscious of that, but also had several lenses and considerations given the lead times in the data center industry, one of those big considerations was time to revenue. The things CyrusOne bought ultimately impacted the things it we could sell and the revenue it could recognize.
“Well, let’s see if we can accelerate,” Isaac said. “So yes, there may be a little bit more sourcing cost in terms of finding another one, two, three sources of supply, but the benefits down the road really allowed us to accelerate that revenue as well. And when we think about it from a cost perspective, you think maybe you’re losing leverage because you’re putting volume across multiple suppliers. But we were blessed with lots of volume that ultimately got to the point where our existing incumbents could only do a certain amount anyway, so they weren’t losing any business that we were giving to other vendors. We still maintained that leverage and I definitely see there being a cost associated with it, but you can mitigate that cost by just looking at the opportunity cost, if you like.”
Some of the other magic is the relationships Insight Sourcing Group and CyrusOne developed that gave the partnership secondary/tertiary suppliers in its quiver, Rhymestine said. That means we can pivot quickly.
“Because of the dynamics, the inflation, the shortages in the marketplace – while we’re procurement professionals and we want to save money, it was more about continuity of supply and getting the key equipment when we need it, so we could hit our revenue targets,” he said. “And I can’t over-emphasize the importance of the relationships and the way that we treat our suppliers. We treat them like partners, not suppliers.”
“We talk a lot about positioning ourselves as the customer of choice,” he said. “We calibrate in every QBR, have we earned that? And that’s crucial to us.”
Considering internal supply chain risks, Ramakrishnan asked ow does a strong SNOP process impact resiliency? And considering the standard savings model as communicating the value procurement, does that get replaced at least in the short term with supply continuity as a metric that we’re tracking?
“We’re procurement people through and through, so we don’t get let cost savings off the hook,” Isaac said. “But if you think about the hierarchy of needs, assurance supply is right there at the bottom. Doesn’t matter how much you pay for it if you can’t get it. You really need to be focused on that.”
In the end, that’s what resiliency is about.
“Now, we’re seeing cost increases across the board – 30, 50, 60 and even 200% we’ve seen in a couple of instances, which is just scary,” Isaac said. “At the moment, at least where we are, the cost savings has been replaced by cost containment and that’s vital as well, because that requires you to know you should cost with everything you buy. If somebody looke to pass through a 20% increase or whatever it might be, you need to understand the breakdown of that, be able to validate that and be able to assure yourself, your leadership and your business that that is the right price in the market we’re in right now.”
Procurement is a key strategic instrument to achieve cost savings, but its role has changed significantly over time as resiliency has become a focus. Isaac said there has been a clear realization that supply chain is more critical today and impacts time to revenue.
“The expectation from leadership is now what will procurement going to do for me,” he said. “It’s about demonstrating the things you’re doing, the plans, programs, building the resiliency, building the supplier relationships and giving people the confidence that we’ve got a good mouse trap that’s really trying to figure out how we get things when we need them. And then obviously, how we can recognize that revenue from them at some point in the near future.”
Ramakrishnan asked Isaac to share some steps CyrusOne specifically has taken to help build resiliency after he and organization understood where the exposure was.
“The first one is diversification – adding additional tier-one suppliers, looking at your tier-two suppliers, working with those folks to make sure their supply’s diversified so you cover all bases there,” he said. “The supplier engagement, the positioning of ourselves as the customer of choice is critical. Communications, QVRs, regular touch points – you need to talk weekly, biweekly almost in many cases, just to really make sure you understand what’s going on with your supplier and there are no surprises coming down the pike.”
Innovation is also key.
“Much of our success mitigating risk has come through substitution and elimination of equipment we would typically deploy in a data center,” Isaac continued. “That’s quite a remarkable thing. To make those decisions happen, we’ve made sure we’ve got the right engineering people in there, the right construction people, the right spec sheets and the right decisions being made.”
Finally, internal alignment is mandatory.
“This is comms on steroids,” Isaac concluded. “I’ve got our engineering teams, our construction teams, procurement, sales, even our customers communicating to those folks. And I think it’s just really important that everybody has today’s news today and there are no surprises today.”