[Transcript] Leveraged Supply Chains – Episode 6: Rob Handfield (NC State / SCRC)

Andrew Stroup (00:06)
back to Leverage Supply Chains, the show where operators and builders turn AI and data into impactful supply chain results. I'm your host, Andrew Stroup and today we're going to stop thinking in suppliers and start thinking in networks. Most teams still manage risk one supplier at a time. They see tier one, they fight fires and email, and they run a tabletop exercise once a Meanwhile,

AI is finally good enough to give us X-ray vision across the whole supplier network. So today we're going to talk about how to use AI to map and understand your actual supplier network, not just the vendors in your ERP. We'll stress test that network against disruption and tariffs. And this is the fun part, find collaborative innovative solutions with your supply base, not just cost cuts. To help us do that, I'm joined by Professor Rob Handfield

Bank of America University Distinguished Professor of Supply Chain Management and Executive Director of the Supply Chain Resource Cooperative at NC State. Rob's been at the center of sourcing risk and supplier collaboration work for decades. And lately he's been writing about AI and supply network value creation. Grab your notebook. This one's about building smarter, more collaborative networks, not just cheaper POs. Let's dive in. Rob, welcome to the show.

For folks who might know your books, but not your latest work, give us the one-liner on your role at NC State and what you focus on day to day at the Supply Chain Resource Cooperative.

Rob Handfield (01:33)
Thanks Andrew, it's a pleasure to be here today. So I've been at NC State for a little over 25 years. I was at Michigan State before that and I founded a center for supply chain thought leadership called the Supply Chain Resource Cooperative or SCRC. And if you go to that website, you'll find all kinds of articles, I blogs.

I have a series of videos that we have as well. So it's a great learning resource for anyone who's interested in learning more about supply chains.

Andrew Stroup (02:07)
That's great. Well, you and I had the chance to work together during COVID via Project N95. Obviously seeing supply chain risk up close and personal. Since then, you've been pushing the idea of shifting from thinking in individual suppliers to thinking in supplier networks. So I'd love to start there. If someone stops you in the hallway and asks, what are you working on right now in supply chain? How would you explain your focus on supplier networks and risk?

Rob Handfield (02:13)
Mm-hmm.

Well, I think my focus is, well, I wrote a book recently with Tom Lenton, was a former chief supply chain officer at Flex. And it's called Flow, How the Best Supply Chains Thrive. And.

The idea behind it is it's very simple. You know, if you think about a river flowing and when it encounters a barrier, it tries to get around that barrier and keeps moving. And similarly, I think the idea behind this is how do we get our supply chains to flow? How do we get them to, how do we remove those barriers? And of course, you know, to get supply chains to flow, you can't manage what you can't see.

So a big part of this is ⁓ building these networks and understanding who's in that network, understanding where the challenges are. And we are living in an environment where here more and more from supply chain executives, it's no longer about cost, it's about flow, it's about resilience, it's about transparency and collaboration with our supplier network.

to really get our supply chains to be able to flow. Because again, at the end of the day, if you don't have something, you can't make it. And today's shortages and having availability is paramount in today's environment.

Andrew Stroup (03:35)
⁓

Yeah, 100%. And I know you know this, but for listeners who are in the tactical weeds, know, shipping software is very different than shipping hardware and the criticality that's involved with a physical, you know, bolts and nuts and those types of pieces. You know, you, um, we've talked about moving beyond classic resilience. You're just mentioning this here. And I think you've used the term supply chain immunity.

In plain language, I'm kind curious what the difference is and why does distinction matter now for a BP supply chain or CPO versus before.

Rob Handfield (04:09)
you

Great, great, great question, Andrew. And yes, I'm not a big fan of the term resilience. Resilience to me kind of seems like building up the brick walls or putting up more barriers and sort of rigidity in our supply chains. The idea behind supply chain immunity is we came up with the idea for it.

⁓ Actually during COVID and during that time I was working with the Joint Acquisition Task Force that was stood up by the White House to try to identify sources of not just PPE but pro-opafil and other critical medications. And ⁓ the idea behind it is simple.

If you think about the pandemic and what the virus was doing, what we had to do was to build immunity. And by immunity, it means that we have the T cells, have the abilities in our own bodies to fight back. So when there's an invader like a new

generation of the COVID virus or a new form of disease, our T cells kind of go into action. They understand that there's a threat, there's an invader, and they're able to right away go into action and start fighting it. And I like that concept, that metaphor, because think about it, we don't know what's going to hit us next. We are in an environment where tariffs are changing almost daily.

know what's going to happen next. We don't know where the next bottleneck is going to be. So we have to be ready and we have to have a plan on how we're going to react, how we're going to jump into action once something is ⁓ triggered in our supply chain ecosystem. There's a process to do that and I'd love to talk a little bit more about that as well.

Andrew Stroup (05:58)
Yeah, absolutely. I think we'll definitely want to dive into that piece of it. It's interesting because it's a different framing, right? And also, I think what I've seen is that common fundamental systems have translated relationships with other systems. And so it's an interesting take. You know, in that category too, if we fast forward a few years, what do you think a healthy immune supplier network actually looks like in practice? Like what's different?

Rob Handfield (06:14)
.

Andrew Stroup (06:24)
and how it behaves when something breaks or some of it happens. We'd love to hear your thoughts.

Rob Handfield (06:30)
Yeah, so I think a healthy supplier network is one, you know, first of all, where you need to have a clean fact base. You you need to have an understanding of who is in that network. And, you you think about that. That's most companies don't know who's in their supplier network. They might know who their tier one suppliers are.

but they don't know who their supplier suppliers are or their supplier supplier suppliers, their tier threes. And I love to give a story, you know, this was back from my Michigan State days where

It was the chief supply chain officer at Chrysler and he said, know, there was a problem with the Jeep Cherokee. It kept running out of gas. And they did, you know, internal studies to try to figure it out. They went to Bosch, who Bosch at the time was making the dashboard and nothing checked out there. And it was a tier three supplier of ink.

And this was the old analog dashboards. And they changed the formulation of the ink such that the magnetic properties had changed and the needle was getting stuck at half way in the gas when the actual bobber for the gas tank was at the bottom. So, you know, it really illustrates how we are ultimately all connected in these supplier networks. And we have to really understand who is out there and who we're getting our stuff from.

Andrew Stroup (07:48)
That's crazy. You know, it's very fascinating to think about the Spired Web of network, which actually translates to obviously today when we think about AI and you what you call it, X-ray vision for these supplier networks. You did recently write about thinking creatively about AI and supply network value creation and using AI to extend our understanding of that network. When you say AI can...

give us a better view of the supply network. What does that practically mean for like a VP supply chain or a CPO listening to this?

Rob Handfield (08:22)
Well, I think that AI has to be used, it has to be complemented by human knowledge. So we can use AI and ask it to go out and search for who are the suppliers in this network? What are they building? And it can.

It can maybe give you an idea, but in my experience, it also give you a lot of garbage data. So it's important to complement that with detailed and intimate supplier relationships. So it's important to go to your tier one suppliers and say, look, we need to understand where you're getting your materials and give us just the name of the supplier and the location and how much you're buying from.

And a lot of suppliers push back on that because they are afraid of getting sort of disintermediated or what have you. And I spoke to, you know, gentleman at General Motors in their center of excellence. said, look, we we tell them this is a condition for doing business. We have to understand this. We are not trying to, you know, target you commercially or, you know, nickel and dime you on your price.

We need to do this to build out our database and to be able to understand when something goes wrong out there in the world, what is going to be the impact to us? What is going to be the impact to our assembly facilities? What is going to be the impact to our shortages?

and try to therefore plan mitigation actions ahead of time. So when something goes wrong and you know there's a vulnerability there, you've got a plan. You know how to handle that.

Andrew Stroup (09:55)
Totally. You know, I would love to pull that thread a little bit further. The example of, you know, Ford and this kind of collaboration and working together. What do you think has to fundamentally change? You know, not just even at the tier one, like major manufacturers or suppliers or producers like Ford, but between the buyer and supplier relationships of we are one network concept to be really structured to take off.

versus just a slogan. Is it data sharing, incentives, contracts, all of the above?

Rob Handfield (10:26)
Yeah, think you could contractually, can require that. And you can write your clauses in there. And they might grudgingly give you the information. But that's kind of the hard-handed approach. I would say that it's more important to.

work again in a collaborative manner and start out by just saying, let's take our spend and let's map our spend. Let's just figure out where all our stuff is coming from and where in the world. And then let's look at that tier two and let's understand from our suppliers where all those tier two suppliers are located. And this can really show some interesting facts once you get to that level.

⁓ For instance, again, as another automotive example, but the Japanese tsunami, when GM experienced the tsunami, there were multiple tier one suppliers that were all using the same tier two Japanese supplier. So suddenly they realized, my gosh, this is going to impact every assembly facility we have in the world because this was a sole source at a tier two level.

of these critical chips that they absolutely had to have. So mapping out that span can show you, holy moly, we've got exposure here. We've got vulnerabilities. We've got issues. And then you can start to say, okay, well, let's quantify that business impact. And that's step two. And what I mean by that is...

taking that supplier spend, mapping it to your bill of materials and saying, what is going to be the business impact if this supplier goes under or if he's hit by a tsunami or if they're hit by an earthquake? And what would be the actual financial hit that we would take in terms of revenue? And that then starts to show you where things can go wrong.

And then I like to call it the next step is running scenarios. And ⁓ running scenarios require something I also came up with as a term, disciplined imagination. And what I mean by that is we have to use, imagine the stuff that could go wrong. Just imagine scenarios where things could really hurt us. So.

And doing that requires some discipline, right? Because not every scenario is relevant, not every scenario is probable. There's some scenarios like if there is a tsunami, there's nothing we can do about it anyways, right? So, you know, there's some things we can't control or even if it happens, we can't do anything about it. But then running some of these scenarios using disciplined imagination.

allows you then to run sort of these simulations. And the term I use for it is stress testing your supply chain. And that's what banks do. They did this and they still do it, is they look at what happens if there's a run on funds. And doing that stress test can open up different kinds of options, different kinds of things you can do.

to address and remediate some of those possible scenarios.

Andrew Stroup (13:23)
You know, it's actually the next topic that I really want to dive into around this, you know, the imagination part of the, I guess, vulnerability assessment, whatever you'd want to think about framing it. You know, one of those pieces that was coming to top of mind for me was when you do talk about the stress testing and how you think about that from a supplier network position.

How do you think about it differently than say if supplier X goes down for 30 days, is there any difference of how you would position that when it comes to these experiments or scenarios, vignettes, curious like that framing of like what's required for a CTO or someone to really think about that slightly different.

Rob Handfield (14:01)
Yeah, that's a great question. once you identify the vulnerability or the exposure, then again, it requires kind of looking at the levers you can use to try to mitigate those scenarios. So.

One thing you could do is inventory optimization. You can target pre-buys where the risk justifies it. You can build inventory ahead of charges. You can increase safety stock. You can dual source critical materials.

for things like tariffs, for instance. A lot of companies are struggling with tariffs, but you can do tariff re-engineering. You can redesign products or adjust sourcing for favorable tariff codes or review your HTS codes for savings. You can negotiate agreements to share those.

tariff costs or to share the, inventory, holding with, with, ⁓ you know, with another, some of your key suppliers. you know, having the, there are some actions that, I to call non-regrettable, right? So,

Under any scenario, good or bad, this is something we should be doing, right? So, you there are some key actions you take regardless of whether or not that scenario comes to play out and then continuously monitor. And then finally, alternate sourcing and regionalization. I think we're seeing this today. We're seeing a big shift from China to Mexico for U.S. manufacturers, from China to Eastern Europe and Europe.

And we're starting to identify dual sources and regional suppliers. And I think that's a natural outcome of the deglobalization of supply chains. People are starting to realize having suppliers nearer is better. And having somebody that's, it cuts down on transportation costs, improves communication, reduces risk, and there's some real benefits to doing that.

Andrew Stroup (15:52)
Absolutely, know long-distance relationships aren't easy, right? Definitely very different than someone nearby You know that is super interesting because I think on the other side of the coin Stress testing and understanding vulnerabilities isn't just doom and gloom, right? Like you have to also figure out where you want to lean in and even the scenarios where it doesn't really matter You have to address it regardless of that scenario. How do you combine? vulnerability testing with opportunity finding

Rob Handfield (15:55)
No, no.

Andrew Stroup (16:20)
You know, so teams can say this part of the network is fragile, but it's also where maybe we should co-invest or co-develop something with suppliers.

Rob Handfield (16:28)
Yeah, yeah, there's always some upside to rebuilding or redesigning your supplier network. Whether it's adding new suppliers, building out existing suppliers, getting them to co-locate.

And companies I've worked with like Honda, their motto is buy where you sell and sell where you buy. So when they expand to a country, they always build up a supplier network within that country. So now like a Honda vehicle in the US is built out of 95 % American parts, for instance. So there's an upside to that. But before you start investing in a new supplier site, you have to

Andrew Stroup (17:03)
Mm.

Rob Handfield (17:11)
You have to be realistic about it as well. So a lot of people say, we're going to go to India. Well, you travel to India and you look around and you go, holy moly, there's a lot of political issues here. The transportation network is difficult, if not impossible to navigate. Do they have the right workers, types of workers? Would we have to train them? So it's important to look at all the factors associated with that.

And then use those costs, estimates, and trade-offs to sort of look at those structured scenarios and guide decisions as new information emerges.

Andrew Stroup (17:47)
Absolutely. There's always the surface layer looks sweet, but maybe the reality of what it actually takes to get over the hump into the finish line may be a little different. And especially when it comes to tariffs. And actually that's something I would love to chat a little bit more about. Let's layer tariffs and let's call it geopolitical risk into this consideration as well. There's a lot of listeners obviously feeling the pain.

When you look at supplier networks through the lens of tariffs and disruption, what are companies underestimating right now in your opinion?

Rob Handfield (18:19)
Well, I think, you know, there's a number of senior executives are saying we need to get out of China. need to produce all of our products here in the U.S. And I was talking to a large manufacturer of tools, for instance, and ⁓ that CEO was saying we need to bring it all back. It's not that easy, right? So number one, know, China's

people forget China is still the largest manufacturer in the world. And we still rely heavily on China for all different kinds of products. mean, look across all these different categories of tools, of products, toys, you name it. They come from China. And suddenly moving something to Mexico, yeah, that's a great idea. But how practical is it to be able to do that?

You know, Nike tried to do that. They tried to build a shoe factory in Mexico instead of China. And they discovered that they just couldn't make the costs work out. You know, they were putting a five dollar bill in every pair of shoes. And they closed it down. There was nothing better than China. And China is still very, very good at apparel, at footwear, know, toys.

know, categories of stuff that we buy all the Christmas decorations that we were buying right now are all from China. So, ⁓ you know, moving that network around is not as easy as it sounds. And in some cases, I think it has to be a phased approach, you know, to what's the glide path towards moving, you know, our network around and how can we do it in a manner that will

not impact our revenue, not be disruptive and I think that's one of keys.

Andrew Stroup (19:53)
Absolutely. Yeah, I think that what I've seen is that it's not a silver bullet. There is no Notre Dame as person who's going to tell you exactly what the impacts are going to be in the outlay. But, you know, there's definitely quick wins, but maybe not the ones you actually want as a manufacturer distributor. And so that makes it even more complicated. know, know, Rob, you and I've spent time.

Rob Handfield (20:09)
and him.

Andrew Stroup (20:15)
both during COVID even before then talking about networks and now with tariffs and the double triple bullwhip effect. It's been quite crazy, I think to say the least for the past half decade. But I think you made an ask and I want to come back to this round thinking about a plan for how companies would tactically implement this like collaborative network structure. So, you for the audience, let's just.

Rob Handfield (20:24)
Yeah.

Andrew Stroup (20:38)
try to make this concrete for like a mid-market leader. So, know, 100, 300 million manufacturer or distributor who doesn't have a huge data science team. If they say to you, we want to move toward AI enabled stress testing and a more collaborative supplier network over the next quarter coming 2026, what does your 90 day plan look like for them?

Rob Handfield (21:01)
Well, again, I think it starts with data, right? So it starts with a clean mapping of your primary suppliers and understanding who they are and where they're located, how much you're spending with them, and if anything happened to them, what portion of your revenue would be impacted.

So, you know, that alone is a job, right? That's a real, that takes a lot of time to do that. So I would invest in pulling that information together. The nice thing is once you have that information,

then AI can come into play. Then AI is really good at saying, let's ingest this data on our supplier network and let's ask AI to run scenarios. Let's ask it to say, what happens if there's a tsunami here? What suppliers would be impacted? What happens if there's a change in government? And all of a sudden,

you know, exports are restrained from these countries. What would be the impact? And that's where AI is really good because it's not always good at imagining what could happen. But if you tell it to imagine what might happen, it's pretty good at running scenarios and telling you what the impact would be.

And I think that's where the interplay between human thinking, human creativity, and AI is essential.

Andrew Stroup (22:20)
That's great. Yeah, I think that obviously the mentality lately, especially with the macro trends is do more with less, right? And to think about constraints. So using the tooling like AI really can drive that impact. And we've seen that too, even the leverage thinking about how do they have more coverage, have more visibility, but without hiring 20 more people on their team. So it's a very interesting mind check.

Rob Handfield (22:28)
Yeah.

Yeah, yeah, exactly. And

the other thing I would say to you, Andrew, is it's not just about resilience. People, don't hear much about ⁓ ESG in the news anymore, but it is still very much on the minds of companies, even though

The current administration sort of downplayed the environment and the social aspect of supply chains. It's still very much alive. It's very much a part of the fabric of the European countries and of South America and Asia. And eventually it's going to resurface again in the US. It would be good to also look at, what are the alternative technologies we can use to reduce our

our carbon footprint to reduce our impact on the environment, to reduce the use of certain kinds of chemicals in our products. So those are other factors that can also be run through scenario testing.

Andrew Stroup (23:36)
Perfect. Well, look, as we move towards wrapping up, I would love to run a quick lightning round. Short answers, first thing that comes to mind for you. So let's get started. What's one metric you wish every executive tracked for a supplier in Ork Health besides something like...

Rob Handfield (23:54)
Communication, how often we communicate with one another.

Andrew Stroup (23:57)
of that, very pointed. I very much know that dynamic. Okay, hot or not, annual supplier reviews as the main way we manage suppliers.

Rob Handfield (23:59)
You

Annual reviews I would say should be quarterly. like quarterly business reviews I think are important because things change so fast.

Andrew Stroup (24:13)
Absolutely. All right. Finish the sentence. If you're still treating suppliers as isolated vendors instead of part of a network, you are.

Rob Handfield (24:21)
Old school. Outdated.

Andrew Stroup (24:22)
Great. then complete ⁓

this in one line each. So, AI is overrated for blank in supply chains and underrated for blanks.

Rob Handfield (24:34)
would say overrated for supply chain mapping, underrated for scenario planning.

Andrew Stroup (24:41)
Great, I love the higher order thinking category of that. Okay, well, so a little less hot take round, but the last question I always like to ask guests are, for someone looking to get in the supply chain and the research side of it and understanding this global connectivity that you've done for the past over two decades, what would be the advice you'd give to your younger self?

Rob Handfield (24:59)
you

You know, I would say that building and sustaining relationships is key. You know, your integrity and the people you know are always going to be the ultimate glue that holds supply chains and knowledge networks together.

So nurture those relationships. And even if there's no immediate benefit, somewhere, somehow down the road, there will be. And that's what I tell myself. And I wish I told my younger self that as well.

Andrew Stroup (25:34)
Absolutely. Well, Rob, this has been fantastic. Thanks for walking us through how AI can help us actually see our supplier networks, stress test them, and then use that same view to build better collaborations, not just cheaper contracts. If today helped you see your supplier network differently or gave you a clear 90 day plan to stress test risk and unlock innovation with your suppliers, share this episode with your ops, procurement and finance teams.

Rob Handfield (25:43)
Mm-hmm.

Andrew Stroup (26:00)
Follow Leveraged Supply Chains wherever you listen, and leave a quick rating review. It helps other operators and builders find the show. I'm Andrew Strupe. Thanks for listening. I'll see you next time.