Neal Meldrum, Global Business Strategy Manager in the Manufacturing and Resources group at Microsoft, joins Peggy to talk about the need for a strong supply chain for smart manufacturers. They dive into how creating a powerful ecosystem helps manufacturers generate double the revenue growth, digital maturity, and new product and service delivery. Meldrum dives deeper into the risks of the supply chain, including those brought on by the pandemic, and what to think about over the next year.  He also highlights strategies to mitigate risks and technology, such as IIoT (Industrial Internet of Things) and digital twin. And lastly, he addresses resiliency and sustainability in the company’s initiatives.

Below is an excerpt from the interview. To hear the entire interview on The Peggy Smedley Show, visit www.peggysmedleyshow.com, and select 11/10/2020 from the archives.

Peggy Smedley: I love having you here because you know what, right now we are in a really interesting time. We’re in this pandemic and I know people are just over it. Right? We’re saying, “Look, we want to get down to work.” But I think there’s a lot of companies, especially when we talk about manufacturing that have actually been at work. .. So I want you to kind of dispel the myth, if there’s a myth or not, about what’s happening at the supply chain. Where are we? I’d love to hear your thoughts right now.

Neal Meldrum: Yeah. It’s a super interesting time in some sense, Peggy. Obviously, the world has changed, but as we look at the broader supply chain within manufacturing, it’s very interesting to see there’s been quite a bit of disruption, no doubt. But in some cases, we’ve seen a very resilient recovery, and it’s really varied by industry and market. But I would say by and large, what was perceived as a fairly significant impact, turns out to be quite a bit smaller in scope. And I think time will tell, but the traditional problems that exist today within supply chain, are accelerating investments in digital, really, and trying to drive the innovation forward.

Smedley: And that’s an interesting point because, if we think about a few years ago, when we look at manufacturing and we didn’t have our manufacturing here versus in other countries, that’s a part of the supply-chain dilemma. So, when we look at the resiliency that you just described and that recovery; can you talk about some areas? Can you give us some examples? Because I think companies are trying to say they needed to plan. They needed to have IoT. They needed to be looking at where they were at the edge or the cloud…

Meldrum: Yeah, it’s a great point. I mean, data is the foundation for any of these journeys. And for years, we’ve talked about this idea of horizontal and vertical integration of IoT businesses. And today it’s within scope with Hyperscale computing and has services on platform. Visibility is really the beginning of the journey and the need to generate end-to-end visibility, enabling orchestration, planning, and mitigating disruptions. I would say, once it’s through a series of waves of connectivity, we gain that visibility. And that’s really the starting point. But I would say the short-term profit pressures are in the effort to build resiliency within supply chains, accelerating investments to building this Factory Control Tower. And then the next wave is really driven around building resiliency and becoming more predictive leveraging technologies like machine learning or AI (artificial intelligence) to build better visibility and planning and forecasting, and really diversifying operations is a key element. And that’s really the portion of the journey. Ultimately, people are driving towards a prescriptive for somewhat autonomous operations. It’s a long-term vision, but I think it’s within scope.

Smedley:  …. So when companies hear you say that, do they say, “Look, what do we need to do with that?” Do they have to look at this and say, “Look, we can get past that because our goals are setting consideration for the next risk that might come. …We have the right tools and the right data to help us manage that supply chain.” And whatever the risk might be, that you just described?

Meldrum: I said that the problem statement is pretty well known and the level of maturities is where I think the interesting conversation lies. In that, we’ve seen many manufacturers, who’ve made multi-year investments in building a digital strategy and digitizing their supply chain. And they’ve seen the early impact to their business. It’s amazing some of the return on investment that they see. But in some sense… And I always argue that the cultural disruption is greater than the technology disruption. People are challenged to build these digital journeys. And I think that’s where we as a company really differentiate ourselves. And in looking at the multi-year journeys and understanding the core aspects of operations and supply chain to help people guide and build out these capabilities.

Smedley: That’s a great point. Walk me through that a little bit because I always think people don’t understand that. We always say people, process, technologies, that cultural disruption, that journey. Is it getting the right people that understand that you have to do this because it’s not that you just end. It’s always something that we say, we shouldn’t use the word transformation anymore because it’s always you’re constantly on a journey. Transformation implies in the end, but you’re really not at an end. It’s a constant journey. And you just said that, there’s cultural disruption. I think that overwhelms people a bit.

Meldrum: It does. And there’s some interesting insights that have come to life around best practices and driving this such as building an inclusive mindset. And if you think about all the domain knowledge that exists with first-line workers, information workers at the management level. And how can I leverage that to really build this journey and also capture that domain knowledge. Some of the challenges were… In front of today, especially with Ffctory automation… levels of automation increasing. How do we retain workers? How do we upskill them? We have an aging workforce. It is a Millennial  workforce. So, leveraging a digital strategy there and capturing that domain knowledge and operationalize it becomes inherently important. But that’s just one example.

Smedley: When you look at that… We’ve talked about this a lot about the domain knowledge and operational knowledge. And we talk about the year 2026, that we’re going to see a lot of workers, the Baby Boomers retiring, and we want to capture that. But there’s a great way of getting what we call the Millennials or those younger workers. And to really get excited about what happens in manufacturing, to get them fired up about seeing what can be done, because there’s so much opportunity, at so many different levels, of what we do.

Automation is changing. It’s not the same way anymore. And companies really need to work with this next generation. And I say that they’re socially engaged. I use the word, whatever they want to call them, whether we call them Millennials or whatever, but they’re socially engaged. They really understand it. How do we get that next generation to understand the Factory of the Future is totally different, and help them mitigate the risks for the companies that they work for? Because we have to have sustainable environments when we’re building products, make, take, waste, all of those kind of ideas that we have to think about are really sustainable.

Meldrum: Yeah, that’s a good point. And I think one of the things that we see is, by leveraging a mobile first strategy and bringing information, to light, relevant to what the worker is doing, it really empowers them. And we can also leverage disruptive technologies, things like mixed reality, immersive training, Guided Worker, assist and validation using AI image recognition. You can really drive higher levels of efficiency, productivity, through the technology portfolio. But it’s really information led. And I think that’s where we see broader adoption and adapting to more contemporary tools. By and large automation companies were set-it, forget-it, mindset, and they sweated out their assets, but today we can bring to life information on mobile devices. We can use things like Bot Framework to do natural voice recognition to capture domain information. I mean all kinds of use cases relevant to the first-line worker. And it’s really a thematic element that we’re seeing as being top of mind for every manufacturer today. How do I modernize my workforce? Digitize my workforce?

Smedley: You mentioned some things earlier about Hyperscale computing. Do you think those kinds of things, when you look at what’s going to happen with AI, the future of all of that? Is that all going to lead to a lot of this disruption? I think with the way the worker, the future’s going to get excited about where technology is going to lead them, and the kind of things that they’re going to be able to do in the cloud at the edge, wherever they might want to kind of be able to do things in and be more innovative?

Meldrum: I do. I’m of the mind today that given the infrastructure that exists today, we can build a minimum viable capability as opposed to experimenting or building a proof of value, proof of concept. And then we can begin to layer on capabilities and by adopting this strategy, adding an extra strategy, which is inherently important to any manufacturer that really brings new capabilities to light. And I would say we’re in the early stages of building these transformational journeys, but we haven’t quite reached that deflection point, but the infrastructure is in place, the technology by and large is in place. And it’s a matter of driving it forward at this point.

Smedley: What’s holding everything back? We talk about things that. Is it top of management right now?… Is it that mindset? We need young, innovative minds. Is it the technology? Is it because now we had a pandemic?… Is it just a combination of things? You hate to say it’s a perfect storm, but there’s just so many things that are going on. And I’ll go back to my sustainability thing, I just don’t think we think enough about giving back to Mother Earth. We’ve taken away so much from her. We really have to be thinking about a circular economy that we haven’t since the Industrial Revolution.

Meldrum: Yeah, I totally agree. By and large manufacturing was for lack of a better description, a dirty business. And sustainability being top of mind today for everybody. You may have seen recent announcements from Microsoft about going to a zero-carbon footprint and actually backdating ourselves. But I think today, sustainability is a key initiative, but tying back to your earlier question is, “Why can’t we do this?” “Why can’t we push this forward?” And I think there are a number of elements that really dictate this. We touched on the cultural element. I think building a culturally aligned strategy is key to success. But also, what we see interestingly enough, are people who are leveraging platform-led solutions where subject matter experts can actually take the solution and build out capabilities as opposed to being a data scientist or a programmer or driving scale.

And I think that’s an interesting element. The other interesting piece is the broader value chain and looking at building a collaborative ecosystem. By and large, manufacturers rarely exchanged or shared data. It was considered proprietary or high value. And now we have secure mechanisms to exchange data and build broader awareness visibility across the end-to-end supply chain. And it impacts everybody within the value chain. So those are a few elements of driving it. But I think one of the key challenges is we rarely see the key business value outcomes that are attained through building a digital strategy. And there’s some interesting proof points, fascinating program from the World Economic Forum around Fourth Industrial Revolution, Lighthouse Innovators, which has chronicled over 80 different use cases in the business value creation that’s occurred. And as we begin to kind of align these core areas and start to build a journey, we can build a very resourceful and targeted approach towards execution. And I think that’s where we’ll start to see the scale.

Smedley: As we do that. Will it be all sizes? When you think about manufacturing and building that scale I love the idea of subject matter experts because I think it opens the idea that people can really focus and get better at things. And then actually as we talk about them, they start feeling like they take ownership. And again, we’ll go back to the idea of what we said, circularity and things like that, because now they drive it. Anything that you want to do within a company to understand in manufacturing and share it with other companies. Because remember like the oil industry, they never shared anything for years. They’re always just like what you said in manufacturing, and the idea of if you have a blockchain or whatever, you can extend that. You have your own little community and you’re growing it.

And it makes a lot of important decisions that you can keep your secret source, like the Golden Arches (McDonalds) did. But you could share other information that is common to everybody. And that’s a powerful thing to grow in an industry that you need to do. And yet communities grow and get bigger. You all get a bigger piece of the… It’s a big pie and you’re all getting a bigger piece of that pie. Right? Is that what you by and large are essentially saying?

Meldrum: Yeah. I think it’s not just the majors that are leveraging and building these strategies. It’s very interesting to see some of the new differentiated business models that are coming to life. And by and large, the midrange companies are the ones that they’re taking the early risks and making the early investments. We do see some of our enterprise accounts, that are building a very mature strategy, but I would say the smaller companies are more progressive at investing and driving towards key outcomes. There’s some interesting pivotal business models as well. Moving away from traditional business models, things like orchestrated supply chains are becoming prevalent, broader ecosystem collaboration for provenance tracking. If you think about safe, sustainable food supplies and building value chain. And the technology exists today to do trusted data shares. So point being, we’ll all benefit from this, but it appears the early investors tend to the smaller companies that are willing to take the risk and balance between the technology innovation and the investment.

Smedley: Based on what you’re saying is if they’re going to make, deliver return that whole sourcing idea of what can happen in a supply chain. Everybody is trusting each other. In order in that supply chain to make it work. Because they’re all trusted partners within their supply chain essentially is what you’re saying. Correct?

Meldrum: That’s exactly right. We’d see… We have this idea of what we call digital feedback loops. Which if you think about, and then visibility and building a circular supply chain, leveraging IoT and other technologies to build broader visibility. It really ultimately impacts the value chain and drives efficiency and productivity that we’ve never seen before.

Smedley: When we look at the supply chain or then the Factory of the Future…are there going to be hurdles? …We have to think about security. What are the biggest hurdles? Is it fear about doing this? Or is if you don’t do it, you’re going to be left behind? What’s the biggest thing and factors we are afraid of to get into the supply chain? You’re manufacturer, whether you’re making a dishwasher or whether you’re making a garment or whether you’re making food, the supply chain is all interrelated, whether making lumber. Right? Everything in that supply chain is affected? Whether you’re building a building, which is, concrete, everything’s connected in that supply chain you just described.

Meldrum: Yeah, exactly. I think the two areas that are top of mind today are driven around data governance and cybersecurity. By and large we see most of our enterprise engagements to have significant initiatives in place. And then they drive the transformation down to the business unit level. Being abstracted, many of these businesses, are diversified. So the digital strategy is going to vary based on the particular business. But security is top of mind today, especially in building out a cloud and edge strategy. And I think our differentiated approach is initiating discussion. But I think those are the two areas that today are really top of mind and are being addressed with the technology portfolio.

Smedley: So when you look at that, how will AI play into all of this? You mentioned that a little bit earlier. I have to think that, that’s going to play a very big role in putting all of these pieces together. Whether it’s machine learning or whether it’s the worker of the future. I have to imagine that this is going to exponentially influence the way technology is going to be a part of the supply chain.

Meldrum: Absolutely. AI and machine learning are going to impact greatly. Even today, it’s impact that we have AI-led integrated business planning and demand forecasting scenarios that drives significantly higher levels of supply chain efficiency. But I think there’s some interesting emerging trends with AI as well across the broader domain. Not only in supply chain, but manufacturing, consumer experience so forth. And one of the things I think that’s unique with Microsoft is the way we’re abstracting the foundational data science again, to a level where subject matter experts can deploy it. Or even where you can leverage a cloud application interface and through a single call, do image recognition, voice sound. So, we’re abstracting complex data science to a level where it can be deployed at scale and the scenarios are endless.

Smedley: But how has COVID-19 changed that? Because I have to think what you were doing, let’s say nine months ago, has it altered what you’re doing or going to do nine months from now? We talked about is the new normal, but we have to think about what’s a better normal. What’s going to go beyond this so that businesses are profitable going into the future beyond us out of COVID-19?

Meldrum: Yeah. Great question. If anything, the innovation is only accelerated. And I can tell you my schedule hasn’t lightened up at all in terms of how we’re driving the discussions around remote operations. How can I be productive from a remote location and still manage production? How can I maintain health and safety on shop floor distancing and drive towards paperless process? And how can I more agilely deploy these solutions across my enterprise? So, I think there’s a… The propensity is definitely there, the need and drive to continue. The innovation cycle is there and we’re finding more and more unique ways to leverage the technology and to enable people to continue to be productive. And so, the challenge ahead of us is fascinating and that I think the innovation stream, if anything, is only going to accelerate.

Smedley: Are companies concerned? Are they going to be able to keep up the pace? If they don’t have the talent, you have the tools, but they don’t have the people to keep up the pace. Yet, we’re concerned about where we are right now as a society. Are we kind of… Again, I’ll go back with maybe the idea of the perfect storm. How do they do it? They rely on you. But how do they keep it up if they want to keep up the demand as well?

Meldrum: Learning and enablement are a key element to our workforce transformation approach. And I think finding and leveraging vehicles to enhance learning. It’s interesting to see how people consume material today. I will give you an example. It’s a fascinating one in that, we worked with a company to do safety training, leveraging mixed reality. And if you’ve ever used HoloLens or a mixed reality appliance, you know how immersive it is. The people were able to retain a safety information five times more effectively than they would leverage traditional methods like paper. So these are the types of things that I think will really show a differentiation in terms of how people build and train. And it’s not limited to mixed reality by any means. If you look at how people consume materials today, video being a core element as well. We’re seeing more and more novel use cases, where we can accelerate learning and push that ball forward.

Smedley: Will this then change the way regulations, accept the way learning is to be certain things that have to be done in certain environments? Because training has taken a long time for certain things in manufacturing, construction, other industries, as you know. Will the regulations and requirements then have to change? If you’re watching something as a video versus having to be hands-on, are there going to be a lot of changes as it goes to that you think?

Meldrum: I have to believe. We’re seeing some evolution in safety and compliance, especially, in the way that people are documenting processes. And if you think about a shop floor today and the need to drive distancing, leveraging things like wearables. How do I document through paperless processes, a shift change over? All of those types of things and the way data is captured and documented need to evolve. And I think there’s a great conversation around that. Because by and large, that aspect of business has not been modernized. So it’s a great opportunity for change and improvement.

Smedley: So looking at manufacturing in the supply chain three months, six months, nine months, you said your pace hasn’t slowed down. Are manufacturers in the supply chain able to keep pace? Or they just… The pace for themselves is unusual because they’re not usually quick to change. This is out of the norm for them. How are they adjusting to it?

Meldrum: Yeah. The horizon of view, I think, is turning around. First, focusing on workforce transformation and making sure that we can provide safe, healthy environments and adapt to accommodate the challenges. Broader supply chain and building resiliency and supply chain, I would say is where the next original wave is. There are investments that they’re being made, but I think because of the sheer of nature of a supply chain, all the data sources so forth, it’s a bigger challenge. But that’s definitely the next area of focus, especially with companies that have highly globalized supply chains. And then finally driving towards factory operations as maybe in the next horizon and looking at higher levels of automation, building safe infrastructure, extending beyond traditional safety systems, capabilities in place and optimizing operations is kind of how the horizonal view looks today.

Smedley: And we’ve known food it’s always been a little bit slow. Are you seeing them step it up a little bit more? Is it across the borders, there are some types of manufacturing that’s doing better than others, process discreet or is it just horizontal? It’s a more of jump and right in. Feet, head-first, all of them.

Meldrum: Yeah. It’s interesting. I think by and large, the level of maturity within some of these domains is dictating the accelerated success. I mean, process manufacturers, interestingly enough, have made investments to the drive towards higher levels of safety and autonomous operations, but in food and dairy bakery, those areas are struggling, frankly. And I think if you look at the broader supply chain in things like demand forecasting, we joke about the toilet paper not being available, but ultimately, that normalized, but nonetheless, their infrastructure still hasn’t modernized. So this is top of mind today for everybody, but I think, it’s definitely an area where there’s a high level of variability depending on the business.

Meldrum: If you’d like to learn more about Microsoft and our broader initiatives within supply chain and manufacturing, visit microsoft.com/manufacturing. And you’ll find a tremendous amount of information about capabilities and align partnerships.