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Supply Chain Case Studies

How FLIR Brings Total Awareness to Supply Chain

FLIR designs, develops, manufactures, markets and distributes technologies that enhance perception and awareness.

FLIR Systems is embarking on a cultural transformation that will hold its procurement team accountable for the responsible management of company assets with the help of an artificial intelligence-backed platform. “Being a good steward is being highly responsible in how we spend company funds,” Global Vice President of Procurement Mike Shin says. “The vision isn’t about saving money. It’s about personal credibility and proving I’m a responsible spender by delivering the ROI on the spend.”

FLIR designs, develops, manufactures, markets and distributes technologies that enhance perception and awareness. The company brings innovative solutions into daily life with its thermal imaging, visible-light imaging, video analytics, measurement and diagnostic, and advanced threat detection systems.

Shin joined FLIR in 2018 and brought with him 25 years of strategic sourcing experience from previous positions with General Electric, Stanley Works, American Capital Private Equity and Gibson Brands Enterprises, to name a few. He first heard of corporate stewardship from GE Chairman and CEO Jack Welch who, in 1987 said, “[GE] will be No. 1 or No. 2 in every business or we will fix, sell or close. We will be lean and agile. We will be good stewards.”

“I thought it was interesting that the CEO would talk about being a good steward and I always tried to apply this principle everywhere I went and lead by example of being a good steward,” Shin says.

Centralized Control

The spend control tower (SCT) concept focuses on conditioning self-discipline and self-control to achieve greater transparency in how money is spent. Starting with the procurement team, SCT monitors and measures spend through a dashboard with year-over-year variance.

For indirect spend category expenses greater than $4,000, procurement officers complete a report that makes a “spend case.” That includes the purpose and benefit, proving the benefit and defending it. Once the spend case is made, a data analyst and procurement professional will augment the process to determine whether it is rejected, approved or deferred.

Tracking key stats — such as approval/rejection rates, traffic and frequency, spender credibility and year-over-year savings with SCT — can help FLIR achieve its goal of reducing spend by 20 percent. “SCT is a short-term, blunt instrument that requires the burden of proof,” Shin explains. “It is bureaucratic and that’s where AI comes in.”

AI-enabled SCT will digitize the process making it faster, seamless and natural. “Rather than going to a committee, if we can do it online and use machine learning to automate this, you get a quicker acceptance or rejection,” Shin explains. “The decision can be vetoed if you think the machine has it wrong, which elevates it to humans.”

The goal of AI-enabled SCT is to allow every spender to observe the benefit of the spend to make sure ROI is impressive, which makes spending easier to approve. For example, if a salesperson wants $40,000 for an event and the ROI is spending time with customers, the spender has to break that down. The spender would make a spend case by inputting into the CRM a $20 million in sales opportunity with 80 percent probability and a gross margin of 50 percent.

“That establishes the benefit or business case and now my credibility goes up,” Shin explains. “Going back to Jack Welch again, in 1992 he said the most important job he has is allocating capital. What I learned from him is stewardship is ROI and that’s the ground-breaker.”

Total Awareness

Shin is also bringing the concept of the chief procurement officer (CPO) digital cockpit to FLIR for direct spend categories. “The CPO is ‘strapped in’ and completely aware of what’s going on,” he explains. “With the coronavirus, for example, I was late in the ball game addressing this issue and we have bottlenecks. If I was aware when this came out, would I have been more proactive? The awareness wasn’t there.”

The CPO digital cockpit consists of AI-enabled super dashboards that deliver insights, instructions and answers. “Every morning I get a checklist and want to know what’s happening with my spend,” Shin says. “The dashboards tell me what I need to know and I can prioritize what I need to address or AI might prioritize for me.”

The dashboard also includes supplier score cards, commodity markets, RFP project management, procurement savings, shopping lists, contracts due, red alerts and more. “If I have a person five years out of school with only a few years of experience, the digital cockpit guides them step by step on how to analyze the spend in greater detail for RFP strategy and assist in executing the seven step sourcing process to deliver impressive saving results, for example,” Shin says.

With an AI-enabled platform, chief supply chain officers can also have a sales, inventory, operations and planning cockpit with a different set of metrics to demand-forecast sales with red alerts. “What if our demand planners have a boost of demand intelligence so they are much more precise and pinpointing sales and demand forecasts?” Shin asks. “That’s where AI comes in. If every SKU, product and part number is a stock ticker, future demand planners will be as skilled as a Goldman Sachs stockbroker.”

Putting the Concepts to Work

FLIR is working with a third-party consulting firm to implement an AI-platform to support the digital cockpit and SCT concepts. “First we have to digitize the process and then put in the machine learning to make it smarter, faster and seamless,” Shin says. “That’s finish lines one, two and three. The finish line is extremely important to the future vision.”

Shin’s next step is to get the management team onboard with his concepts. He says he will prove their effectiveness when he makes the business case to spend money on the AI module. “The challenge to me now is to prove the business case and get the funds I need to implement,” he says.

Although the concepts are in the early maturity phase at FLIR, Shin says once the process is digitized and machine learning is added, the staff will recognize its easier to spend but that comes with an obligation for a return. “When people are impressed and admire the process, they are more apt to follow it,” he adds. “That’s the key to mindset change.”