Flex is a $26 billion provider of global supply chain solutions. Flex has long been in the business of designing, building, shipping, and serving packaged electronic products for original equipment manufacturers (OEMs). Flex works in collaboration with companies large and small, and the company’s CIO Gus Shahin’s team has been an integral player in creating the tools and the environment to allow innovation to sprout.
Under Shahin’s guidance, the company ahs developed what it refers to as a Pulse Center, which allows the company to monitor its incredibly complex supply chain, and make better decisions based on up-to-the moment data. This work has led to better inventory management, which is a source of tremendous value for a company like Flex.
Shahin has also helped develop an innovation lab “to allow people in the Bay Area who have ideas, to help them bring those ideas to reality as quickly as possible, as cheaply as possible, and in an effective way,” as he notes in this interview. The combination of these creative outlets have lent insights back to Shahin and his team to ensure that the company remains on the cutting edge.
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Peter High: Gus, please take a moment to describe the Pulse Center at your offices in Milpitas, California?
Gus Shahin: Flex is a supply chain sketch to scale company, and basically everything we do is around supply chain. The only way we can make money is if we manage supply chains for customers effectively and in a efficient way. The pulse center is basically flex digitizing, if you will, the supply chain globally. We have about one hundred factories in forty countries. We manufacture products for companies, from the largest OEMs, like Cisco and others, to startups. And we not only built the products for them but we also manage their entire supply chain: we procure on their behalf, we manufacture, we distribute, we repair, and so on. The Pulse Center gives us a real-time view of our supply chain at any given point in time, in real-time, and it tells us all kinds of information. We get alerts immediately – geopolitical alerts, updates from factories, weather alerts, anything that is happening around the world that could potentially disrupt the supply chain or disrupt the material flowing in the supply chain that could affect our – and just by looking at the screens, we see what is going on in real-time and can alter things and move things around so that we do not disrupt the supply chain for our customers. That is basically the description in a nutshell, but there is a lot in there.
High: One of the fascinating things about digital, generally speaking, is the extent to which it requires cross functional collaboration in ways that are new and more substantial than in the past. There is a new kind of collaboration emerging. Can you talk about the role that IT plays in collaborating across the enterprise?
Shahin: Yes, I co-sponsored the Pulse Center initiative with our Chief Procurement Officer Tom Linton. He and I together basically put together the teams. IT provides all the back-end infrastructure, all the data capture, the KPIs and so on. They give us all the business requirements and what it is that they are looking for. It is true collaboration. If we were to do this on our own, it would not have been successful. If they tried to do it on their own, it would not be successful. What we did basically was co-located a bunch of IT folks and a bunch of supply-chain folks and put them in a room together for several months to work this out. Then there is the segment team, who give us a different perspective, a customer perspective. And then we have the procurement guys, who give us the supply perspective. So, lots of collaboration for sure.
High: How did you choose the members of your team? Was it a certain set of skills you were looking for, or was it a certain level of capabilities?
Shahin: That is a good question. It was a number of different cross functional people within IT. We needed the right infrastructure folks to make sure that we can handle that much data, and at the speeds required, but we also needed some real-time business analysts who could take the requirements and understand what they mean from an IT perspective. We also needed our enterprise architect to be involved, so they could sew things together on the back-end to figure out how to pull the data in a timely fashion. It took a little while to get the right team in place because Flex has over 3,000 people in IT scattered all over the world. Picking fifty people in total, and making sure they were all located in San Jose was a challenge, a big prerequisite for sure.
High: You also developed an innovation lab separate from this and it is, as I understand it, a lab in which you collaborate not only across the enterprise but with your customers. Can you talk about the innovation lab and its mandate?
Shahin: The purpose of the innovation lab was to allow people in the Bay Area who have ideas, to help them bring those ideas to reality as quickly as possible, as cheaply as possible, and in an effective way. There are many times where people have an idea that is fascinating, but they have a hard time getting that product design, getting it built, adding a wireless module through it, or so on. We built the labs here in San Jose to try and attract some of those people. And a lot of good things have happened from that. We got a lot of startups, and even people with just ideas on scraps paper come to us.
The lab consists of a different engineers from electrical to mechanical and so on from Flex, and the guys would walk in, they would come up with an idea, they would work with the different engineers. We give them full access to the labs. They have access to 3D printers, SMT machines so they can build their products. They can pay by credit card, just charging by time, how long they need to use the labs. We provide the support, and their product becomes a reality. It has really taken off. We have replicated this lab now in many other countries as well as another big one for us. I think when it comes to innovation, the Bay Area is number one followed closely by Israel. So we have replicated there; we started opening up labs in Europe and China, too, and we are attracting a lot of customers that way.
High: This gives you an opportunity to meet with a lot of IT executives and to collaborate, to learn what they are doing well, to see the kinds of products they are putting out, and to leverage your team more, generally speaking. I wonder if you have gleaned any lessons from them as to what separates the truly innovative companies.
Shahin: One thing I have noticed is that the true innovators move a lot faster than the traditional big guys. That was something we could see right away. When it comes to ERPs or running their financials for companies our size, that is usually something big. It is heavy. It takes a lot of resources. I think the new guys think differently. To them, using something off of AWS, they do not really care about what data they are putting on the cloud. There is no red tape; things move a lot faster. They are a lot smaller, obviously. Their budgets are smaller too, but it has helped us in many ways because in order for us to attract them, we have to move at the pace that they do because if we try and slow them down, they are going to look for a different partner. So it has made us make some changes internally, and it has been positive for us.
High: It is natural, of course, that a smaller, nimbler, younger company might have less bureaucracy, less embedded infrastructure, less to change. They are born digital, so to speak. But an advantage that Flex has, or another organization its size, is scale and experience. Are there ways to marry the advantages of an organization like Flex’s with the advantages you are seeing with the younger, nimbler companies that you just described?
Shahin: We have been called the biggest startup in the world. We have been able to knock down a lot of walls, get things moving. I think that is a culture that is driven from the top down, from the CEO down, and he has been pushing that hard. We are execution focused, and that has always been the culture of Flex: it is 90 percent execution and 10 percent strategy, and that has been driven down through the entire organization. I think that has helped us make changes quickly and effectively. I have definitely enjoyed it, and I think it is working to our advantage.
High: With the digital transformation that you and others are overseeing, how do you define success? What metrics are you using to gauge progress or lack thereof?
Shahin: One KPI that we use and take seriously in our business is inventory, for example. When we have to build for a thousand customers that means we generally have to buy a lot of material, and we have to flush it through the entire supply chain type, and get the products out the door. Now what could happen if you do not plan carefully, and you do not manage your assets carefully, is you could end up sitting on billions of dollars of inventory because the forecast changed, the market changed, the demand changed. You need to manage that effectively. So a key KPI for us is asset velocity through the entire system. How can we buy product by components, build the products, ship them as quickly as possible in an effective way so that we do not sit on so much inventory-- because inventory is cash for us at the end of the day? One of the metrics is our average time from procurement to finished good. That is something that is measured all the way from the top down. Today, we are sitting at about fifty-five days, and that is the average time it takes us from when we procure the parts to build the products across all our thousand plus customers. What we are trying to do is decrease it to fifty days. Every single day of improvement is about $65 to $70 million of free cash flow for us. So you can see why that has a huge impact. I think that is the most important metric-- that is what most of the guys at the Pulse Center are doing on a daily basis: they are monitoring things, seeing how they can speed up the supply chain to help the customer, and also help our balance sheet.
High: You were chosen as one of the co-leads for this digital initiative. There are a lot of your peers as chief information officers who are not necessarily as engaged in that process or as a leader in driving digital change. What does it say about you and your team, and what lessons would you draw for others who might wish to follow in your footsteps to be kind of the change agent relative to a digital transformation?
Shahin: I think the old traditional IT role where you just have to make sure email is up and the networks are running is quickly going away. Everything is becoming digital. It is all about data; it is all about how you analyze that data in a quick and efficient way so you can make decisions that affect your entire company. If you do not get IT involved right from the beginning, I do not think you are going to have a chance to do that. Our executives realized that upfront, and IT was always engaged, sitting at the table with them from day one. I think it is absolutely important to have the right IT team engaged with the business to make that happen.
High: One of the elephants in the room when one contemplates digital change is security, not to mention that the complexity of the issues that might arise is only increasing. How do you think about managing security in light of the dramatic change that you are leading?
Shahin: Security is obviously one of my top priorities, as it is probably for every CIO because it is also the board's top priority. Ever since Home Depot and Target got breached a few years ago, I think it has become a priority for probably every company out there. There is a lot of innovation going on in security. We have an advantage at Flex because we work directly with those security companies. We build all their products so we get to know them. We get to try their products out. We have a thick layer of security within Flex because protecting customers’ information is obviously number one for us at the factory level. The types of attacks we see at Flex are a little different from what the eBays of the world see. The eBay guys will probably see more fraud where people are trying to steal consumer credit card information. We do not really have that. At Flex, we have bills and materials for some of our key customers, Apple, Google or Cisco, and so on. And they are sophisticated attacks, trying to get those bills of materials so they can replicate some of the products out there and start selling them.
We have different layers. I think we have five or six different layers of security. We are constantly enhancing our security. There is no doubt in my mind that every company is going to get breached at some point in time. It is not really about them getting into your system because they will probably find their way in, at some point. It is what you do once they are in that is absolutely important: how you handle the breach, how you encrypt your data, how you prevent them from taking things, and how you deal with it in terms of the market. Working with the marketing team, working with the business in case there is a breach, is something that needs to be taken extremely seriously. Home Depot, I think, did a pretty good job, so did eBay, but Target did not do a good job, and I think that is something that needs to be considered by most everybody.
High: Contemplating these examples you provided, one of the separations between Target and Home Depot was just what you described: a plan in place based upon the eventuality that something is going to happen.
Being here in Silicon Valley, there is such a war for technology talents. How do you think about bringing in talented people? What is the message that you provide to young people who are contemplating Flex across a variety of options that are available to them here? How do you retain great talent?
Shahin: Talent in the Bay Area is becoming challenging. Our HR department is really taking that extremely seriously. At Flex, like I said earlier, we move at a pace that is different than the pace of some of the larger companies our size. That is something we see as an advantage, as an attraction. You will probably never be working on the same product for a year. One day you could be working on the Xbox, the next day you could be working on Nike, which is a completely different product. I think that keeps people motivated, keeps them excited, and keeps them going. So that is one thing we use to our advantage. Our Chief Procurement Officer Tom Linton, was interviewing an MIT grad who was contemplating working with Flex versus Apple. And I think Tom said you can either go to the company and watch the supply chain, or you can go to the company and run the supply chain, or something like that. It really got them thinking.
High: One other thing that has been really interesting is the degree to which you have customer touch points from an IT perspective. This is another area that a lot of IT leaders have been challenged in the traditional IT departments that have been more back office support organizations. It seems like a tremendous advantage that you and your department have at being so customer centric, the fact that you have access to the most innovative companies in the world.
Shahin: I have the different VPs which are traditional, the infrastructure guys and the application guys and all that, but we also have a VP of program management who reports to me and the role he plays is, basically, together with the business segments. At Flex we have four business segments: the consumer technology/products segment; the big telecom/infrastructure segment that CISCO is a part of; the high reliability segment, which is automotive, aerospace and medical; and the industrial segment, which is basically any customer product that does not fit in any of the other three. The way we manage that is we have a pretty big IT department that is engraved with those four segments. They are part of their staffs, there are IT folks, and they report that online for the segments. So they are always there at the frontlines, always working on our RFQs, RFPs, MNAs with them. They are right there with the team, and they bring that information back into IT and in that way we are always connected out and I think that is a huge advantage. One of the most important groups we have for sure.
High: What are some of the things that are among your priorities looking forward? What are some the things on your roadmap?
Shahin: As I mentioned earlier, we are in forty countries, one hundred sites. We are working on upgrading our infrastructure because as you think of IoT and digitization and all that, you can just imagine how much data is starting to flow through the pipes. You want to make sure that your WAN and LAN is up-to-date, not just by increasing the pipe, but by getting more creative about using Cloud apps versus maps, getting access to the Internet from different locations around the world when you can. Security for sure is going to be there as you open up the Internet at the different sites around the world. You need to make sure you are secure, so that is going to be a key component. And analytics. For me, pulse is still in the early stages. What we have rolled out this last year was just phase one. We still have multiple phases we plan on. We want to mobilize it. We want everyone around the world at Flex to have access to Flex pulse on their phones so that when the guys next door call someone in Shanghai, they are talking about the same things, and if we see something here that could have an effect on them, then they could look at the same chart, same graph and collaborate around it. And, of course, keep focusing on executing and standardizing our application landscape because the more standard we are, the better we can operate as an IT department. Those are some of the things that we are pushing this year.
Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book, Implementing World Class IT Strategy, has just been released by Wiley Press/Jossey-Bass. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.
