Pure Storage PSTG never stocked out during the pandemic. That was not because demand for their products tanked. Product sales were down by 8%, but the company did grow by 2% overall in the last fiscal year based on strong performance in subscription services. While demand from many customer’s decreased, some of their customers did place unexpectedly large orders and needed those orders fulfilled quickly. For example, a vaccine manufacturer increased their order size by a factor of four in one weekend; a video call company wanted to receive ten times as much product as they initially forecast with just a month’s lead-time. Demand uncertainty does make it much more difficult for a supply chain to respond to customers’ orders.
Pure Storage, a public company headquartered in Mountain View California in the US, manufactures flash-based storage for data centers. Flash storage is faster than traditional disk storage, but somewhat more expensive. Pure Storage operates the hardware with proprietary deduplication and compression software to improve the amount of data that can be stored on each drive. Their solution is delivered in a storage-as-a-service model and supports a multi-cloud (Public, Private, or Hybrid) IT approach.
The company has grown very quickly based on their differentiated technology. In 2014, the company’s revenues were $43 million. In their fiscal year 2021 they had revenues of nearly $1.7 billion. The company expects high growth to continue.
To help prepare for the projected growth, Pure Storage hired Mike Fitzgerald as their new vice president of operations in 2019. Mr. Fitzgerald was a vice president of operations at Lenovo for 11 years. During these years, the company grew by over 500% in unit volumes. Prior to that he had worked in the storage industry as a director of supply chain at EMC. Mr. Fitzgerald’s mandate was to build a supply chain for the company that would allow the company to scale from revenues of a billion dollars the year before he joined to a company that could scale up to $5 or $10 billion in sales. But the CEO made it clear to Mr. Fitzgerald that as the company scaled, customer service could not suffer.
In many ways, Mr. Fitzgerald said, “it was still a startup supply chain when I joined.” For example, planning was still done using spreadsheets. They have subsequently moved away from Excel sheets to a system built by their supply chain business intelligence team that leverages artificial intelligence/machine learning and is connected to their contract manufacturer’s ERP systems.
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Pure Storage’s manufacturing is done at three contract manufacturing sites, two in Texas and one in the Czech Republic. Shipping of finished products is done from the manufacturing sites.
For storage products, maintenance services are very important. The majority of the company’s customers have a contract that stipulates that a technician must be on site with a replacement for the broken part within four hours. To support this level of responsiveness Pure Storage has more than 200 depots around the world that carry field service inventory. During the pandemic, this high-tech company increased the amount of inventory in these forward stocking locations because of the risk that a country would stop permitting inbound shipments as infection rates soared. And when it looked like a lock down might be imminent, they rushed even more inventory in.
The standard process for delivering finished product is to place an order at a factory. The factory then builds, tests, and ships product – often within 24 hours. But the just-in-case maintenance inventory also turned out to be helpful for meeting surges in demand for finished products. On several occasions when large, unexpected orders came in, they took the components at maintenance depots, shipped the components to a customer site, and assembled finished products at the customer location.
Part of Pure’s success is their culture. “We can make decisions quickly, Mr. Fitzgerald said. “When Covid hit, we made decisions in a day that would have taken weeks at other companies. The culture at Pure is very entrepreneurial.”
Culture is also important in managing relationships with their contract manufacturing and key component suppliers. Prior to Covid, Mr. Fitzgerald spent a lot of time in the factories, developing relationships at the executive level, understanding the process, and identifying bottlenecks. “I’m a factory rat,” Mr. Fitzgerald declared. Good collaboration depends on “understanding their pain points” and working to build a true “one team” approach. This is not an environment where we “pound on table to get every last penny.”
Prior to Covid, for all core commodities and for their contract manufacturers there were meetings every other week. During Covid those meetings occurred daily/weekly. The meetings went from being conducted on site part of the time to being totally offsite Zoom type calls. There are also monthly executive review meetings. As vaccinations continue, Mr. Fitzgerald hopes to get back to visiting partner sites. “Face to face interactions are very important,” he asserted.
Dual sourcing has also helped with partner responsiveness. A supplier that gets 80% of the business understands that could fall to 20% of the business if they do not continue to execute.
Pure can monitor how the contract manufacturing is performing on an ongoing basis. Monitoring is enabled by the use of EDI and system-to-system integration. This gives Pure real-time visibility to core performance metrics.
But achieving supply chain resilience can’t be accomplished just by relying on people or the ability to remotely monitor metrics; the design of the supply chain matters. When Mr. Fitzgerald joined, he took a close look at the footprint to make sure the supply chain could be resilient. Resilience and customer responsiveness has a higher priority than just having the most cost-efficient supply chain. Pure Storage reduced their dependency on sourcing from the Far East. They moved their core sourcing location for core subassemblies to the US and Mexico. This changeover was nearly complete by the end of 2019.
The company also moved to more dual sourcing; no node in the supply chain would be allowed to be a single point of failure if a disruption occurred. And Mr. Fitzgerald knew that regional disruptions were inevitable. During his career he lived through the floods in Thailand and the Tsunami in Japan that disrupted global high-tech supply chains.
But while the new supply chain footprint was more resilient, it also made sense economically. 70% of Pure’s business is in North America. Product flows between the Far East and North America “did not make sense. Labor arbitrage savings,” Mr. Fitzgerald asserted, “disappeared some years ago.” Mexican sourcing also provides for tariff mitigation. Further, tariffs between US-China are far more likely to go up than to go down over the coming years. Now big rush orders rarely require costly expediting of core components. In short, sourcing closer to the home market made sense economically, but also gave Pure greater speed and flexibility.
At the factory level, the company typically runs two shifts. But when demand surges, they can run four shifts. They are about to move into a bigger factory in Eastern Europe. Pure understands which machines could be bottlenecks if demand surges and has redundant capacity that can be turned on to respond to those surges.
Part of the success this high-tech innovator has been able to achieve have been based on “design for supply chain” and “design for postponement.” When design engineers are designing the product and looking at supplier capabilities, the design must include rules like all sourced component that have a lead time of more than 12 weeks must be reviewed for justification; Or, no component can be single sourced unless market justified and approved.
Design for postponement is based on the idea that products should move from being a standard product to a product customized for a customer as late in the process as possible. That is critical for Pure to be able to build, test, and ship a product within a day of getting the order.
Pure Storage also had detailed business continuity plans covering all kinds to different contingencies. These plans did not sit on bookshelves gathering dust. Pure practiced responding to various scenarios. Interestingly, Mr. Fitzgerald asserts that a LACK of automation is key to business continuity. A company must assume that key IT systems will go down. When that happens, the company must have the ability to respond with paper-based processes. This planning and practice paid dividends during the pandemic.
Fairly early in the pandemic, the Institute for Supply Management reported that nearly 75 percent of companies reported supply chain disruptions in some capacity. Over time that number undoubtedly went up. Pure Storage was able to meet demand and ship throughout Covid-19. They know their competition did have disruptions. Pure Storage’s supply chain resilience allowed them to better serve their customers, gain market share, and helped protect their revenue stream.