pure supply company chain storage fitzgerald product
How A High-Tech Company Built A Resilient Supply Chain That Withstood ThePandemicMike Fitzgerald, Vice President of Operations at Pure StoragePure StoragePure Storage PSTG never stocked out during the pandemic. That was not becausedemand for their products tanked. Product sales were down by 8%, but thecompany did grow by 2% overall in the last fiscal year based on strongperformance in subscription services. While demand from many customer’sdecreased, some of their customers did place unexpectedly large orders andneeded those orders fulfilled quickly. For example, a vaccine manufacturerincreased their order size by a factor of four in one weekend; a video callcompany wanted to receive ten times as much product as they initially forecastwith just a month’s lead-time. Demand uncertainty does make it much moredifficult for a supply chain to respond to customers’ orders.Pure Storage, a public company headquartered in Mountain View California inthe US, manufactures flash-based storage for data centers. Flash storage isfaster than traditional disk storage, but somewhat more expensive. PureStorage operates the hardware with proprietary deduplication and compressionsoftware to improve the amount of data that can be stored on each drive. Theirsolution 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 2021they had revenues of nearly $1.7 billion. The company expects high growth tocontinue.To help prepare for the projected growth, Pure Storage hired Mike Fitzgeraldas their new vice president of operations in 2019. Mr. Fitzgerald was a vicepresident of operations at Lenovo for 11 years. During these years, thecompany grew by over 500% in unit volumes. Prior to that he had worked in thestorage industry as a director of supply chain at EMC. Mr. Fitzgerald’smandate was to build a supply chain for the company that would allow thecompany to scale from revenues of a billion dollars the year before he joinedto a company that could scale up to $5 or $10 billion in sales. But the CEOmade it clear to Mr. Fitzgerald that as the company scaled, customer servicecould not suffer.In many ways, Mr. Fitzgerald said, “it was still a startup supply chain when Ijoined.” For example, planning was still done using spreadsheets. They havesubsequently moved away from Excel sheets to a system built by their supplychain business intelligence team that leverages artificialintelligence/machine learning and is connected to their contractmanufacturer’s ERP systems.Flash Array on Test Rack at a Contract Manufacturing SitePure StoragePure Storage’s manufacturing is done at three contract manufacturing sites,two in Texas and one in the Czech Republic. Shipping of finished products isdone from the manufacturing sites.For storage products, maintenance services are very important. The majority ofthe company’s customers have a contract that stipulates that a technician mustbe on site with a replacement for the broken part within four hours. Tosupport this level of responsiveness Pure Storage has more than 200 depotsaround the world that carry field service inventory. During the pandemic, thishigh-tech company increased the amount of inventory in these forward stockinglocations because of the risk that a country would stop permitting inboundshipments as infection rates soared. And when it looked like a lock down mightbe imminent, they rushed even more inventory in.The standard process for delivering finished product is to place an order at afactory. The factory then builds, tests, and ships product – often within 24hours. But the just-in-case maintenance inventory also turned out to behelpful for meeting surges in demand for finished products. On severaloccasions when large, unexpected orders came in, they took the components atmaintenance depots, shipped the components to a customer site, and assembledfinished 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 havetaken weeks at other companies. The culture at Pure is very entrepreneurial.”Culture is also important in managing relationships with their contractmanufacturing and key component suppliers. Prior to Covid, Mr. Fitzgeraldspent a lot of time in the factories, developing relationships at theexecutive level, understanding the process, and identifying bottlenecks. “I’ma 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 everylast penny.”Prior to Covid, for all core commodities and for their contract manufacturersthere were meetings every other week. During Covid those meetings occurreddaily/weekly. The meetings went from being conducted on site part of the timeto being totally offsite Zoom type calls. There are also monthly executivereview meetings. As vaccinations continue, Mr. Fitzgerald hopes to get back tovisiting partner sites. “Face to face interactions are very important,” heasserted.Dual sourcing has also helped with partner responsiveness. A supplier thatgets 80% of the business understands that could fall to 20% of the business ifthey do not continue to execute.Pure can monitor how the contract manufacturing is performing on an ongoingbasis. Monitoring is enabled by the use of EDI and system-to-systemintegration. This gives Pure real-time visibility to core performance metrics.But achieving supply chain resilience can’t be accomplished just by relying onpeople or the ability to remotely monitor metrics; the design of the supplychain matters. When Mr. Fitzgerald joined, he took a close look at thefootprint to make sure the supply chain could be resilient. Resilience andcustomer responsiveness has a higher priority than just having the most cost-efficient supply chain. Pure Storage reduced their dependency on sourcing fromthe Far East. They moved their core sourcing location for core subassembliesto 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 chainwould be allowed to be a single point of failure if a disruption occurred. AndMr. Fitzgerald knew that regional disruptions were inevitable. During hiscareer he lived through the floods in Thailand and the Tsunami in Japan thatdisrupted global high-tech supply chains.But while the new supply chain footprint was more resilient, it also madesense economically. 70% of Pure’s business is in North America. Product flowsbetween the Far East and North America “did not make sense. Labor arbitragesavings,” Mr. Fitzgerald asserted, “disappeared some years ago.” Mexicansourcing 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. Nowbig rush orders rarely require costly expediting of core components. In short,sourcing closer to the home market made sense economically, but also gave Puregreater speed and flexibility.At the factory level, the company typically runs two shifts. But when demandsurges, they can run four shifts. They are about to move into a bigger factoryin Eastern Europe. Pure understands which machines could be bottlenecks ifdemand surges and has redundant capacity that can be turned on to respond tothose surges.Part of the success this high-tech innovator has been able to achieve havebeen based on “design for supply chain” and “design for postponement.” Whendesign engineers are designing the product and looking at suppliercapabilities, the design must include rules like all sourced component thathave 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 frombeing a standard product to a product customized for a customer as late in theprocess as possible. That is critical for Pure to be able to build, test, andship a product within a day of getting the order.Pure Storage also had detailed business continuity plans covering all kinds todifferent contingencies. These plans did not sit on bookshelves gatheringdust. Pure practiced responding to various scenarios. Interestingly, Mr.Fitzgerald asserts that a LACK of automation is key to business continuity. Acompany must assume that key IT systems will go down. When that happens, thecompany must have the ability to respond with paper-based processes. Thisplanning and practice paid dividends during the pandemic.Fairly early in the pandemic, the Institute for Supply Management reportedthat nearly 75 percent of companies reported supply chain disruptions in somecapacity. Over time that number undoubtedly went up. Pure Storage was able tomeet demand and ship throughout Covid-19. They know their competition did havedisruptions. Pure Storage’s supply chain resilience allowed them to betterserve their customers, gain market share, and helped protect their revenuestream.