CIO interview: Merck Healthcare’s Alessandro da Luca on supply chain automation era

Tailor-made self-driving supply chain

About four years ago, recounts Da Luca, Merck was “scouting in Silicon Valley, looking for an advanced company to develop a tailor-made solution for us” in its supply chain operations.

“At that time, we were looking for an end-to-end dashboard for our supply chain. We did not want to go to SAP, and so on. We wanted something small, tailor-made,” he says.

“We have built a brain on top of transactional systems to enable a non-digital-native company to work at the speed of Amazon”

Merck selected technology from a firm that is now called Aera, whose current CEO Fred Laluyaux describes his firm’s activity like this: “We have built a brain on top of transactional systems to enable a non-digital-native company to work at the speed of Amazon.”

Da Luca resumes the story of what has been a four-year relationship. “We evolved, they evolved, and we developed the idea of a self-driving supply chain together. It’s been a partnership, with them providing the technological layer, a strategic partnership from the beginning,” he says.

Merck is an SAP user, and it will keep using that supplier’s enterprise resource planning (ERP) software. “This is a complementary layer – descriptive and now more of an intelligence layer, built on top of our ERP and planning systems. The concept of a ‘brain’ on top of our systems reflects the reality,” says Da Luca.

“It is not one solution, but a series. The most basic one, implemented globally, is a ‘descriptive’ layer organised in a dashboard. Then there is a machine learning algorithm, which is role-based, and being used by all the supply chain professionals at Merck Healthcare globally, as well as our finance professionals.

“Then there is a ‘prescriptive’ layer that is an AI [artificial intelligence]-based system that controls the demand and the supply and specifies what to do for the planner. It suggests planning parameters for the human, and is being used by our supply planners.”

Working towards business-wide visibility

The user populations for the Aera system at Merck Healthcare number from the thousands for the more day-to-day functionality to 20 people for the system at its most advanced.

Da Luca stresses that this has been a long-term relationship with Aera, and that some four years ago they had “wanted visibility into every element of our supply chain worldwide, product flow and information flow, clear visibility into every parameter.

“You can give your organisation a fantastic solution, but if it is too difficult to use or does not solve a specific problem, then no one will adopt it”

Alessandro da Luca, Merck Healthcare

“Prior to that our view was segmented. Not everyone had the same visibility, and each function – finance, sales, supply chain – had their own point of view. We wanted one source of truth, accepting one source of data,” he says.

Da Luca says they were not looking for an AI technology as such. “We were looking for basic visibility to add value to the business. Now we are pioneering a narrow AI system, after adding some intelligence to what we built with Aera. But it is sophisticated advanced analytics, really,” he says.

“There is lot of hype concerning AI. Applied AI is what counts – that is to say, it works technically and it is adopted by the user and adds value,” says Da Luca. “You can give to your organisation a fantastic solution, but if it is too difficult to use or does not solve a specific problem, then no one will adopt it.”

Balancing supply and demand automatically

Merck Healthcare now has a supply chain that is “self-driving”, but what does that mean?

“It is very simple – it’s about balancing supply with demand continuously. Your demand is automatically collected and defined by your forecasting system, and supply is automatically balanced by the demand flow and prescribed to the manufacturer.

“The normal practice, previously, was that it had been done on a batch process. The ERP ran every day, and out of that the supply planners would decide.”

Now, the ERP systems at the company feed “the data lake of Aera”, and then that information is “transformed and communicated to the planning system”.

“But, you know, the real world is not beautiful. It’s not just a matter of plug it in and it works. It’s try, fail, learn, and so on,” says Da Luca.

All three sectors of Merck – Healthcare, which comprises 43% of revenue, Life Sciences, which makes a similar percentage, and Performance Materials, which accounts for the rest – are using Aera. “It is a corporate matter. But it is not a board-level matter. This is about operations – supply chain and manufacturing,” he says.

Always learning and looking to the future

Da Luca reflects that “until four or five years ago, there was steady improvement in business-as-usual IT, but in the past three years there have emerged a lot of digital solutions that enable step changes. For us, Aera is one of those technologies, but there are others.

“I believe the best is yet to come,” says Da Luca. “Younger generations are connected 100% of the time.”

As a CIO, he says 25% of his job is learning what is going on with new technologies. He learns more from peer events than the big IT conferences, he says, and it is “important to visit Silicon Valley, China, India, Taiwan, Korea, and so on, to see how technology is evolving”. Merck found Aera in Silicon Valley, but would be more likely to find innovation today in Shanghai, he comments.

“We Europeans will never be able to compete with China unless we are more agile and skilled. The EU is not working, but this is not the answer to go standalone but rather to work in a federated way that maintains agility and competitiveness, and give us skills. We will find a solution, but not with Brexit, Grexit, Italexit, and so on. We will just lose skills and be eaten up by the Chinese or the US,” he concludes.