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“My Advancing Reliability series has explored many initiatives we’ve put in place to improve the reliability of the Azure platform. Today, I’d like to explore our cloud supply chain, as a resilient hardware infrastructure is critical to provide reliable capacity to our customers reliably. Our supply chain is hard at work to deliver that infrastructure every day, so I’ve asked Corporate Vice President of our Cloud Supply Chain, Cliff Henson, to share how we’re strengthening our supply chain resiliency and sharpening our competitive advantage through supply chain innovation.”—Mark Russinovich, CTO, Azure
Microsoft’s cloud supply chain is essential to deliver the infrastructure—servers, storage, and networking gear—that enables cloud reliability and growth. Our vision is for cloud capacity to be available like a utility so that customers can seamlessly turn it on when and where they need it. With the Microsoft Cloud powering everything from mission-critical business applications, governments, life and safety services, financial services and much more, it’s crucial that customers are able to scale out when they need it – even with unplanned spikes in demand. To deliver this experience, a resilient, predictable and agile supply chain is key.
Our cloud is growing fast, and we’ll be adding 50 to 100 new datacenters each year for the foreseeable future to the 200 plus datacenters we currently have in operation across 34 countries. More regions were announced last year than any time previously. The supply chain supports the scale of this growth through an end-to-end value chain of activities. We plan the products, source the materials, build the products, deliver and install them in the datacenters, manage the customer capacity experience, and finally service and decommission the hardware at end of life. Systems and data link the processes so that each activity informs the next.
How Microsoft is handling supply chain disruptions
The pandemic has disrupted supply chains globally, across many industries. We plan for the unexpected, and yet the pandemic created dramatic changes in demand and supply that we continue to learn and grow from. These changes have required us to respond with agility. Here are some ways the cloud supply chain is building on lessons learned over the past year to strengthen our resiliency and mitigate risks:
- End-to-end visibility: Near real-time visibility to supply, inventory and factory status aligned with demand is fundamental to managing supply disruptions and responding to exceptions. We’re investing in this area and launched a “control tower” initiative leveraging Azure and partner services to enable increased visibility and digitally transform our supply chain. Our control tower capability is based on a unified data model built on top of a digital twin of our extended supply chain that will give us finer-grained control over operations. We’ll see more progress in this area over the next year.
- Improving lead time for servers: The Azure customer experience is a core priority. In order to maintain the best customer experience while responding to increasing demand, we’ve improved lead times for building, delivering, and bringing new server capacity live in our datacenters. We have improved these times by 70 percent by automating, accelerating, and removing processes out of the critical path. In addition, we shifted our fulfillment model from build-to-order to build-to-stock for high-volume products. With short lead times, we can respond to customer demand quickly and with agility.
- Increased supplier diversification: Over the past year, we have diversified our supply chain—instead of sourcing key subassemblies from one nation, we have diversified our sources to over five countries. This enhances Azure supply chain resiliency to provide stable services to customers during unforeseen circumstances such as the pandemic, natural disasters, or trade challenges.
- Intelligent buffering: We have top data scientists and software engineers at Microsoft who have helped us develop an intelligent buffering model, which has allowed us to “shift left” in the supply chain process. This means we carry buffer (inventory) in more agile or raw components rather than finished goods to give us more flexibility to respond to what we need in the datacenters. This has enabled us to better protect our business from demand surges and supply disruptions.
By applying all of these lessons over the last year and a half, we’ve come a long way in strengthening our resiliency to better respond to supply or demand volatility, in turn improving capacity fulfillment success on our platform and advancing reliability for our customers.
What makes the Microsoft cloud supply chain different?
In addition to our supply chain resilience, Microsoft’s cloud supply chain has unique features that enhance our competitive advantage and our customer experience.
Microsoft has made bold sustainability commitments to be carbon negative, zero waste, and water positive by 2030. The supply chain plays a major role in helping the company achieve these goals. To achieve our zero waste targets, we are building Circular Centers, which are facilities that reuse and repurpose servers and hardware that are being decommissioned. We have one Circular Center in operation, are currently building another, and have nine more on the roadmap. Our Circular Centers use intelligent routing to process and decommission assets on site, maximizing sustainability and value return. We expect the Microsoft Circular Centers to increase the reuse of our servers and components by up to 90 percent by 2025.
To support our carbon-negative goals, we’ve introduced the Sustainability Calculator to enable our customers as well as Microsoft to have transparency into carbon emissions of cloud usage. We’re also serious about carbon accounting to measure and monitor across organizational, process, and product pathways. Every method we create is third-party verified and shared publicly.
We seek to be an innovation engine that pushes the supply chain industry forward. We’re investing in our decision science to leverage machine learning, optimization algorithms, artificial intelligence, and digital twins for supply chain so we can make faster, smarter decisions. Our control tower will make it possible to manage all these processes end-to-end.
We’ve also developed a blockchain-based solution for supply chain to improve traceability and create trust in data across our supplier partners by digitizing items in a shared data structure. We won the Gartner Power of the Profession Award for Supply Chain Breakthrough of the Year for our blockchain technology. We’re excited to be currently in production with SSD and DRAM and expanding to the full high-value commodities supplier base. In the future, the technology will enable traceability all the way from mine to datacenter and beyond into recycling, reuse, and disposition.
We want Azure to be known as the most trusted cloud on the planet. This includes customer trust in Azure as a platform and in Microsoft as a partner in their success. Earning that trust requires two capabilities—security and resilience. We’ve put in place the Azure Security and Resiliency Architecture (ASRA) as an approach to drive security and resiliency consistently and comprehensively throughout the lifecycle of Azure hardware, systems, infrastructure, and supply base.
Microsoft spends $1 billion a year on security, and our hardware and datacenters are designed with security top of mind. Microsoft is leading the way in confidential computing, deploying hardware that is physically and logically isolated from someone that has access to the server while it’s operating.
Finally, we are building transparency into our supply chain so that we know we are sourcing ethically and are accountable partners along each step of the way. This includes risk management, anti-bribery and anti-corruption, human and labor rights, health and safety, and more.
Our strength is in our people, and we want to be known as a talent destination. At Microsoft we expect each of us to play a role in creating an inclusive environment where people of diverse backgrounds bring all of who they are to our work. Different perspectives help us achieve more and inclusive thinking drives our innovation.
We’re also investing in our people and capabilities through a new initiative called Supply Chain Academy, which develops our muscle around supply chain excellence by offering online courses on supply chain best practices and disciplines.
It’s all about our customers
At the end of the day, everything we do comes back to providing the best experience for our customers. By investing in our agility, resiliency, innovation, security, and talent, we are building a world-class supply chain that will make Azure the most reliable and trusted cloud platform. We’re grateful to all our partners, suppliers, and customers who have joined us in this journey as we power the world’s computers and empower every person and organization on the planet to achieve more.
If you’d like to learn more about how our supply chain responded to COVID and delivers capacity for our customers, watch my recent fireside chat with the Microsoft U.S. manufacturing team: