Darcy MacClaren: If you haven’t set yourself up to create a risk-resilient supply chain, it will cost you more. It may shut down your plants. It will cause impacts on your consumers. So it’s a critical part of a company that they be able to do this to make the right decision in the near term.
David Wijeratne: Many of these disruptive events—if you think about covid, you think about supply chain crisis, you think about the trade tensions—effectively brought companies to a starting line and said: Go. Go and find alternative sources of suppliers. Go and find alternative pools of talent. Go and find alternative locations, as you rebalance your business model.
Darcy: They have to make sure everything is digitized—all their data is relevant, reliable, and responsible. And if they can get their hands around that, then they really can take advantage of the power of generative AI, which is a game changer.
Ayesha Hazarika: From PwC’s management publication, strategy and business, this is Take on Tomorrow, the podcast that brings together experts from around the globe to figure out what business could and should be doing to tackle some of the biggest issues facing the world. I’m Ayesha Hazarika, a broadcaster and writer in London.
Lizzie O’Leary: And I’m Lizzie O’Leary, a podcaster and journalist in New York. Today: how can companies build resilient supply chains?
Ayesha: From the war in Ukraine to the closure of the Suez Canal to the attacks on cargo ships in the Red Sea, it’s fair to say that in recent years, global supply chains have been disrupted.
Lizzie: Not to mention the impact of covid-19 and continuing inflation—and everyone has seen the impact on business and society. When supply chains are disrupted, consumers and companies pay the price in more ways than one.
Ayesha: With supply chains responsible for more than 70% of an organization’s cost base and emissions, how can companies build more flexible, resilient, and adaptable supply chains?
Lizzie: To find out, we’ll be talking to Darcy MacClaren. Darcy has decades of experience in managing supply chains and is currently Global Chief Revenue Officer at SAP’s Digital Supply Chain Practice.
Ayesha: But first, we’re joined by David Wijeratne, a partner from PwC Singapore in the International Growth Practice. David, hello. Welcome.
David: Thank you very much. It’s great to be here and looking forward to the discussion.
Ayesha: Now, David, we’ve just laid out some of the many different challenges impacting global supply chains right now. Do you think this is the new normal that businesses have to adjust to?
David: I think so, actually. I mean, I think we’ve entered a new era. Because since about early 2000, we began to see the global economy begin to shift. We began to see companies start to address new consumer pools that might sit near Southeast Asia, for example. So, Africa, so, Latin America—companies beginning to have to address consumer pools that are outside of developed markets, also characterized by the emergence of new suppliers. Thinking about, you know, how do we identify new suppliers in Southeast Asia, maybe Central/Eastern Europe, maybe, perhaps, Latin America? But also, this area was beginning to see rising cost factors, geopolitical tensions, nationalism, increased use of of technology and AI, and, you know, the increased importance of ESG [environmental, social, and governance considerations]. So, all of these characteristics sort of shaping the new global economy, and companies, historically, prior to 2019, felt that they could move on their own agenda. However, ever since 2019, you’re seeing companies beginning to realize that they have to move, they need to change their business model, and they need to change it fast. Many of these disruptive events—if you think about covid, you think about supply chain crisis, you think about the trade tensions—effectively brought companies to a starting line and said: Go. Go and find alternative sources of suppliers. Go and find alternative pools of talent. Go and find alternative locations, as you rebalance your business model.
Lizzie: We’ll come back to you soon, David. But first, with disruption to supply chains worldwide, any business leader listening to this must be wondering, where do I even begin? Ayesha, you spoke to Darcy MacClaren, Global Chief Revenue Officer at SAP’s Digital Supply Chain Practice.
Ayesha: That’s right. And I began by asking just that: what is she telling her clients to do?
Darcy: First and foremost, we highly recommend that you put supply chain at the heart of your business strategy, not an afterthought. The second thing is to look at, is really to make your supply chain risk-resilient. And what that means is you take a look at your organization, and then you understand, what are the key constraints that are most important to your business? Is it a key contract manufacturer? Is there a key raw material? Is there a critical region? You look at these things and make sure that you have contingency plans for them. It’s not about cost and efficiency anymore. It’s about risk prevention. And then, we recommend collaboration. That means cutting down silos internally and working across your extended ecosystem and all your partners, which means you have to have and be digitally connected to everybody. The fourth area we recommend is embracing technology, such as machine learning, predictive, artificial intelligence. So those are really the areas that we recommend for companies to take a look at in risk-proofing and managing the disruption.
Ayesha: Looking at the challenges facing global supply chains, do you anticipate those challenges are going to get better or get worse in the near term?
Darcy: Great question. In fact, there is a chart that the Federal Reserve of the Bank of New York puts out that actually tracks the impact of global disruption and the volatilities. It absolutely shows the volatility will increase. What’s interesting to note is the recent one in the Red Sea. It does appear that companies learned a lot with the former disruptions, and we’re now in a better position to respond quicker, better, faster, more sustainably, because many organizations have put in the technology to allow them to respond quicker. So I think that’s the good news going forward. Yes, disruption will continue. Embracing technology can help you deal with disruptions in a much more effective way.
Ayesha: And talk to us about the impact supply chain disruption can have not just on an individual business but on wider society.
Darcy: It ultimately leads to higher prices for the consumer. It can also increase the carbon footprint, which is not good for the environment. Right? And also can cause trade disputes and regional disputes. So, across from end consumer to even inflation increasing is all affected by issues with the global supply chain, not responding properly, and not having proper tools to do the best we can in resolving it.
Ayesha: How have you found businesses’ willingness and desire to adapt to these challenges that you’ve set forward?
Darcy: What’s happening now is, yes, people realize we have to change. We have to have better collaboration, but it’s hard. What’s interesting to note is smaller companies, new companies, they don’t have any legacy they have to break down or bring with them, and they’re in a much better position to really transform to what we call a risk-resilient and sustainable supply chain. So we’re bringing customers with us, but there’s definitely going to be a change in the role of the supply chain practitioner, from what it is today to what it needs to be in the future is massive change management that’s going through every organization right now.
Ayesha: And, Darcy, talking about customers, you help businesses digitize their supply chain. What’s the difference between a digital supply chain and a traditional one?
Darcy: So, the way I define it is a digital supply chain refers to the integration of digital technology on supply chains. Ultimately, you want to digitize everything in your supply chain so you can do simulations, optimizations, and then have the ability to act on it. In order to have what we call a self-healing supply chain, which is the ability to get a piece of information in—such as a delay on ocean freight—into the system, have it understand what that means to the customer order, what you need to decide it. And in order to do those automatic self-healing things in the supply chain, you have to digitize the organization.
Ayesha: And where are we in terms of companies making this move to supply chain digitization? Do people get it? Are people willing to to do it?
Darcy: People understand the need to do it. The degree varies greatly by company by industry. A lot of companies are starting with visibility: getting everybody in their ecosystem connected bidirectionally to get visibility on what’s going on. So a lot of companies start with digitalizing everything in the ecosystem. But what we have to do is digitize everything, and that includes all your things, and your things that we need to digitalize are your manufacturing equipment. So we’re capturing information on performance, on quality. A lot of folks digitalized most of their manufacturing equipment years ago. But the idea is to now get it connected and usable by the rest of the organization.
Ayesha: In terms of companies being able to build resilient supply chains, are there cultural aspects to this? For example, do people-component companies need to think about upskilling for their employees? How to make sure they’ve got the right skills to make this process happen, for example?
Darcy: Yeah, all of the above. There is going to be a lot of skill changes as to what you need in your organization, and the jobs are changing. And companies are trying to upskill their employees to bring them up to the next level. So instead of actually doing this, you’re monitoring it. Warehouse management folks work in conjunction with a co-bot. They don’t actually do the forklift, but they have a co-bot, and they direct it. So there’s a lot of interaction, and there’s definitely upskilling the current employees as well as changing the definition of the role, bringing in a different type of talent. And the other thing we’re trying to do is we have generative AI that can explain to the supply chain practitioner, the planner, exactly what the AI did, so they can understand, and it’s not just a black box. That helps in the adoption, and you say, okay, I understand where it got the answer. That makes sense to me. And that’s a way of helping planners to embrace the technology when they’re used to making some of this decision on their own, and understanding the data a little bit more; and it’s been a game changer.
Ayesha: Darcy, now let’s look at what major economies are doing, such as China and the US, in terms of onshoring and friendshoring key elements of their supply chains. What impact is this having both from a business perspective and from a society perspective?
Darcy: So, what’s been happening now is as we evolved from these supply chains that were very cost-effective, efficient-effective, single-source—that does not happen anymore. We now realize that organizations should not be single-sourced in any region, for any part, for any contract manufacturer. And that’s caused folks to look at other options. It’s why you have organizations that are looking towards nearshoring. We won’t bring everything back here, because that would also cause problems. So we have to have a blended plan. And so, you can see companies are starting to move things more back to the US, and certain states in the US have made that very attractive to do so. And also, I will say, technologies and advancements in Industry 4.0 and manufacturing have made productivity and some of the labor constraints that were keeping US from manufacturing, automation can help with that. So for all sorts of reasons, we’re starting to look at onshoring, nearshoring, alternative shoring. And yes, that has an impact. The Red Sea issue is one where folks are trying to now figure out, can I change where I get it from? Do I go overland? Do I go around Africa? And all that. And those decisions will keep on happening, and people will evaluate what the right thing is to do. But it is interesting what’s going on right now.
Ayesha: Now let’s look at what’s at risk for businesses if they don’t embrace a technology-driven supply chain. What are the big risks for them, Darcy?
Darcy: It’s quite simple. If you haven’t set yourself up from your sales and operation planning to create a risk-resilient supply chain, there’s not much you can do in the short term. So, what will happen is it will cost you more to transport your product. It may shut down your plants, because you can’t get certain parts in. So it’ll cause plant outages. It will cause either not enough inventory or too much inventory. It will cause impacts on your consumers. So it’s a critical part of a company that they be able to do this, to make the right decision in the near term; and it takes technology.
Ayesha: And do you think our policymakers and our politicians and the people who are in government, do you think they think enough about the importance of supply chain?
Darcy: Pre-covid? No. Post-covid? Yes. A lot has been done to make sure individual countries know the situation, and they’re trying to make sure they’re protecting the best interest of their organization. So in the US, for example, it’s all about rare minerals and making sure we have access to that for all our technology providers, and making sure we’re protected. So, we’ve come a long way, still a lot to do. And now what they’re trying to figure out, among other things, is what are the impacts of generative AI? They’re going from trying to risk-proof their countries from a supply chain and now getting very involved in technology and rules and regulations and such in that area. So it’s a whole area in and of itself that governments are really trying to get up to speed on to see what they can do.
Ayesha: Now, finally, Darcy, I’m going to ask you to get your crystal ball out. What do you expect over the next 12 months to be the really big challenges facing executives managing their supply chains?
Darcy: The big challenge that everybody is going to have to get their hands around is what do they need to do to really embrace and use business AI to effectively manage their supply chain. And that means they have to make sure everything is digitized, all their data is relevant, reliable, and responsible. And if they can get their hands around that, then they really can take advantage of the power of generative AI, which is a game changer.
Ayesha: Darcy, it’s been so fascinating speaking with you. Thank you so much for your time.
Darcy: Thank you so much for having me. I appreciate it.
Ayesha: Well, David, Darcy was pretty clear there that disruption is here to stay. What kind of moves do you see businesses making when it comes to their supply chains right now? Is it all reactionary, or are they having a complete, total shift in how they think?
David: So. I think you can see companies acting in two ways. One is how companies look to mitigate the risks that they are facing. So, de-risking their value chain. So, de-risking their supply chain. So, thinking, how do we protect the value pools that we have today by looking for alternative suppliers, looking for alternative manufacturing hubs to create a greater resilience? Now, the danger with that is that, eventually, if you just purely protect what you have, it may well get eroded over time, because other things are going to, eventually, you know, attack it. The other pool is that companies are beginning to not only mitigate the risks but also look at alternative areas of growth to find out, where is my industry going in the future? Or how can I position myself to react to future opportunities and perhaps lead my sector?
Lizzie: What are the real-world impacts of this race to rebalance?
David: Yeah. I mean, I think it is multidimensional as companies begin to think about alternative supplier pools. These new suppliers have the opportunity to get into value chains that they were shut out from before. If a certain company was mainly sourcing from China, and now they’re thinking that they’re going to look for 50% of their suppliers from Southeast Asia, well, these suppliers in Southeast Asia now have a tremendous opportunity to get into these more regionalized value chains. Now, these value chains may be in Southeast Asia. They may be in the Middle East, Central/Eastern Europe, Latin America. It brings more players into these value chains. Now what this then does, if you continue down the value chain, is you begin to create new ecosystems, supplier hubs, you know, manufacturing hubs, which in itself brings in more talent. People want to come in and actually be schooled and learn skills in these areas, as well as then also, eventually, get jobs in these areas. So you start to create new regions, which get known for particular sectors. So, perhaps a region in Malaysia is known for medical devices. And another region in Indonesia is known for developing auto parts. And then you’ve got a part in Central/Eastern Europe, which is known for electric vehicle batteries, and so on, and so on. So you start to get more hubs that become known for specific sectors and specific parts of value chain. That fragmentation creates opportunity.
Ayesha: Darcy also spoke about the critical role of technology in managing supply chains, including the impact of GenAI. Now, to those organizations who are still in the process of digitizing their supply chains, David, what’s your advice?
David: Well, I think, you know, it’s becoming increasingly clear that if you haven’t started to digitalize or increase the amount of technology or how any technology enables your value chain, you need to start pretty quickly. And if you have started, you need to accelerate it. However, there’s an element of practicality that comes into that, because most companies can’t completely digitize their complete operating model all at once. And therefore, this element of prioritization: So, where is the greatest need? Where do I need to deploy the greatest resilience? How do I mitigate the greatest threats? But also how can I position myself to be the most competitive and address future opportunities? And understanding those elements, really direct which parts of your value chain you can prioritize in digitizing, and bringing greater technology and greater AI assets to that, and actually prioritize where in the value chain you’re going to get the best return based on the current situation.
Lizzie: Now, we’ve talked about the challenges, but what are the future areas of growth and opportunities for businesses who get this right and de-risk their supply chains?
David: Yeah. I mean, I think we’re beginning to see, you know, some of the benefits of those who began to rebalance their value chains post-covid and the previous issues in the Suez Canal and trade disputes. If you just think about, you know, what’s happening recently in the Red Sea, you’ve seen certain companies being able to pivot and still serve their customers by alternative means. And that’s because the measures they’ve taken have given them greater agility to deal with risks and disruptions that have occurred. They’ve accepted the fact that continuous disruption is going to be a characteristic of the future global economy, and they’ve taken measures to address that. So they’ve become more resilient. They’ve retained the trust of their consumers and customers and therefore developed a sustainable business model. But also what that agility gives you is the ability to respond to future opportunities, but also to try new things, and perhaps bring new products and services to market without having to disrupt your whole value chains. Because as the value chains have become more regionalized, compared to being one global supply chain, you can try bringing new products and services in a different part of your value chain, part of a different market, without actually having to commit the rest of your business to that change. So you can begin to see companies try to bring new products and services to market, try to reinvent parts of their business a lot quicker, without it being a risk to the whole of their business.
Ayesha: David, do you have any examples of clients and providers you work with who you think are really getting this right?
David: If we take an example, which is quite topical, in the sector of the electric vehicle batteries: so, we’re working with a company that’s headquartered out here in Southeast Asia as they look to get closer to the manufacturers in Western Europe. So, these manufacturers are asking them in this company to get closer to them to ensure that they shorten the value chain so there’s less risk in the value chain. What then is happening is that supplier will then more than likely ask their suppliers to follow them to come closer. So you’re seeing this in the regionalization of supply chains across the world—whether that might be companies who historically might have manufactured most of their products in Asia beginning to regionalize and set up a lot of their manufacturing in Europe or perhaps move some of their manufacturing to Central America to serve the United States, it’s beginning to break up and become a lot more regionalized.
Lizzie: What is the role of governments and policymakers in all of this?
David: I think what we can see is that the role of government is to facilitate companies becoming more agile. Now within that, there’s one particular area that I think is key, and that is talent. And, you know, how, what role can government play in companies developing new talent pools? So, helping companies create talent pools rather than purely consume talent pools, particularly as talent in particular areas becomes highly sought after. And so how can business work with government and local education authorities to help them develop new curriculums and quickly skill young graduates to come into the market and be ready with the most relevant skills for the future global economy?
Ayesha: And, David, what are you advising companies who are looking to navigate these uncertain times? What’s your top advice to people right now?
David: I think a lot of our clients are coming to us from a position of assessing risk. They see threats and disruptions throughout their value chains coming from different directions across different parts of the world. And that is understandable. I think what we are trying to help them with is, first of all, how do you sort of evaluate and manage that risk? So, going beyond risk and looking at growth and opportunity: if you purely look at risk and mitigate for that, you’re really only protecting what you have today. Encouraging our clients to think about where their industry is going, where future opportunities will be, and understanding how they might position themselves to take advantage of those and address those future opportunities—it might not be immediately, but at least if they’re positioned to take advantage and address those future opportunities, that enables them to be well-balanced.
Ayesha: Well, David, thank you so much for your time and for joining us. That was a really interesting conversation. Thanks for your insight.
David: Thank you very much. It’s been a pleasure to be with you today.
Ayesha: I have to say I never thought I’d be so riveted by a conversation about supply chains, but it has been absolutely fascinating, because it’s something you probably don’t think about on a day-to-day level, because you’re so used to things just arriving in time, and you’re used to the products being there when you need them. But, of course, supply chains are so important. And I think this episode really shone a light on, they’re not just important to a business and to the bottom line, they’re really important to wider society. And so, it’s one of these issues where it’s actually really germane to so many businesses.
Lizzie: Well, and that feels like something we’ve come back to again and again over this season, this kind of feeling of inflection point, whether we are talking about people and how they need to be upskilled, or whether we are talking about generative AI and how to use it in a responsible manner, or whether we are talking, as we have done several times on this season, about climate change and where and how different companies can think about this moment and prepare for a future.
Ayesha: I think what you’ve just touched on there is really interesting, because I think there are issues which people can be quite frightened of, but actually you can’t afford not to get on top of these big issues. Everybody needs to educate themselves about these big currents that are happening in business and in society and in economics and the wider world. And it’s having an open mind about this stuff is almost as important as then getting the right systems in place.
Lizzie: Well, that brings us to the end of this episode, and this second series of Take on Tomorrow. A big thank-you to all who joined us. We’ve had so many fascinating conversations on topics ranging from building sustainable cities to generative AI to recording live at COP28 and Davos.
Ayesha: And if you’ve missed any of the episodes, tap follow or subscribe in your podcast app to get them all. And if you’ve enjoyed this season, please leave us a review. It will help others find Take on Tomorrow.
Lizzie: Take on Tomorrow is brought to you by PwC’s strategy and business. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
