Hot Topics in 2023 – Sustainability, Skills and Automation

David Ogilvie:

Thank you, Patrick.

Patrick Daly:

Diane Garcia, President of Lorraine Consulting based in Phoenix, Arizona. Welcome, Diane.

Diane Garcia:

Hello. Hi, Patrick

Patrick Daly:

And Lisa Anderson, President of LMA Consulting joining us from the Los Angeles Metro Area in California. Welcome, Lisa.

Lisa Anderson::

Hello. Glad to be here.

Patrick Daly:

So I’ve been reading this PWC Global CEO report, which was published recently. They’ve surveyed over 4,400 CEOs in 105 countries, and it turns out that four out of 10 global CEOs are concerned about the long-term economic viability of their firms if they actually continue on their current path. And for Ireland specifically within that, I was interested to see what are the top areas of investment priority and they are in order of preference and quite surprising, number one, automation, number two, up-skilling, number three, technology deployment, number four, de-carbonization and number five, rollout of alternative energy. So I suspect in other developed economies like the US and Australia, it’s probably not that different. So maybe I’ll start with you, Lisa. What do these results suggest to you and do they resonate with what you are seeing in the US among your clients or just in your general understanding of business? Or are you seeing other priorities there?

Lisa Anderson::

No, I’m definitely seeing several of those priorities. I don’t remember them all, but technology for sure, folks are looking at, they’re looking at the priorities of looking at how to reshore and nearshore, but do it in an effective way. So that’s why technology rises to the top, automation and those types of priorities. While they’re doing that, if they can do it in a way that’s green, of course that’s just a win-win. So I mean, it just gives them the opportunity to think about how they can set up operations or expand operations in a smart way. Most of those priorities I’m seeing here as well.

Patrick Daly:

Are you seeing anything specifically with regard to automation?

Lisa Anderson::

Oh yeah, for sure. And I just remembered one of the other ones you said, up-skilling. But automation… Because people are thinking about reassuring, they’re thinking, how do I do this without paying so many wages because they can’t afford, in quotes, ‘to bring it back’ from like let’s say China. I mean, after all, we’ve certainly found out that we have all these balloons and whatnot else flying above us. So we definitely need to be doing something to reassure business and we need to do it in a profitable way. So from that point of view, there’s a lot of interest in automation and robotics and those types of things.

And up-skilling is the other one that’s really… Well, the smart companies are definitely thinking about it because as more and more technology and automation comes to fruition, they need to… I mean, we’re reducing the need for lower skilled positions, but we’re increasing the need for higher skilled positions and we have this conundrum going on. We still don’t have enough people to fill positions and we have less people in the labor market still in the US than we did prior to the pandemic. So we’ve got to up-skill, automate and utilize technology to be successful.

Patrick Daly:

Yeah, we’re seeing this here as well, there’s a shortage of skills all around industry. And there’s a rise in immigration and you have people protesting about immigration. So on the one hand, we need more people, and on the other hand there’s protests because more people are coming in. So it seems that, as you said, those lower skilled jobs are becoming scarcer and the types of people that are required are higher skilled. And that actually turns out statistically that our immigrants are more qualified on average than our people who are already here in the country. So you’re getting that kind of mismatch going on at the same time, apparently contradictory, but it’s what’s going on at the same time.

Interesting also that you suggest this thing of reshoring. Just very interesting interview I listened to on Deep Dish, which is the Chicago Council of Global Affairs, and they have this Deep Dish podcast and they were talking to Shannon O’Neil and she’s written a book called The Myth of Globalization. First part of her argument, she’s saying that globalization wasn’t all that was cracked up to be. It wasn’t as extended as people thought, and it was really more a regionalization than a true globalization. And that’s more so now. And she’s pointing out how countries like Mexico are doing really well out of what’s happening at the moment. This reshoring coming back from Asia to a North American region and Mexico was doing quite well out of it.

So David, I read Wall Street Journal recently that there have been disappointing productivity increases in recent years, and they argue that it’s due to Apache uptake and integration of technology over a period of years. It’s not that the future isn’t here, it’s just unevenly distributed around the place and in the environment of zero interest rates and low inflation, people have tended to throw money and bodies at issues rather than investing in technology. But now that the financial dynamic and the incentive has changed, do you see perhaps a change of attitude with regard to technology in automation adoption, integration, implementation and so on? So what are you seeing, where do you think things are headed?

David Ogilvie:

Well, Patrick, yes, I have seen that. Certainly I have to say that COVID was extraordinarily good for my business because it more than doubled for… And that was because there were so many people out there who found during the COVID environment that they weren’t able to extract the information that they needed to make good decisions. And so that’s that predicated then a series of system replacement type requests that we would get. Now I think there’s a lot of people looking to find how new technology can help them in the current environment and to get that productivity that they’re going to need to help fight the inflationary environments and the recession that’s predicted to come and all those sorts of things. I think one of the challenges of course is that the technology industry does not have a good success rate. ERP in particular, it’s got a very high failure rate and that puts a boundary, if you like, or blockage into executives making a decision to adopt these sorts of projects because they are very high risk.

Because let’s be honest, if an ERP system implementation goes wrong, it can have a large impact on that business. And in fact, it has crippled many businesses. And so it is a very risky decision to move forward and I think that’s potentially the reason why you’re seeing a lot of people talking about adoption of technology, but perhaps not the volume or the speed of adoption that you might expect with that amount of chatter, if that makes sense.

Patrick Daly:

And do you think the change in the financial environment is going to have an effect?

David Ogilvie:

I think the change in the financial environment, particularly the reshoring and nearshoring that Lisa was talking about will lead to a lot of automation. So technology in the sense of machinery and that sort of automation. I’m seeing a lot of distribution companies that I’m working with adopting the automatic retrieval and storage systems, those sorts of things, taking the manual portion out of that part of their business. I see some of the smaller businesses, for example, finally adopting things like bar coding and real-time data capture, those sorts of things to get efficiencies in their business. So the scale of the technology adoption changes depending on the size of the business, but I don’t think there’s any doubt that there are people who are turning to technology to get that productivity improvement that they’re going to need.

Patrick Daly:

And Diane, it’s been in the news here, Biden administration I understand is putting out some massive incentives for green technology and green investment and it’s actually causing a reaction in Europe to develop its own counter incentives. And I understand there’s a big package in the making at the moment. And here in Europe as well, the war in the Ukraine has sparked a kind of spectacular belt turn. EU has virtually weaned itself off Russian gas within a year and breaking all kind of expectations in that regard. Probably most noticeably Vladimir Putin’s expectations in that regard. So every day it seems there are more investments in renewables, electric vehicles and so on. So how is this manifesting in the US and do you think the time is coming where this is going to become kind of mainstream and the criticism’s going to go in vain and we might see it being just the way business gets done in the future?

Diane Garcia:

I do think that we have these advancements. I think companies have been utilizing them as a technology does advance. I don’t know that things are drastically changing, but I do feel that companies are still working on initiatives that will support a green supply chain and how they can develop or reduce waste out of the process and develop initiatives to clean up their manufacturing processes. Back to what David was mentioning about the automation and the ERP systems, mostly I see clients who are utilizing their ERP systems to get data out so they can make better choices in their supply chains. But I just wanted to add on that some of this initiative of green supply chains can even just be boiled down to that we know what kind of inventories to hold and what kind of inventories we need so that we reduce waste and not move product around the globe that isn’t really necessary on our shelves or on our ships or in transit as the companies would need.

Patrick Daly:

Lisa, do you have any view on the question I asked David about technology rollout in this idea that productivity growth had been disappointing over recent years and maybe the financial incentives were contributing to that and maybe things are changing?

Lisa Anderson::

Well, I mean do agree with David. The statistics are something like 80% of ERP implementations and large technology rollouts fail to achieve the intended results. So from that point of view, yes, but that’s not new. So I really don’t think that the efficiency or productivity numbers you’re talking about really relate to real productivity measures, at least in the US market. I think that it’s more how numbers are calculated and which industries they’re looking at. And there’s a lot of things that go into it. What I see from the clients that I’m working with is that if anything, they’re continuing to focus on being more efficient, they’re automating and doing all those types of things. So I think I would be suspicious about it. And they’re also implementing new technologies and that type of thing. I mean sure there’s always hiccups, but is by no means new.

Patrick Daly:

Okay. David, I know Australia has particular challenges with regard to sustainability, renewables and so on. So how do you see that agenda playing out in Australia and in the Pacific region over the year and beyond?

David Ogilvie:

I’m no economic guru, Patrick, but I do see concerns that the speed at which the governments are talking about the transition to renewables and the messages that they’re giving the market around investment, I think we’re going to potentially have large gaps in our capability. I don’t think that the new technologies and the green energy industries are going to be able to get to scale quickly enough to take over the supply that the fossil fuels are currently providing. And there’s a definite lack of maintenance and investment in the fossil fuel industries here. Our power was almost rationed in the peak of summer. Like I mentioned to you before we started, we’re getting temperatures 38 degrees here yesterday, so there’s lots of air conditioners running and there’s a lots of fridges that are running and those sorts of things. And there’s a large demand and there’s just no capacity to fill that up at the moment apart from fossil fuels. So that gap is what I see as the biggest risk.

Patrick Daly:

Yeah. Go ahead, Lisa.

Lisa Anderson::

And I would totally agree with that.

Patrick Daly:

Go ahead, Lisa.

Lisa Anderson::

Sorry, Patrick. Yeah, I just wanted to say I totally agree with what David’s saying. There’s a lot of talk certainly about the… I mean really everyone is trying to be more energy efficient and as it can make sense for the business, they’re doing that for sure. They’re eliminating waste and they’re being more efficient and they want to conserve resources. But we are very far from getting away from fossil fuels. I heard a statistic, I don’t remember the exact number, but it was something like we’ve moved the needle by 1% in the last 20 years. And what’s worse than that is that there is a lot of push here to go to electric cars and to use electricity. We don’t have the capabilities to provide the electricity to charge the cars and even to get any of the stuff for the batteries that are in the cars because that’s in China, which we have these crazy balloons flying over us. So I don’t see how that’s going to work.

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Patrick Daly:

It is curious how when the chips are down… So say that take the case of Europe and the war and the Russian gas, and this time last year people were saying, “We’re going to be in big trouble here because we are going to have to reduce and we’re going to have to store and we’re going to have to find alternative energy sources and it’s going to be really difficult.” And now 12 months later people are saying, “Actually, we’ve done a lot better than we thought we were going to do. We’ve reduced consumption quite a bit. Granted, we probably had a milder winter than we would’ve expected, but at the same time there’s a pleasant surprise on what has been achieved.” So it’s surprising when the chips are down and there’s kind of an imperative, a bit like it during COVID. I remember at the beginning of COVID, people were saying it takes 10 years to develop a vaccine and yet there was a vaccine within a year. So it is surprising sometimes what can be done when you have to do it, right?

Lisa Anderson::

Totally agree with that.

David Ogilvie:

Interesting you say that. I was at a mining industry breakfast a couple of months ago and one of the speakers there was saying that with all of the predicted demand for renewable in the cars and all of the other battery storage that they’re going to be needed, they were saying something like the amount of copper that’s going to be needed to support all of that development in the next 10 years equate to more copper than they’ve mined to date ever.

Lisa Anderson::

Yep. So I totally agree with you, Patrick.

David Ogilvie:

How’s that going to happen?

Lisa Anderson::

People can do a lot when they set their minds to it, but there are some issues with that particular topic that like David said, I totally agree with David, it’s not possible to happen.

Patrick Daly:

Yeah. Okay.

Lisa Anderson::

But there’s new sources too though. I heard, I’m really out of my element now, but I heard something about some nuclear… I don’t remember, but basically there’s some new sources of energy, so I totally agree that there’s possibilities. But the current state scenario, I mean there’s just not enough of the key resources needed throughout the world to do what we’re trying to do.

David Ogilvie:

And there needs to be some mindset changes, right? Because nuclear is definitely off the table here in Australia. There’s no appetite to have nuclear here at all.

Lisa Anderson::

Yeah, you’re right.

Patrick Daly:

Yeah. And Germany terminated their nuclear program some years ago in the resisting turning it back on again. Although France is a country that produces a large percentage of its electricity from nuclear, which is insulated it to a great degree against some of the energy shocks. But I think the new development you were referring to, Lisa, was that recently some scientists managed to carry out a successful experiment in nuclear fusion as opposed to-

Lisa Anderson::

Fusion. Yeah, I thought that’s what, right? I didn’t know if I was right.

Patrick Daly:

As opposed to incision. And the good thing about that is it doesn’t produce radioactive waste. And it was the first time that they sustained a fusion reaction that produced significantly more energy output than was needed as an input to get it started. So it was a real kind of breakthrough. So the promise of that, it potentially is almost limitless cheap abundance energy. We-

Lisa Anderson::

And in the US, we produce really clean energy with natural gas and a lot of those companies that produce oil and natural gas are leading the entree into a lot of the green stuff as well. So I think there’s a lot of potential, but I do agree with David that it’s pie in the sky to be thinking that it’s going to be transforming our situation near term.

David Ogilvie:

Yeah, well we’ve got one of our Australian billionaires, it’s jumped on the green bandwagon so to speak, and he’s put a lot of investment into hydrogen. But again, I’m no scientist, but my rudimentary understanding of how you generate the hydrogen is you’ve got to apply a lot of electricity to [inaudible 00:22:06] the atoms. So where the heavens does that level of power come from?

Patrick Daly:

I think one of the plans there is to use wind power to generate the electricity, to make the hydrogen that will go into the vehicles. That’s the channel. For example, here in Ireland, they reckon that we have the potential to… Because we’re on the Atlantic, is we have the potential to generate seven times more electricity than we need through just solar alone. And I think one of the days in January, 40% of the energy consumed in the country on that day was generated by wind power, but we could be generating 700% potentially. I guess the other 600% we’re going to export through a connector to the continent of Europe. So I guess these are things that will happen not in one year or two years, but maybe in 5, 10, 15, 20 years.

David Ogilvie:

I think we’re really thinking about 50 to be frank.

Patrick Daly:

Well, we’ll see. We’ll see. So coming back, say to this year then, as we kind of come towards the end of our chat, might just ask each one of you to suggest one standout issue in supply chain that we should be paying special attention to through 2023. So I’ll start with you, Lisa.

Lisa Anderson::

Great. Well, I mean since we’ve been talking mostly about technology, that’s where my mind is at the moment. I think that the smart companies are going to be planning for the types of customers they want in the future, their target customer and they’re going to have more opportunity, at least in the US than they’ve ever had in the past except for maybe during the Great Depression. So they’re going to have more opportunity than ever before. So they are going to have to invest in their supply chain if they want to take advantage of the opportunity. After all, if the other companies cannot supply what’s going to be needed if you can, you’re going to be in good shape. Obviously you don’t want to have just inventory though. So they’re going to need to be investing in the right technologies, automation, people, they’re just going to have to be looking at their future customers and thinking ahead and investing.

Patrick Daly:

I was interested to… Because when working with clients, I need to see their inventory master data oftentimes so you can see the items, what they are, where they’re coming from. And in a recent project I was interested to see that almost everything that they were going to be using in the manufacturing process was sourced from within the region. By the region, I mean kind of Europe. Only very few items were coming from beyond that. So they seemed to be kind of pulling supply chains in tighter on the supply side, which I thought was interesting to avoid some of the geopolitical risks and other types of risks. So Diane, what would be your standout issue that we should be paying attention to for 2023?

Diane Garcia:

Well, I completely agree with Lisa and David earlier to his comments. My note would just be as far as automation, I think the clients that I’m working with that are smart about approaching automation are those who make sure that they understand their process and that they really have a control of the automation. Before they start adding in things like bar coding, for example, they really know their process disciplines so that as they start to bring in things like bar coding, they’re not creating incorrect transactions or having on hand inventory being completely inaccurate. So it’s those who have a control in their processes and really understand how to do these things in a manual effort. And then they can speed it up with automation as things become more advanced and technology becomes more available and approachable in terms of costs.

Patrick Daly:

Yeah, so it’s going to up optimize the process before overlaying the technology on top of it. Yeah, yeah. So it’s like wash your feet before you put clean socks on, that kind of thing. And David, what would be your standout issue?

David Ogilvie:

I’m going to take it up a level and say visibility and that can cover all of those sorts of areas. So visibility about where your supply is coming from and the reliability of your supply. Get some visibility around your demand. Get some visibility around what your processes are. I think if you use visibility, there’s a high level topic to improve all areas of that it touches in the supply chain, then I think you’re going to be substantially better off at the end of this year than you are today.

Patrick Daly:

Yeah, it can can be more involved than people think, can’t it? Because you may have a supplier who’s providing you with X, Y, Z, but they make that out of stuff that they get from suppliers, from other parts of the world. So it’s your supplier’s supplier as well, isn’t it?

David Ogilvie:

Well, I would suggest that more than one tier back, the visibility’s very poor.

Patrick Daly:

Yeah, that’s true. That’s true.

Lisa Anderson::

I completely agree with that.

Patrick Daly:

And there’s not only the supply issues there, there are reputational and ethical issues tied up in that kind of complexity as well.

David Ogilvie:

I would even say the visibility of your relationships, the quality of your relationships, that’s a very high level topic. But it’s got tentacles that go throughout all of the supply chain. So if you can focus on improving the different elements of visibility in your supply chain, then I’m think you’re going to be better off.

Patrick Daly:

Okay, very good. Well, thank you guys again for being here. Joy to speak to you as always, all around the world, all at strange hours, different seasons, different times of the day. So thank you all and thanks also to our listeners for tuning in once again. So until next time, keep well, stay safe and see you back here very, very soon. All the best. Bye for now.