Maurice Liddell: 0:04

Historically the workforce has been a tremendous challenge for manufacturers or last companies, and it still is, it is another top item, but as organization are starting to compete for talent, their ESG program is starting to be one that people are taking a look at and it can become a determining factor to attract potential employees

Tom Raftery: 0:24

Good morning, good afternoon, or good evening, wherever you are in the world. This is the digital supply chain podcast. The number one podcast, focusing on the digitization of supply chain. And I'm your host global vice-president at SAP Tom Raftery. Hi everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery with SAP and with me on the show today, I have my special guest Maurice. Maurice, welcome to the show. Would you like to introduce you?

Maurice Liddell: 0:51

Yes. Thank you, Tom. My name is Maurice Liddell. I'm a partner with the BDO digital, which is a subsidiary of BDO USA, Edo, um, which is also the fifth largest public accounting firms globally. My focus is on helping the marketplace optimize and manage supply chains through the use of information and technology.

Tom Raftery: 1:12

And Maurice BDO published its third annual CFO outlook recently. And in fact, I had one of your colleagues on discussing last year's CFO outlook Eskander so I invited you to come on the podcast this year to have a chat about it. And to tell me a little bit about, some of the findings.

Maurice Liddell: 1:32

Yeah. Great. Just to put context around that, as you mentioned, this is our third annual, publishing of that. And here we interviewed 600 CFOs across a variety of industries and a hundred of those coming from the manufacturing space and these results give us really good insight into where manufacturers are, headed and focusing within, you know, 2022. So, you know, there's a couple of key things that really come out of this. And, you know, one of those in particular is really starting to show about supply chain resilience is, is a very heavy focus. You know, with that 56% of the manufacturers say supply chain, disruption will be a significant business risk in 2022. And to better understand this, I think we need to, to really first identify the threats that they see the supply chain operations and there were, I think, you know, three primary ones. There's, there's several, but, but three really resonated here. And one is a rising material, costs another one supplier risk or delays and another one is supply shortages. So, you know, we've been dealing with this sort of for the last couple of years and that problem is going away, but this is really showing that supply chain resilience is still really on the top of the mind. Now, what we also seen from this is that in order to address these risks, organizations are looking to find alternative suppliers. They're taking a look, the onshore and near shore supply chains. They're raising prices to customers and they're also temporarily or permanently discontinuing, production of certain products or services. And this is where it kind of, I think he gets a little bit complicated, right? Is manufacturers are trying to deal with this. Because you don't want to raise prices or discontinue products or service lines that will impact your most critical customers. This could damage customer relationships and lead to loss revenue. So what we're saying is that instead manufacturers should consider developing new pricing, you know, strategies. That's based upon customer priority, you know, not every customer provides the same level of revenue or same type of, uh, importance. And here's where like the pareto principle applies or, or 80 20. And for those that it's really not familiar with that that's really says, you know, 80%, of the effects come from 20% of the causes. And I think this really applies from the customer perspective as well as revenue. Whereas, you know, 20% of customers are probably driving 80% of the revenue. And again, same thing, 20% of the product lines are driving 80% of the cost. So I think this is really helpful in identifying maybe where to focus. We also don't want to discontinue, your best-selling products. so we spend, we need to take a look at alternative suppliers or maybe temporarily a shift supply to the most profitable lines. And this approach has been noticeable, like, like the auto manufacturers in particular, where they've been shuttering plants and being able to shift, some supply where there's interchangeable components, right. To those that are more profitable. So we are seeing manufacturers do this today. We also mentioned, the onshore and nearshore chance organizations looking at that, but, you know, cost reduction and capital efficiency are important. But really the objective here should be, trying to change a footprint to get physically close to key customers and to make them better insulate themselves from external disruption. So now this goal, should be to continuing the highest priority customers and looking for new efficiencies within the supply chain.

Tom Raftery: 5:25

Okay. And changing suppliers is never easy is it, because I mean, if I'm looking for. I dunno, let's say a new set of headphones. I can go to Amazon and I can find hundreds of brands of headphones and hundreds of suppliers within the Amazon marketplace. And if one doesn't have it, I can switch to another in seconds, but there isn't really an equivalent if I'm in a B2B environment. If I, you know, if I'm buying, let's say 10,000 tons of steel for building cars. And my steel manufacturer is based. Russia, for example, suddenly I can't get Russian steel. So where do we go now to get steel? It's I can't go to Amazon and you know, so it's, it's challenging, right?

Maurice Liddell: 6:08

it's extremely challenging, Tom, and I think you're hitting on something . It's not an easy equation and you're right. Changing suppliers. That's a year, 18 months, or even longer, activity to do so. That's one of the other things that we're seeing is that then how do you deal with that? How can you maybe get better visibility into your supply chain? And this is where we are seeing a, another kind of interesting really theme throughout the survey is that, you know, how organizations are applying technology. There's really two, I think, diverging kind of camps and thoughts around this. And we put this into a bucket of what we call. Really born in digital manufacturers and legacy manufacturers. So you take a look at the born in, digital, these are the ones who are making investments in technology, and, you know, today they are really focusing on that whole customer service. So they they've made the infrastructure investments in the past and now are able to really start focusing on how do I, really improve operations supply chain? Where the legacy manufacturers are just now starting to catch up and making those, I'd say those core infrastructure investments. And so that's where we're starting to see a big. I say that versions here and how they're adopting these things. But you know, what we also saw is that the, the more digitally advanced manufacturers here, but let's just say the, the reborn ones, um, are outperforming the rest. They're, they're the ones that are saying they're really going to be thriving this year versus just surviving, um, more so than those legacy manufacturers and. what we're also seeing here too, is that the innovative manufacturers are kind of borrowing a playbook, really from the retail and really focusing on the digital customer experience, even in B to B, as you talk about, like from, from the deal perspective, you know, manufacturers are taking these lessons from the B2Cs and making improvements to the customer experience and deepening the relationships to really increase retention. Cause I mean, you, you talked about some, there's a scenario that you just can't do much about by being able to, keep the customer, you know, provide a better experience, keeping them with phone as much as possible is going to help with that retention. Now, what we may also see here is, kind of a consolidation of some of these overachievers, if you want to call them that or the born in digital companies and able to leverage scale for more of a competitive edge. Now the, the one area here we talked a little bit about is I mentioned like visibility. These born in digital manufacturers are really innovating their supply chains. Uh, and we're seeing like expecting, like in the next five years, supply chains are going to look vastly different thing and be smarter, more connected and more agile than really ever before, due to the technology. And these technologies include items such as advanced analytics. I know AI, I know you had, uh, someone on a couple of days ago really talking about AI, ERP software, which you may know a little bit about, cloud computing and blockchain. I think even like your, a couple of days ago, I listened to one of your podcasts with you had the CEO of a blockapps regarding in how they're leveraging blockchain technology, to help support supply chains and keep them secure. So, You know, we're going to see more of this in the coming years and you know, these solutions open up a world I mean, limitless, opportunities for, for manufacturers. And now one of the other things here too. From the technology perspective is that really can capture data, you know, from the supply chain and be able to spot disruptions at the moment that occurs. And this is where we're again, we're going to start to see the, uh, divergence and how kind of to address them with questions that, that you had earlier. Getting that visibility early on allows organizations to be able to make a more informed decision earlier, be able to keep the customer more informed, as things move across the supply chain. And it's almost like you think about from a, a Domino's, you know, the, the pizza tracker. Or with Amazon seeing a lot more of that, starting to be applied to B to B and B to C organizations. And then, you know, where we also can see the use of this is, using technologies to, to be able to find the blind spots in the supply chain. So it can work into the whole supply chain planning process and, then able to utilize other technologies in conjunction with advanced demand planning, like digital twin technology. And we're seeing more and more interest of this and investments of being able to explore this technology. And so they can work through different things, you know, scenario plannings. So very exciting to see, you know, how organizations are leveraging technology. To gain more insight in the supply chain and then to also just gain more information. And this is even driving new business models. So we're seeing manufacturers that are, one, for example, that is a heavy equipment manufacturer. And traditionally they sell very large capital items, uh, including earth moving equipment and plant.

Tom Raftery: 11:58

Right.

Maurice Liddell: 11:59

And what they have done is started, implementing telematics across all of this equipment and being able to gather the information and from that they've identified a new business model, which is really, you know, follows at anything as a service. So we're not going to sell a capital, you know, earth moving piece of equipment. We're going to sell earth, moving equipment as a service based upon the amount of product that it can move and then be able to acquire all the information surrounding that. So they can do that whole, you know, preventative maintenance around it, being able to keep the asset deployed and usable as much as possible. So that gives their customer. Now they're not having to tie up capital. It turns it more into an operational cost that may be tied to their revenues. And now we've got an organization that is starting to create a recurring revenue stream, which is very favorable, to the finance markets. So, I mean, how information is really kind of feeling these new business models as well.

Tom Raftery: 13:00

Yeah. Yeah. And that, uh, that whole, as a service thing changes so many things. I mean, if I'm, a, potential customer for an, as a service model, it's far easier for me to be able to raise the money for the weekly or monthly or whatever it is payment than it is for the huge capital outlay for the, the, whatever it is I'm buying straight up that changes the equation completely. It also means. because as you mentioned, you've got the whole preventative maintenance thing going on. It means it's far more likely that the products that I'm getting as a service will have far greater uptime, it'll fail far less. And then for the manufacturer, what it means is because they're maintaining ownership of the device, whatever it is, it means that there's no incentive to engineer in obsolescence. So the article that's being engineered, that's being built would be manufactured for much longer life, which is a huge sustainability win for everyone.

Maurice Liddell: 14:03

Absolutely it is. And so, like I said, we're, we're seeing a lot of interest in the main factors. It was a customer. So being able to adopt this model. And we're going to be deployed on, on assets that you just would have never thought about in the past, but by getting this information from the operations, it helped drive a change in the business model.

Tom Raftery: 14:56

Yeah. Yeah. And, and in, in your report as well, changing topics slightly, there's mention of the kind of global tax landscape and how that is impacting supply chains. Can you talk a little bit about that? Yeah.

Maurice Liddell: 15:08

Absolutely. that's something in, especially here in the United States, that we were dealing with a lot of, you know, the tariff related issues and this has been significant.. It will be significant for manufacturers in 2022. Although, you know, it hasn't been as the news as much compared to previous years, it's still significant tariffs remain on US imports. And, you know, it's, it's unclear if we're going to be able to, you know, strike new trade deals and God to be able to lift tariffs, especially in the short term, in particular with China. I mean, it's, it's a very. Complicated situation right now globally and so this is something that I think is going to continue to have significant impact here. Now what's interesting. And within the survey, cause it talked about tariffs cause they're so significant. A lot of these manufacturers are really talking about pursuing tariff engineering to, to mitigate these tariffs and really what this is, is re-engineering a product Altering the physical composition of an item to change its tariff code classification to one that is attracts a lower duty cycle or duty rate. For example, let's just say, take a look at, at tennis shoes where they might change the upper, which may have been, um, leather in the past to a plastic to be able to get a lower tariff, associated with that product. But, you know, complication of this is that it requires significant upfront investment and manufacturers may not be able to, to recoup that investment in time of the tariffs change, because again, it's constantly evolving and they might be better off just looking for alternative suppliers or thinking their sourcing strategy altogether. And, and to your point that you made earlier comment, it's not easy to change suppliers, right? But this is analysis that needs to be done It's not a single point of analysis. All these things need to be factored in and, the, the impacts of the pandemic and other disruptions, including the container shortages, shipping delays. These should all really motivate companies to rethink some of their geographic footprint sourcing strategies and to improve their supply chain, agility, resilience, and the customer service levels, right? Cause it really has to focus on servicing the customer and otherwise all this is kind of a lost cause. For every business decision that they're taking a look at doing here, tax implications need to be considered. And so those that take a total tax approach, will be best positioned to navigate these types of changes. And that total tax, uh, approach really requires taking a look at and understanding, the taxes have been exposed at any point in time. And this includes federal state, local international. All those elements come into play. And so this is where the CFO should really be working closely with the tax departments, to be able to help evaluate these strategies and really determine what's going to be the best approach to achieve that supply chain resilience.

Tom Raftery: 18:23

Interesting. And I think this is the first time I've had someone come on the podcast and mention the implications of tax on supply chain. But I guess it being a CFO survey, I shouldn't be too surprised.

Maurice Liddell: 18:38

Yeah, I'm fully looking at everything on the bottom line.

Tom Raftery: 18:41

There you go. There you go. I mentioned how product as a service has implications for sustainability. Is sustainability something that came up in your survey that CFOs are interested in? Or is it something that you're seeing kind of trend towards now?

Maurice Liddell: 18:58

We're definitely seeing a strong trends towards that Tom. And you know, this, this is actually. Very exciting to me because, you know, we're seeing more and more of the main factors focus on ESG you know, it's really environmental, social and governance aspects. And. You know, cause cause manufacturing is a major contributor to carbon emissions, in a significant opportunity for manufacturers to make a positive, global impact, and we're seeing that they're taking this seriously, but as companies are evaluating their supply chains, ESG, you know, impact is often a factor taken into consideration. We're seeing a lot of organizations, particularly those that are public entities because they have the investor influence, in Europe is a little ahead of the United States as well within the, this, you know, focus. But all these organizations are having a strong focus on here. Now that becomes take a look at my supplier. How important is ESG to them? What is their sustainability focus? And so we're seeing that this is also not just an important factor for investors. They're also important to many people entering the workforce. Uh, you know, historically the workforce has been a tremendous challenge for manufacturers or last companies, and it still is, it is another top item, but as organization are starting to compete for talent, their ESG program is starting to be one that people are taking a look at and it can become a determining factor to attract potential employees. And so, you know what we're saying, sees manufacturers are really kind of changing the stigma manufacturer, um, manufacturing from being though it's considered a dirty type of industry to showing us really a technology driven industry and that's helping to attract, some of the, talent as well. Because we talked about, blockchain, artificial intelligence, machine learning, you know, ERP. Tremendous amount of technology being deployed to help with, uh, supply chain management and resiliency. You need talent to be able to help operate. And it's just not gonna, remove workers from the workforce. It's going to inform them so they can make better decisions. And, being able to understand the technology or, the, the carbon footprint generated from all this is going to be important for organizations moving forward.

Tom Raftery: 21:27

Hmm, and it's going to be important as well if, if I, am, purchasing something, be it that 10,000 tons of steel I referenced earlier, or any of these things. If I look down through my supply chain, and I can, compare and contrast suppliers based on their carbon footprint. Increasingly it will be as important if not more important to check the carbon footprint of a supplier as against the financial implications of the same purchase.

Maurice Liddell: 21:54

Absolutely. Yeah. Yes.

Tom Raftery: 21:57

Cool. Maurice, we're coming towards the end of the podcast. Now, is there any question I haven't asked you that you wish I had, or any aspect of this that we've not mentioned that you think it's important for people to be aware of?

Maurice Liddell: 22:11

Yeah. I think, one thing that's really starting to come to surface here, Tom is really about data sharing partnerships, and how these can benefit manufacturers. So in next 12 months and beyond, I think we're going to see more manufacturers entering into these data sharing partnerships with their peers, vendors, and customers. They're going to share data, across the supply chains and with others in real time. Now there's challenges associated with this or, and a lot of is, is standards and integration. but you know, it's CatenaX, which is, I think one very good example of this with, uh, the, a lot of German automotive manufacturers helping to establish some standards around this. I think we're going to see a lot more of this, and this is really going to allow participants to be more agile, responsive to disruptions, and really have more data to use than the competition.

Tom Raftery: 23:08

Yeah.

Maurice Liddell: 23:09

This is exciting and I like to see, where I think the as a group, as an industry, by pooling together information and resources, we can have a bigger impact than us as individuals or individual organizations. And I think this is one way that we'll start to see that.

Tom Raftery: 23:26

Interesting. Great, lovely. Maurice, that's been fascinating if people want to know more about yourself, Maurice Liddell, or about BDO or about your survey or any of the things we talked about in the podcast today, where would you have me direct them?

Maurice Liddell: 23:40

So there's a plethora of information on this, on our, um, manufacturing industry site. But so I'll send you a link to that so that you can share with your audience.

Tom Raftery: 23:51

Phenomenal, phenomenal. Maurice. That's been really interesting. Thanks a bunch for coming on the podcast today.

Maurice Liddell: 23:56

Oh, it's my pleasure speaking with you, you know, and about this, I think very critical topic.

Tom Raftery: 24:01

Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, head on over to sap.com/digital supply chain, or, or simply drop me an email to Tom dot Raftery @sap.com. If you'd like to show, please, don't forget to subscribe to it in your podcast application at choice to get new episodes, as soon as they are published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks catch you all next time.