Eskander Yavar: 0:04

The digital part of the Supply chain, whether it's robotics software systems, e-commerce platforms, are really starting to influence how businesses are creating their operating model and competing with each other.

Tom Raftery: 0:17

Good morning, good afternoon or good evening, wherever you are in the world, this is the Digital Supply chain podcast, the number one podcast focussing on the digitisation of Supply chain. And I'm your host, Global vice president of SAP, Tom Raftery. Hey, everyone, welcome to the Digital Supply chain podcast, My name is Tom Raftery with SAP. And welcome to Episode 101. And my guest on the show today is Eskander. Eskander, would you like to introduce yourself(and commiserations on missing out on Episode one hundred)?

Eskander Yavar: 0:48

Yeah, absolutely. Well, happy to be part of Episode 101. Good to be with you today. My name is Eskander Yavar. I'm a partner with BDO USA. BDO is the fifth largest public accounting firm globally. My interest is really in helping the marketplace innovate and drive the supply chain capabilities.

Tom Raftery: 1:06

OK, cool, but that all sounds great. You recently produced a survey and the results of that survey that were quite interesting. You want to talk a little bit about that?

Eskander Yavar: 1:17

Yeah, absolutely so BDO produces an annual CFO survey in this case, we interviewed about 600 CFOs across various industries, one hundred within the manufacturing space, and the results are telling the year over year we're seeing a lot more investment from innovation and digital perspective with manufacturers, whether it's on the factory floor or within their supply chain. That trend continues in this year's survey results with the majority of manufacturers, CFOs responding with that. They will be making those investments again in 2021. So we're excited about what the future holds from that perspective.

Tom Raftery: 1:48

OK, what kind of investments are we talking about?

Eskander Yavar: 1:51

Ultimately, these companies are looking to invest from a technology perspective in everything from order, fulfilment technologies to distribution technologies that allow for more about touchless distribution centre. I think robotics, we're seeing a lot more companies that are born into this digital age creating their operating model with a technology first mentality versus some of the legacy companies that are trying to create the business case and get the capital expenditure approved to make those investments from a technology perspective. So definitely starting to see a paradigm shift in how technology's playing into this space.

Tom Raftery: 2:28

OK, and how is technology playing into that space? I mean, what are the differences you're seeing between those two paradigms of companies you talked about.

Eskander Yavar: 2:38

Yeah Tom, You know, it's really interesting. So I'll take a great example for the audience. There's a retailer that's direct to consumer strong e-commerce platform manufacturers, women's apparel and China distributes to a US market the eight years old, and they've gone from nothing to about 150 million dollars in revenue in that period of time. They're up and running. Operating model really employs them to drive a e-commerce platform that's directly tied into order fulfilment process within the distribution centre. That's heavy in terms of robotics from a ship perspective that allows them to actually fulfil their orders at 20 percent of industry standard in terms of costs. So not only are they rapidly growing, they're doing in a very profitable way, but a nice case study. And now they're faced with the opportunity to open a new distribution centre. And the question becomes, do they want to make a similar capital investment from a technology perspective to do it as efficiently? Or is it more a short term play for them just to serve a certain part of the market? So those are the types of scenarios we're seeing where the digital part of the supply chain, whether it's robotics software systems, e-commerce platforms, are really starting to influence how businesses are creating their operating model and competing with each other.

Tom Raftery: 3:54

And how how would you contrast that to a non digital company? I mean, what what kind of challenges are they seeing that they're not able to address as easily?

Eskander Yavar: 4:04

Yeah, I think challenge number one is really around culture and change management. Right. Convincing the executive team to make the investment from a capital perspective into a new technology that has a future AI to it. You know, what we are suggesting often to our customers is start with the proof of concept and then go from there and gain some momentum that way. But ultimately, what we don't see, especially in the market we play in, is a lot of companies reinventing themselves. Company 2.0 with a digital sense. We're seeing an internal momentum to really year over year create a business case, drive proof of concept results are successful and really start to adapt some of the technologies that are available to them. Our hypothesis is that their slower trajectory in terms of adoption and improvement than companies that are born into that need of digital landscape.

Tom Raftery: 4:54

Yeah, I mean, it has to be hugely challenging for companies that are not, as you say, digital natives are not born into it because they have a lot of sunk costs in their in their existing set up for want of a better expression. Plus, they've got business processes which go one direction, and to do a digital transformation might take them in a completely different direction, which would cannibalise the existing business. And, you know, nobody wants to do that, do they?

Eskander Yavar: 5:26

Not at all. Not at all. What we're seeing is it really takes the sponsorship from the entire business. So this just can't be the a whim of a Supply chain leader or a operational leader. These types of changes, these types of transformations, take take the sponsorship from the CEO and all the C suite down to have a coordinated effort in terms of where the company wants to go. Usually it's a reaction to a non-traditional competitor entering their marketplace, i.e. Amazon distributing now products that they typically manufactured. It's been a lot of what we're starting to see market share is get eaten up by non-traditional competitor and they have to now react in an innovative way to survive.

Tom Raftery: 6:10

Yeah, now and of course, this is the Digital Supply chain podcast. Can you talk to some of the Supply chain oriented things you've seen?

Eskander Yavar: 6:21

Yeah, you know, there is an interest in terms of the idea of supply chain in today's world. So three years ago, if you read any of the surveys of CEOs from some of our peer group, Supply chain was number 19 or 20 in terms of importance for those executives, 95 percent of our businesses globally have had some type of supply chain impact from the pandemic. And the results today are it's top of mind for these executive teams. That's number one, number two or three in terms of investment in infrastructure and technology and importance of the initiative to the company. That coupled with some of the international trade policy we're seeing, is forcing organisations to think through really vetting the supply chain from a due diligence perspective, not only who they're partnering with, but what type of technology capabilities those partners are employing, how the data being transferred seamlessly. So there's visibility and where is any product at any point in the supply chain you're seeing a lot of companies offer from the moment you place an order to the time it's delivered to either the retail location or to your home where demand has shifted. During these times, demands have definitely shifted to the individual and their and their home, you know, transparency into the supply chain, which is enabled through some of this end to end technology.

Tom Raftery: 7:38

Yeah, very much. Very much. And if we if we think about manufacturing, for example, and business transformation, are we seeing many of the manufacturers change their business model or diversify into different kind of revenue models, only that kind of thing?

Eskander Yavar: 7:56

Absolutely. I think today, with the power of the technology that enables those supply chain and these manufacturers to think analytics and business intelligence, think all the data that's been thrown out by some of the sensor technology, many manufacturers are starting to understand that there is additional revenue streams, often in a subscription basis that they can provide because of their products in the data that that product throws off. So I'll give you a good example, Tom. We worked directly with a manufacturer of pre-emption equipment in the public safety space. So this company creates the hardware that allows for emergency vehicles to get line of sight to a street light to provide a green light in an emergency situation. You don't want to have an excuse that you were able to get to an emergency or deliver a patient who is in potentially a life threatening situation because you had a red light in the traffic signal. They were they were bought out by a private equity firm recently who was heavy into some of the digital parts of the supply chain and innovating different revenue streams in their businesses that they owned and really challenged that company to think through the data that their hardware produces, their hardware producers, the data. Imagine a city with all this hardware traffic patterns, the amount of times they had red lights versus green lights and emergency situations. There's a lot of compliance around that business. And what was happening is their customers were employing data analysts on an individual basis to correct some of this reporting to the model that was flipped. There was this manufacturer had all that data available to them. They created a analytics platform on Amazon Web Services and offered the subscription to that reporting capability to fulfil the compliance requirements for customers on a monthly basis. So instead of the customer now employing a hundred thousand dollars a year analytics professional and doing that each and every time, they're subscribing to a thirty dollars a month analytics model that allows them to get the reporting that they need new business model for the manufacturer, really convenient offering for the customer base and different revenue stream altogether that that effort actually took the entire organisation to align in terms of legal. Who owns the data? Finance? What's the investment going to look like? Operations? How are they going to serve the platform and make sure it stays accurate and up a hundred percent at the time? But they successfully implemented that last year and been enjoying the additions of a new revenue stream ever since.

Tom Raftery: 10:30

And they've maintained their old business model at the same time. This is a new additional business model that they've rolled out on top of their existing one.

Eskander Yavar: 10:37

Absolutely, absolutely enabled by their legacy model.

Tom Raftery: 10:40

Yeah, because when we talk about digital transformation, very often people are talking about, you know, replacing one business model with another. You know, if you think of the Rolls Royces and the GEs going for the power by the hour or so, in other words, giving away the engine and then charging for its use. But of course, that's quite challenging to do. And you're risking, as I mentioned earlier, cannibalising your existing business. But if you can build a service onto your existing business and have be it additional to, rather than competing with, then of course it becomes a lot easier to roll out.

Eskander Yavar: 11:49

Absolutely, that's the ideal win win situation. We haven't seen many instances, the cannibalisation in the marketplace. So it's really about education on the opportunity that this technology, whether it's an analytics platform or some of the data that's thrown off by the sensors, allows these traditional product based companies to to take advantage of. And that's that's the trick. It's a it's a new phenomenon that enabled through this digital world that we live in today. And we spend a lot of time just educating on the opportunities.

Tom Raftery: 12:21

OK, OK, it's all this is based very much on organisations having sensors and communications and ways of analysing that data, and not everybody has that. Or if they do have it, not many of them realise that this can be a valuable asset, allowing them to stand up a new business. I have a particular example in mind that I've come across, and it was the example of a company called Continental. They are a German. You might know them as a tire manufacturer. And the rubber, part of their business, accounts for 40 percent of their annual revenue. In fact, the other 60 percent comes from the smarts that are in most of the vehicles that most manufacturers sell today. So if you own a car today, there's a good chance that a continental part in it that was sold directly to the manufacturer of your car, you're unaware, but it's there. So it's the typical B2B model. So Continental were rolling out a product two, three years ago. They were going on this project to roll out a predictive maintenance project where they would take in data from from vehicles that were connected, from the sensors that they had sold to the vehicle manufacturers. And this was for fleets of vehicles where the fleet manager would be able to get a notification if a particular part of the car was going to break down so that you would minimise the downtime for the vehicle. The fleet manager would know all this particular vehicle. This particular component is going to break down in a week's time. I'll order in a spare, we'll whip it out, replace it before it breaks down minimum downtime for the vehicle, etc., etc., etc.. Very nice project. While they were developing that product. They were approached by a weather company and the weather company said to them, hang on a second, you're collecting all this kind of information from vehicles. You're collecting, amongst other things, time of day, GPS, external air temperature, windscreen wiper status, foglight status. The weather company realised that these vehicles were little mini weather stations throwing off real time weather information, hyper local. And so suddenly Continental had a whole new, to your earlier point, whole new business additive to their existing one based on the data that they were collecting already from vehicles. So it's a point I often make to executives. If you have a data collection project, always be aware there can be a left field use of that information that hasn't occurred to you and try and, you know, open your mind or try and get other people to look at the data you're collecting and see if there are other uses of that data that haven't occurred to you.

Eskander Yavar: 15:18

Yeah, I think that's a really great example. You know, we we talk about data is the new oil data is the new currency. But that's the application of it. Right, because you have a captive data set. What can you do with that data set to serve your market better? Have a similar example, Tom. Electric motor manufacturers, so imagine motors that go into the refrigeration unit that you see your local grocery store. So you go to the grocery store. You I know from our past conversations are in love with butter pecan ice cream. You walkin you wanna make sure that butter pecan ice cream is nice and cold and you can purchase it. So here's here's where the intelligence supply chain and the digital supply chain that we're talking about in the podcast actually relates. In the Old World, the electric motor manufacturer who's part of the supply chain to the refrigeration manufacturer, provides the motor. The motor has a certain performance to it. And when it fails, there's any impact to the market, meaning Tom goes in in the ice cream is melted because the refrigeration unit is not working. And people, humans by nature are very particular about what they want when they want it. There's an expectation set around service. What I expect my ice cream expected to be cold. I don't want to go to three stores to get it. So you can imagine from a grocery store perspective, low margins, high volume business, you don't want to discourage your customer not to come back. What this electric motor manufacturing company is doing now is adding preventative maintenance sensor technology to their motors to throw off alerts before failure. So you don't have an event where the ice cream has melted. You actually servicing the electric motor in the refrigeration unit ahead of time. And there's no disruption in terms of service level. And I think that's where we're going. I think as a as an organisation, in terms of the Supply chain, there's a certain performance level set on how that Supply chain performs from a quality on time delivery transparency perspective. And that bar has been set really, really high. Yesterday, I was able to see a commercial from Amazon that talks about two hour delivery times on groceries. So now you and I can remember back in the early part of this century when companies were trying to do that fresh direct model in 2000, 2001, it was just before it's time now we have Amazon talking about to our delivery time. There's an expectation set on KPIs, on service levels that all of the world will have to catch up to our children, our digital native. Now, they expected now when an item is going to arrive at what time? And if it's not there at that time, why not? It's it's a different world we're living in. And I will tell you, based on all of our not only our CFO surveys, but our digital transformation surveys that we produce, I believe that that trend will continue into the future. I believe nobody in our audience will argue we're going to revert back to a non-digital world.

Tom Raftery: 18:05

No, no, no, absolutely, absolutely. And these new business models that are that are, you know, being spun up as a result of this, are you seeing companies take any kind of innovative actions to make these happen for themselves?

Eskander Yavar: 18:18

Yeah. So I definitely think there is an audience and an appetite for companies, whether it's capital investors, private equity companies or just the founders of the start-ups that are more prone to creating an operating model that employs these types of technologies. I think that's the key, right? Where they do that, they do is they're able to fulfil orders at a fraction of the cost. They are able to accelerate their their growth curves rapidly. And I think that's the key is it's the mindset from the beginning, the strategic plan that's getting employed versus what we talked about earlier. And companies are trying to learn to educate themselves and adapt. It's just a slower process for them.

Tom Raftery: 19:02

OK, and the survey you did, though, was of CFOs. What kind of considerations do they have around investments and supply chain that make this so?

Eskander Yavar: 19:14

Yeah, so because Supply chain carries the cost line for a lot of what's delivered from these companies, CFOs, those are constantly looking for ways to improve profitability because of the disruption from the pandemic's now made them front and centre topic for them. How are they going to improve their resilience of their supply chain? They're looking at every node in the supply chain to make sure there's reliability put in place and ultimately looking for efficiency in terms of the performance of the chain and cost of the chain. So they're more keen now than ever before in the past to make technology investments, to actually drive some of those goals. Right. Efficiency, reduction of cost, et cetera. I would tell you that wasn't the case pre pandemic. But because it's this pandemic has impacted so many businesses, folks can't get computer parts these days. Simple, simple video cards. They were going for seven hundred dollars in the past, and scalpers had taken all the initial allotments from these companies and jacking up prices. I tried to purchase Bicycle's for my family last year. We're still on backorder. Right. And that's that's a result of really two things that the result of the health care of our workforce, social distancing and the increase in demand. And companies are still trying to catch up with that gap. A lot of demand is beginning parts of this pandemic, not a lot availability of capacity. And it's going to be quite some time. What we found through our survey is that companies that were interrupted by the pandemic in their supply chain was interrupted. They have a start. They had established in terms of manufacturing output somewhere along the supply chain are taking far longer, up to a year and a half to catch up with demand versus those that didn't have any interruption in their capacity of the supply chain. And that's a big deal. I mean, we're talking about business as usual going through the pandemic versus a year and a half behind.

Tom Raftery: 21:12

Wow, and for organisations, what is the biggest kind of impediment to moving towards a more digital supply chain?

Eskander Yavar: 21:19

Yes, a great question. And it comes down to capital expenditure request. A long term view versus a short term view. What we're finding is companies have a longer term view, can more easily justify the return on the CapEx versus companies that are just trying to fulfil a tactical short term need service, a certain part of the market without a heavy investment to prove it. That's a continuing business for them. If they're really going to capture the market share, they want to. So it's about perspective. Those who have a longer term view make the capital expenditure investment because they know it's going to return. Those who don't plan to be in that part of the market for a long time are having a hard time justifying the investment.

Tom Raftery: 21:58

Okay, Super Superb, Eskander. We've gone over the twenty minute mark now. Is there any question I haven't asked you that you think I should have any points we've not discussed that you think people should be aware of?

Eskander Yavar: 22:12

You know, to the point of this fabulous digital supply chain podcast and the business that we are in that BDO, I think it's important that our customers, the audience understands that this trend around the digitisation of our global economy is ingrained in both the business fabric and our social fabric. So personal fabric of our lives and the trends will just continue with there's no turning back at this point. So I would encourage the audience to continue to be liaison's and champions for helping companies drive this transformation in their business, whether it's a small step in terms of a proof of concept or a new Start-Up that's digitally born in a native environment, we will be having this conversation for decades to come as the world continues to transform. I'm excited about it.

Tom Raftery: 23:03

Likewise, likewise, if people want to know more about yourself, or BDO, or the survey or any of the things we discussed on the podcast today, where would you have me direct them?

Eskander Yavar: 23:16

Absolutely. You can direct them to our public website. I mean, I know you'll put that in some of the commentary and you'll find some of that leadership in the survey and how to contact our professionals, including myself.

Tom Raftery: 23:26

OK, superb. Superb. Eskander, that's been great. Thanks so much for coming on the podcast today.

Eskander Yavar: 23:31

Tom. Appreciate the time. Good luck.

Tom Raftery: 23:34

OK, we've come to the end of the show. Thanks, everyone, for listening. If you'd like to know more about digital supply chain to head on over to SAP dot com slash digital supply chain or or simply drop me an email to Tom Dot Raftery at SAP dot com. If you like to show, please don't forget to subscribe to it on your podcast application of choice to get new episodes as soon as they're 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.