Business Catchup Edition: Tech Titans and Supply Chain Shifts

Embark on a journey beyond the surface with me, Tony Hines, as we unravel the intricacies of global supply chains and the high-stakes game of tech investments. Imagine navigating a terrain where billions are bet on innovations like AI, robotics, and the Internet of Things, aiming for an efficient, resilient logistics future. Our discussion takes a hard look at the paradox of rampant spending amidst fears of squandered funds in tech projects. Grasp the full picture as we dissect the lightning-fast digital transformation on track to hit $76 billion by 2026, and why companies gamble big on tech for a competitive edge, despite doubts over the return on their hefty investments.

Prepare to dissect the top five supply chain priorities that are reshaping the landscape as global tensions, environmental sustainability, and digitalization demand our attention. We're weighing the delicate balance between reshoring production and the advantages of a global supply network, and the role of technology in boosting transparency. We'll also tackle how the concept of resilience is evolving, blending strategies like collaborative partnerships and the careful application of just-in-time systems. Coupled with this, we explore the complex aftermath of tech booms influencing metal markets and Brexit's ongoing economic drama. Join me for a session filled with critical insights and predictions, where the only constant is the rapid pace of change.

Transcript

Speaker 1: 0:00

Hi, you're listening to the Chain Reaction Podcast, all about supply chain advantage. I'm your host, tony Hines, and I'm going to take you through all the things that have been happening in global supply chains this week. So stay tuned for the Business Catch Up Edition of the Chain Reaction Podcast. Welcome to the Business Catch Up, tony Hines, here with all the things that have been happening around the globe this week. All things impacting global supply chains People, processors, tech, physical goods, physical space, trucks, planes and ships all feature in today's Business Catch Up, and whether it's Amazon or one of Elon Musk's companies, they're all featured too. So stick around, find out more.

Speaker 1: 0:53

Half a pound of Tupine soap, half a pound of treacle, or should it be half a million software cost and half a pound of tech? That's the way the money goes, and pop goes the profit. Well, something like that. But have you ever wondered how much money companies waste on tech products? Well, it's almost half. According to various surveys I've been looking at this week. Company executives whether they've been involved in the purchase of tech projects have indicated that it could be between 45 and 50% of the cost that they think is wasted in one way or another. But of course, tech is a love-hate relationship. We don't like to spend on it, but we can't live without it. And if you think about truckers and the trucking industry, they spend about £14 billion a year on physical products. The trucking industry alone invests about $14 billion every year in technology, training and other associated expenditure to improve highway safety. That's according to Safety Spend survey of the American Trucking Association. So we're spending a lot of money on tech, and that's just in trucking. Shippers, too, spend a lot of money on tech, and not just shippers, but also, of course, manufacturers and everybody that works in supply chains. So who's benefiting from all this money that's spent? Well, obviously, technology companies selling their worth, and we need them. But we want the product to be right and fit for purpose and of course, that isn't always the case, because there's lots of glitches and although the companies may be selling the product, it may not always be right for your company to make the purchase. So you have to be careful how you proceed. You have to be very clear about the aim of the project and you have to communicate that to the vendor. The clearer you can be, the better that will be in specifying what's exactly needed, and you need to ask hard questions to make sure that they can provide what's required, and if they can't, don't be afraid to ask them if they know who could, because it's in their interest to give you good advice rather than simply take the contract and then not be able to fulfill it.

Speaker 1: 3:12

The global market for digital transformation in logistics was estimated to be about $46 billion back in 2020 at the start of the pandemic, and forecasts estimate it's likely to reach just under $76 billion by 2026. So this growing at an annual rate compound growth rate of nearly 9% 8.8%. It includes spending on hardware, software, services and everything tech. The United States and China are the largest contributors the US spending around $14 billion, in China, $13.7 billion back in 2021. And, of course, what's driving the spend? Well, it's the need for greater flexibility, predictability about risk in the future, trying to predict things and reduce risk, gaining efficiency over the supply chain and, of course, developing resilience in logistic operations. Businesses are increasingly turning to tech to solve these challenges and, in trucking and shipping and any freight carrying system, having visibility over the supply chain, in the whole chain of delivery, is important, and so that's why we're spending, and this spending, of course, is only likely to increase. And what do we spend all the money on? Well, more specifically, with the growth of artificial intelligence and people seeing it as an essential technology in logistics, because we can optimize data through natural language processing NLP, and through machine learning, ml which efficiently handles large databases and increases operational accuracy. So, with AI playing this critical role in demand forecasts and, of course, at the same time, linking it with historical data and identifying past trends, linking those to forecast future demand and getting a picture of what's likely to happen In the future, that's one big spend.

Speaker 1: 5:14

Then we've got robotics all the things we do to improve warehouse efficiency. Amazon, for example, is the biggest producer and user of robots and robotics in its warehousing and logistics operations, and that's increasing year on year. So that'll give you some clues as to where they're spending lots of money. Robots, of course, never go sick they're 365 days but of course you and I know they do break down and they might need maintenance and engineering attention. There's also the development in the Internet of Things, with industry 4, devices providing real-time tracking, monitoring and searching for those elusive efficiencies and, of course, reducing errors. All those things are combined under this label we call the Internet of Things.

Speaker 1: 6:08

Then we've got advanced inventory management systems. These are systems which keep our inventories at optimal inventory levels, reducing carrying costs, improving customer service, which is key, of course and if we can replace inventory through these advanced inventory management systems with data, then that's a big plus, so it might be worth this heavy investment. Then there's all the things to keep us safe and the transactions secure in the system investing in blockchain technologies and as things like collaborative logistics, which involves multiple stakeholders in the supply chain cooperating, working together to improve efficiency throughout the whole chain, the total supply chain, and to reduce costs. And we invest a lot of money, of course, in those digital control towers that everybody talks about and wants kind of control over the system. They provide real-time visibility and control throughout the supply chain.

Speaker 1: 7:08

There's warehouse task automation, so that sort of technology automates repetitive tasks, and again, it's about improving efficiency and reducing errors. So if we're looking to pick, pack, track and deliver, that sort of thing is an important cost. And then we've got software that searches around throughout our supply networks to find the best prices of how to move goods. If we're searching for the 3PL or the 4PL provider, we've got software to do that. We don't do it manually. We no longer necessarily pick up a telephone and speak to a human at the other end and ask them for their price, and then put the phone down and ring somebody else. That world has disappeared. We can do this very quickly, automatically, using software and technology. And then there are, of course, transport management systems, enterprise resource planning software, warehouse management systems, yard management systems, and there's all kinds of solutions to a problem that you might be experiencing in your business. So, yes, all these technologies cost money, but they are transforming the nature of the industry and it's moving it. Not necessarily to a tech business, because we've still got those physical goods that we've got to move and shift and get to customers, but it's actually giving us the data, the information about the business to ensure we're not creating waste in other parts of the system, in other parts of the supply chain. So, although we might think it costs a lot of money, it might be saving us money too, so don't lose sight of that fact.

Speaker 1: 8:52

Well, it seems hardly a day goes by without Elon Musk being in the news, and he's been in the news a lot this week. He's been in the news because of his lawsuit in America, which is clawing back $56 billion from him. He's also been in the news raising $6 billion for his new business venture in AI artificial intelligence and he's also been in the news with regard to difficulties at Tesla and the share price falling. So lots going on with Elon's businesses. Well, the biggest thing in the news this week about Elon Musk was the incorporation of Tesla in Texas. Elon Musk announced that Tesla will hold a vote on moving the company's legal base to Texas, where his physical headquarters are, after the state of Delaware throughout his $56 billion pay package at the EV maker. A judge in Delaware, where Tesla is in corporate, voided the $56 billion pay package granted to Musk back in 2018.

Speaker 1: 9:55

Musk turned to his ex company, formerly Twitter, to hold a poll asking whether Tesla should change the company's state of incorporation from Delaware to Texas. A million votes were cast at the time of recording, which has come out in favor of the move 87% voted. Why anyone cares I don't know, but 87% voted of a million voters. But there we are. It's up to Tesla what they want to do, but it looks likely that they'll go to Texas. I think Texas or Nevada were the choices because they think that regulatory frameworks are perhaps a little less in those states. But hey, hey. Musk moved Tesla's corporate headquarters from Palo Alto in California to Austin, texas, back in 2021 after criticizing California's regulations and taxes. One of Tesla's gigafactories is in Texas and it's building a £1 billion lithium refinery in the state, which it hopes will produce enough battery grade lithium for about 1 million vehicles by 2025. And other companies run by Musk, including SpaceX and the Boring Company, also have operations. Guess where? Yeah, in Texas.

Speaker 1: 11:14

Now, it wouldn't be January or even February if we didn't take a look at the year ahead. So for this particular business catch-up edition on the 3rd of February, I want to take a look at the year ahead of the big things that are going to be in our minds during the rest of the year, and one of the things that never goes out of fashion is cost control. So I think you hear people say, or cost is not so important or it's less important. But I think that's a fallacy, and cost is always important, and I've always argued that it's not just cost but it's value. So I would link the two together and I would say that it's more about value than cost. But don't minimise cost. It's important, but it's getting the best value in the supply chain either as procurement, manufacture, distribution, shipping and logistics. Whatever you're doing, you have to watch those costs and, of course, the difference between cost and revenue represents value, and if you can optimise value and still satisfy the customer, then that's where you should be in any supply chain. So you have to watch cost and that's why, for me, cost will forever be important, but so too is revenue generation, and revenue generation depends on the market and the customers coming back and demanding the goods. So it's a double-edged sword in that sense, and that's where we want to be in our supply chain. So focus on value, look at cost and look how to increase revenue and you won't go far wrong.

Speaker 1: 12:49

Now, the other thing that's right up there for me is the geopolitical tensions around the globe, and, if anything, those are probably number one. Either jointly with the focus on value and cost, and minimising risk of disruption from those geopolitical tensions is taxing everybody, and has been for the past year, and that will remain so, because, if anything, those tensions have increased rather than reduced in the past year. First of all, we thought we had just the pandemic to deal with. Then, of course, we had the pandemic and the war in Europe between Russia and Ukraine. Then we have the Middle East conflict and the spread of all the things happening in the Red Sea. So that Middle East area is tricky to negotiate presently and of course that's causing lots of disruption. And it's not just that. There are other places around the globe where it's tricky to do business and we spent about 25 or 30 years expanding global supply chains and many say that we'll be bringing those back to increase resilience.

Speaker 1: 14:01

Well, you can in some cases, but you can't always just nearsure resure. You have to have some goods always coming from other parts of the globe, especially those goods with a unique relationship to the geographic areas where you find them, and that's in all kinds of produce. Fruits in particular come from certain parts of the globe, materials to particular metals, rare earth metals, all the things that we need, oil, the geo located, and so if there's political risk in the countries we're actually importing goods from, then geopolitics is right up there. And in February I've got a really interesting episode coming along where I talk to Bindi over Keel about geopolitical risk and resilience and how her company, resolank, is helping people in the supply chain. So you might want to go along and listen to that when it pops up.

Speaker 1: 15:01

Sustainability, of course, is right up there, and it has to be considered by many suppliers, businesses, because it's what customers are demanding with ESG. Customers want to know what kind of costs are embedded in their supply chain and whether they can lower the carbon footprint or whether they're going to have a higher carbon footprint as a consequence of doing business with others, and so that's very important, and I think sustainability and climate change are going to be in my top five for the year ahead. And sustainability, of course, is about more than just climate change and fuel cost. It's also about pollution, and I had an episode recently on forever chemicals, and you might want to go and have a listen to that, because making sure that you are not liable, that you don't have product liability for anything that you produce in your supply chain, is particularly important, and that means watching the risk, assessing it properly, having thorough knowledge of what goes into the materials, into the assembly of components that you use in your production facilities, and just keeping on top of things, and I'll leave you to go and listen to the episode on those forever chemicals so that you can find out more about those. So sustainability and climate change in the top five.

Speaker 1: 16:29

In the previous segment, we were talking about investment in tech, and of course, that will remain a top priority for many in supply chains. And so it should be, because supply chain digitization and transformation is key to achieving supply chain advantage. And, of course, with all the generative artificial intelligence, it's estimated that one trillion dollars could be the global impact of gen AI on the supply chain. So investments in digital logistics are set to increase in 2024 and lots of people are reporting that they're going to be investing in technology, approaching 90% of shippers, so that they're going to invest in technology over the next two or three years and there'll be an increasing adoption of technology to improve efficiency, visibility and, of course, traceability of goods all important. So that's another thing in my top five for the year ahead.

Speaker 1: 17:31

And a final one for the top five is, of course, resilience, and resilience takes all forms. There's no one way to achieve resilience, but there are many ways to achieve that particular strategy and it's up to you to make sure that your strategies to make your supply chains resilient are fit for purpose in the context of the businesses that you operate and the supply chains and the partners you work with. So collaborative partnerships are one way to create resilience. And, of course, don't overlook just in time. Many people were arguing that just in time was dead in the water, because we're now thinking about resilience to reduce risk. Well, yes and no, the answer isn't some context, it might be the case, but in others, just in time, as important as it ever was, because that also can lower risk as well as cost, and it will stop the production of waste or having unnecessary inventories tied up in your warehouse and, of course, in your working capital. So there we have my top five, in no particular order value and cost revenue generation incorporated in that discussion.

Speaker 1: 18:45

Then we've got the idea of ensuring that you invest in the technology so that you're improving visibility, effectiveness, efficiency and traceability of products throughout your supply chain. Then we've got the idea of resilience. We've got the idea of minimizing geopolitical threats and we've got the idea of reconfiguring supply chains. But remember it took us about 30 years to go global, or more longer been going global forever. If you're thinking about reconfiguring your supply chain to near-sure or friend-sure or on-shore or whatever sure you want to put it on, then one of the problems for that is it's going to take time. Following that kind of strategy is going to be three to five years, and it's going to. You have to be pretty sure that the economics are right for your business.

Speaker 1: 19:37

And there's just one more thing I want to remind everybody about while I'm discussing the top five. I take it as red that you're already investing in skills and training of your people so that they can become more effective in what they do, whether they're in the tech side of the business, whether they're in shipping and logistics, whether they're in manufacture, procurement, whatever part of the supply chain they work in. People are important and we shouldn't underestimate them. And you can't replace all the people in the organization with robots, ai and generative AI, machine learning, robotics, etc. So just keep an eye on the ground, stay grounded. People, of course, are the quintessential expandable resource and they learn changing reaction.

Speaker 1: 20:42

Now let's turn our attention to some of the other things hitting the headlines this week and, uh, get you up to speed on those. It was reported this week that Microsoft, amazon, nvidia and Alphabet were four main players that invested about a third of the 70 billion dollars that was raised by data and artificial intelligence startups in the past year. Some of those investments may turn into revenue generators, but others, of course, may not, or not as much as expected, for the dollar spent or invested. There are increasingly regulatory and financial pressures and risks that need to be taken account of in the race to get to the future fast, and I wonder whether the companies that are all jumping in, piling in, see this as a way of obviously maintaining the position in the marketplace, but also, are they taking proper care and attention when it comes to assessing the risk involved in the investments that they're actually making? We know that many investments in tech promise a lot but don't deliver, and so it remains to be seen what the outcome of these things will actually be.

Speaker 1: 21:55

It makes sense, of course, for companies like Amazon, who invested about four billion pounds into Anthropic. It was a startup committed to spending the same amount on Amazon web services. In theory, nvidia would also benefit, because it sells the high performance processing chips powering AI that they invested in. So there are reasonable things on the face of it that are happening, but you're wondering the race that they might trip over themselves in the hurry to get to that future. Of course, microsoft is the biggest investor, I think, in the market presently, because they're really interested and focused on generative AI At the moment. Of course, it demands a lot of capital to invest in all the people with the skills to write the computer software for the models that are used in generative AI, and these are big operations the small firms some of them, but they combine and collaborate and it's a major investment. And then there's all the tech equipment itself that you have to invest in, all the hardware to make the systems work and to get the AI in place. And then, of course, there's the legal minefield about copyright and copyright infringement and the future legal bills that may bounce back to bite some of those companies. That could be copyright infringement, with bills to follow. Ultimately, of course, there will be big winners and possibly big losers.

Speaker 1: 23:28

Now, a story that caught my eye this week was the fall in demand that's occurred for EVs as the market has cooled over the past few months, and that's sending shockwaves, of course, to metal markets, where some of the prices for the metals demanded for EV batteries and vehicles are actually beginning to fall, and so that's sending a slight nervousness through the market and concerned that there could be a domino effect if demand falls further and that could slow the investment in securing access to metals and mining and processing over the next few months, so watch this space. Apparently, the nickel market has already felt the ripples from this, and many in the financial markets considering investments are also being careful when it comes to investing. Nickel, for example, has almost halved over the past 12 months. It's now $16,000 a ton, whereas it was double that previously, and the mining industry is a difficult business anyway. It's always long term and you have to invest a lot of money up front. Another thing that caught my eye this week was the rise in the second hand market for aircraft, and this is being bolstered by the fact that Boeing's having difficulties with its 737 MAX planes and the supply chain issues where they're not turning out in a volume right across the aerospace industry, and that's driving up the price of second hand aircraft. So many in the market are actually turning to previously owned planes to fill out their fleet. Leading leasing firm Avalon said that Boeing and Airbus have both hit stags in the supply chain, which is leaving the industry short of about 3,000 planes, but Boeing in particular is having major problems.

Speaker 1: 25:35

There have been major protests in France this week, as farmers have been blockading Paris in protest over the government's handling of price pressures, taxes and green regulation. Generally they're feeling the pain and, of course, the pain has swiftly travelled across Europe, so it's not just limited to France. The government in France has said, as have the two main farming unions on Thursday, that the farmer should end the protests now, as it's causing serious problems elsewhere on the continent. Disruption in the Red Sea, of course, continues, and it's more or less the same as reported in the previous chain reaction podcast news in the past week. What's the impact on global supply chains from the disruption in the Middle East, in the Red Sea and, of course, the war in Gaza? Well, shipping rates have gone up by about 200% to the United States since December, about 173% on the Asian Mediterranean routes and contained a traffic in the Suez Canal is down by 30%. So what we know is when costs go up, prices go up, they follow. There might be a lag that when they come through the system, the price of goods that are imported from those parts of the globe badly affected by these attacks around the Red Sea will obviously push up prices in retail stores and prices to businesses. So for businesses and consumers it's not good news.

Speaker 1: 27:07

The Northern Ireland Assembly in the United Kingdom got back to business this week as agreement was reached to reopen the parliament at Stormont, and that appears to suggest that the checks on goods going into Northern Ireland will not take place as previously planned and it's still suffering the fallout from the Brexit arrangement, which wasn't really satisfactorily drawn to a conclusion. So you've heard me talk about that many times. So that's just one of the major issues that was a problem with Brexit and, of course, costs and regulations which have been introduced this week driving up the cost of moving goods into the UK from Europe as the relaxed period comes to an end and more checks and more bureaucracy will follow. So look forward to the chaos and further delays. The Bank of England kept its interest rates at 5.25% in the UK this week. In the United States, worker productivity keeps labour costs in check for the fourth quarter and that's given the Fed confidence about its inflation strategy. So the economy on a good path.

Speaker 1: 28:30

So that's it for this business. Catch up. Hope you've enjoyed the episode. Don't forget to pick up any episodes you've missed and stay informed. Keep up to date and get that supply chain advantage for your business by listening to the Chain Reaction Podcast every week. I'm Tony Hines, I'm Simon Linoff and I'll see you next time in the Chain Reaction Podcast. Bye for now.