Episode 136: 2030 Predictions with SAP’s Gordon Donovan

In a sentence or two, what's the future of supply chain? Rather than give you a sentence, I'm going to give you three words because I think the three words sum this up. In the world of complex. But because it's complex, it's fun because we don't want to be boring, do we? And then after that, I think once we create the fun that we recognize the complexity, it's rewarding. When we solve problems, when we get the outcomes that we want, I think it's personally and professionally rewarding. And I think that the more difficult the problem, the more rewarding it is. I'm Richard Howells, and this is the Future of Supply Chain, a podcast where we explore the trends, technologies and transformations shaping the way we plan, source, make and move goods around the world. Today, we're diving into a great episode that looks ahead to the year 2030 and what it means for procurement and supply chain leaders. And joining me today is someone who's no stranger to the show, Gordon Donovan. And Gordon, maybe you can quickly introduce yourself to the audience or reintroduce yourself to the audience. - Reintroduce myself. It's interesting to say it's about 2030. I've just looked at myself and go, "God, I look like it's 2030." However, that's just because it's early in the morning for this morning. So my name is Gordon Donovan. I am Global Vice President of Research for Procurement External Workforce for SAP. I'm fortunate to have been in this world for about five or six years. My background is procurement and supply chain. So I first started in, essentially in a duty-paid, duty-free warehouse in 1988, looking at alcohol and tobacco and stuff that I wasn't allowed to touch, both legally, because I was an underage, or certainly on the liquor side of the thing, but also legally, because otherwise, the customs people come along and do bad things to you. But I was hooked from the first day around how goods move and how supply chains works and how inventories move in and out. And so I've basically stayed in procurement and supply chain ever since. But the last five or six years, working for SAP, tried to figure out what the future of procurement and supply chain looks like. Producing thought leadership to help move the profession and the function forward a little bit in terms of what it could do to share good practice and to share good things that we're seeing. And we do that through a bunch of surveys and research that we do as well, but also to inform our strategy, SAP's product strategy, and to inform how we can help our customers deliver against these things that people are wanting to try and do. So that's a brief reintroduction. - I was sitting before the call thinking, "We're gonna be talking about 2030." And I remember thinking, "I'm gonna be really old in the year 2000 "when I was younger. "And I'm gonna be really old in 2030." - Five years away, my friend, five. - So today we're gonna be unpacking the key insights from an upcoming Procurement Imperative 2030 document. And I wanna start with a big picture. The Procurement Imperative 2030 outlines four scenarios that paint a vivid picture of what the next four or five years could look like. So can you give us a quick overview in what inspired this work? What drove the initiative? - We've been doing this with the research, with the economists for the last four years. The last couple of years, we've always tried to take an even longer view. So it was always around, "Let's take a look at the next couple of years." And then we got challenged a couple of years ago, saying, "Let's look further beyond. "Let's look on the horizon a little bit further "into five years." Because we wanna try and figure out where five is. I think anything longer than five years is a problem because technology changes so fast. And we'll give you an example for that. In the Garter Hype Cycle three years ago, the generative AI wasn't even on it. Yeah, it feels like it's been here forever, right? But it wasn't actually a thing three years ago. So we can't, you don't look much further than that five year time horizon because otherwise you're gonna risk some pretty big things. And we may even miss them looking at five years, as opposed to three. So the inspiration for it was the fact that we have this data and we have this really good granular level data as to what organizations are thinking about over the next five years. And for me, it's important to look over the horizon. I tell my procurement players in their category strategies when they're thinking about this, you've gotta think about how the market might evolve over the next five years. You've gotta think about where your business is gonna evolve over the next five years because to affect any sort of seismic massive change is going to, you're not gonna snag your fingers, we're not tabitha from Bewitched. There you go, there's an old reference for us. Change is incremental, it's a long time it's gonna happen. So we do have to think about what's the run-up that we need to potentially make the changes in specific categories that we wanna be able to change. So I tell my procurement players, that's why it's important to do it. There's two quotes that I really like. The future depends on what you do today. It's a quote from Gali, which I think recognizes that the decisions that we make today shake future outcomes. Another good quote from a guy called Todd Stocker is the decisions you make today affect the outcomes of tomorrow. So those are the two quotes that I'm gonna have in my head when we're thinking around making these kind of 2030 kind of things is that we've got to try and help people think about what the future kind of looks like. And why now? Why not? We could have done it last year, but then it would have been to do in 2029. - And when I remember space 1999, 2030 is a nicer ring from it. Next year, we're not doing next year because next year is the fifth year of the research. So we're gonna do a five-year retrospective. So I was like, okay, we're doing it now. - Fair enough. So we talked about there were four real scenarios that were highlighting. The first one is the international order reset. And we're seeing lots of shifts, geopolitical shifts, trade fragmentation and regionalization, that the T word tariffs. - Yep. - And these all have implementations on global supply chain and sourcing strategies. So are we witnessing the end of globalization as we know it? How are global sourcing strategies adapting to new geopolitical realities and ever changing geopolitical reality? - So I think we can track the slowdown in globalization through, it first started happening in like 2015, 2016. So two big events happened in 2015, 2016. Iceland beat England in Euro 2016, which was a big seismic. That's a big event. Unless the city won the EPL. Or Brexit happened and Trump got elected. Well, it's your choice, which you think of the seismic events that impacted the slowdown. - I want to think happy thoughts. I'll go with the former. - Yeah, yeah. Personally, I think less the winning EPL as I'd had massive slow, globalization slowed down. But you know, it could also be Brexit. And it could also have been the initial election of President Trump 1.0. Your choice as to which. So are we witnessing the end? I think we've witnessed the end of globalization. I think that has stopped. The data kind of support this slowdown and it's this slow that it would kind of, 2015, 2016 all the way through, exacerbated massively by COVID. And then right now, the T-word is also having that kind of impact. And even if I think some of the terrorists got taken off tomorrow, I think it's going to take a good five to six years to unpick those kind of things. And then is it ever going to go back to the way it was? Go into your group and discuss that. I think AI is going to change an awful lot of things in terms of the way the organizations work. I think it's going to affect those kind of things. I think we're a lot more aware now of resilient strategies, are probably slightly more impactful than cost strategies. And when resilient strategies have that focus as opposed to cost, the driver of lowest cost doesn't necessarily go there. It's almost like lowest acceptable cost that gives us the resilient strategy that we need. So the driver. Yeah, but the driver factor is more the resilience that it is the sort of cost base. So what am I seeing? What are the, how are global sources strategies adapting to these geopolitical realities? Regionalization, multi-sourcing, much more resilience focused than single sourcing. I think historically there was always an assumption that the market will provide competition. And I don't think that's true that anymore. I think that when we're thinking about where our competitive markets to help us from a financial perspective, but also to help us from an innovation perspective, we've got to realize when we think about innovation, there are two things that drive innovation. What is organizations wanting to innovate to enter a new market or to gain market share? And when we look at Porter's generic strategies, and again, I say to procurement supply chain, people understand the businesses that you're working with and what's their generic strategy they're following. Are they following product leadership? Are they following cost leadership? Are they following niche leadership? It generally will fall into one of those three. And then think about what that means for you at your organization. Are you aligned with your well? So that balance of power that I think was firmly with the buyer in a global world, because there was always another supplier. And there was always another supplier who could potentially do it cheaper. I don't think that is there to the extent that it was there in 2015. It's not there as much now. That balance of power has shifted much more toward the supplier. And therefore the strategies that we follow need to adapt. So I think there's going to be less of, "Hey, let's do supply based consolidation and single sourcing." And much more of understanding the strategies within the category. And specifically, I call it subcategory activation rather than bundling, because you're going to have to now understand that the subcategory or even the subcategory, you're going to activate, you're going to engage and execute at the lower level, not at the higher level, because that's where the competition really is. And competition is good. Helps keep prices low and it helps drive innovation. - Absolutely. So let's talk about the second scenario. And it was titled, "The Talent Cliff," which I'm sure will hit home to many people. I read somewhere recently that 50% of truck drivers around the world will reach retirement age in the next five to 10 years, which is a scary thought. So with demographic shifts and automation acceleration, how should procurement and supply chain leaders be thinking about their workforce planning? And what strategies matter most for the future? - I think we are firmly in the age of total workforce. And total workforce, for me, includes things that you've outsourced, both as a services contractor, includes contingent labor and it includes your payroll. That's total workforce. I think the big thing for me is building in success planning and succession planning. We see the drop-off when that planning is not done or is done badly. Let's take Manchester United as an example and let's poke fun at Manchester. As a Manchester City fan, I'm going to poke fun at Manchester United. - They were wonderful for 20 years and their succession plan for their manager when he retired didn't really work. When succession planning goes badly, that's what happens. And I think that's the big thing for organisations to think of. And to your point around, the truck drivers are trying. In the US alone, by 2030, as we're talking about 2030, 30 million people will have exited the workforce. 60% of the OECD economies have got a shrinking working age population by 2030. We have to rethink how we look at talent. And I think previously, we didn't include outsourced contracts and contingent labor as our talent. And we need to think about our talent in that kind of way. So I definitely think that succession planning and succession planning could include outsourcing certainty. We need to think about, there was a piece of research that I was reading of separate to the preliminary part. It says all that by 2027, 40% of organisations around the world will have fundamentally changed that key skill sets. AI is undoubtedly having a seismic impact in how organisations are going to market. We see organisations now almost saying, we are going to be reducing the size of our workforce and harnessing the power of AI. Think about how your processes need to change to be able to do that. Almost taking away the decision around, let's figure out how it's going to work and then how it's going to impact them. We're going to reduce that by this month and you're going to have to figure out how to use AI to do it. It's a much fundamental, different kind of strategy which I'm seeing now. So in terms of what skills and what workforce strategies matter most, let's talk about strategies. I think selective outsourcing is too. I think organisations are planning to do big chunks of outsourcing to take a look at cost base, but also to recognise. And the two drivers of this, number one is cost savings, like over 70% of organisations recognise that they use external workforce, which is services and contingent labour to drive costs in, and two is because they don't have access to the skills. When I think about skills that I would be recruiting for now, if I was doing a supply chain and meeting those kind of things, the three that I would be looking for, curiosity, problem-solving, general acumen. Now, that's what a lot of people say, but the data points to the fact that when given a choice, when given the list with those on it, they're always at the bottom. Yeah, it still goes to traditional skills, and that, I think, is where the risk for many organisations is. Quite a few of these traditional skills are going to be automated. I think we have to evolve. There's no use trying to bolt AI into the processes. I think we have to rethink our processes entirely for an AI world, thinking about how we're going to harness AI. I think a key skill is how are we going to use AI? Our colleague, Natasha, has a great blind around. Think about how it's going to assist you, augment what you do, or automate what gets done. And I think those three A's, I love those three A's. I think they're brilliant. They work really well. I think we have to evolve with it. We have to recognise that AI is going to change our processes, it's going to change the nature of work. I think we then have to think about, okay, what's the value that we bring to our organisation? And for me, the value is always the ability to ask why, to be curious, not judgmental. I'm going to keep going with these kind of quotes, right? There's a Walt Whitman quote, which I think Ted Lasso made popular, but be curious, not judgmental. And I think that talent piece is critical in terms of those skills. So let's go on to the third one, which has the interesting title of digital infrastructure shutdown, which sounds a bit ominous to me, but I was just talking to somebody earlier today, actually, about a research paper around trends and strategies in supply chain, which was conducted through the University of Hamburg, and the top challenge that they were seeing is cybersecurity for supply chains. So with cyber threats and AI-driven misinformation on the rise, how vulnerable are our digital supply chains? And what are the biggest risks and the research saw on the horizon? I absolutely agree. The threat of cybersecurity was identified in the Curio Imperative Research as well. So we asked the question, what are the things that are going to change your organization and strategy fundamentally? And by far, the biggest one was cybersecurity. Like 60% of respondents said that there was the most critical impact on the change organizational strategy. The second one, which was security, was like 24%. So there's that delta between the things I was actually going to do. So cybersecurity, massive threat, massive threat. And I like when you were saying, I didn't like it. When you said you were right, when you say AI-driven misinformation is on the rise. But when you talk about the biggest risks that I see on the horizon, it's actually that it's this deep fakes. I was at a presentation and someone was talking about a real case where a head of accounts paper released a $25 million payment to a supplier because he had a phone conversation, a video conversation with the CFO. Well, and then the CFO the next day of phone said, what's this payment for you as well? You told me to release it. Not me. And it was a deep fake. And it's like, oh my God. And they were face to face. And they were, it was a video, it was a video chat. Yeah. It's scary. It's unbelievable what can be done without. So and then you see all the cyber attacks. Jaguar Land Rover, Jaguar Land Rover. The manufacturing side got one of their manufacturing places got hit, but it wasn't actually theirs. It was one of their sub supplies, Toyota, same thing. Marks and Spencers, same thing. Qantas in Australia, same thing. There's a consistent thing though. That consistent thing was it actually happened in the supply chain. And the end result was that the major company got impacted. But actually where the attack happened was like tier two, tier three supplier. It's an old saying, but you're only as strong as your weakest link. 100%. So I think that's the biggest risk that I see is recognizing the. The supply chain and recognizing where the weakest point is. And in terms of driving some resilience for this, I think about we need to channel our inner Yoda. We need to pass on what we have learned because whilst our stacks. And we know we do our due diligence with our suppliers and the supply chains. And we think, you know, how are they going to get to do the supplies? Do that with our supplies and that's why we actually need to think about. We've got this entirety of a supply chain that it's not siloed. We have to break the silos. And for me, that's one of the hopes, I think, of digital infrastructure of where potentially a gentekai is going to help, not just internally in our organization, but throughout our supply chain. That, I think, is the is the piece it because I think the threat is more imminent for us further down the supply chain than it is at its highest point. So how are we educating the supply chain about the threats and what they can do about it? That's, I think, one of the risks and the opportunities. And if you watch zero day around digital infrastructure shut down, there you go, because that's not a million miles away, right? Keeping in mind that multi-tiered supply chain and needing that visibility and collaboration across all the tiers, the final or fourth area was around climate breaking points. And we're already seeing the effect of climate volatility on logistics and sourcing and the disruptions from natural events. So how are ESG mandates and sustainability goals reshaping procurement and supply chain? And what does a climate resilient supply chain look like? I think that climate resilient supply chain looks like a resilient supply chain and recognizing that climate is one of the key risks. Instead of optimizing purely for like speed and efficiency, like additional supply chains, yeah, and that's what I'd, in many ways, I just in time philosophies all about is maximizing for speed and efficiency. I think climate resilient supply chain prioritized the ability to absorb shocks, the ability to adapt to disruptions and to recover quickly from climate related events, whilst hopefully reducing the environmental impact at the same time. Because we have to have this circuit thing going on. We have to have the ability, we can't just react to stuff and then keep reacting to stuff because that's going to test our agility and that's not necessarily going to work. We have to think about how do we reduce as well as recognize that we're going to have to react to things. And in many ways, this is where I come back to the opportunity for procurement and supply chain leaders to rethink the processes around this deep strategy. How am I going to change the nature of what this market looks like? I'm looking three years in the five years away. And that's why I talk about that side. Think about how that market is currently now and what it's going to do and how it's going to evolve if nothing changes. Therefore, what needs to change to ensure that I'm doing that? What's the scenario plans that we need to build to be able to react? What are the fundamental things that we need to do to be able to change it? I think that for me is a big kind of piece of things. I think you can think these cloud resilient supply chains do need to maintain real time insights into how goods flow, which is the key for supply chain. The risks throughout the entire supply network, I think is recognizing and getting that supply chain visibility into ensuring that who's actually in your supply chain network is critical. I think we need to leverage technologies, IoT, RFID, predictive analytics. Make sure that we know the full visibility of supply allocations. I don't think we necessarily do. I don't think we know where everything actually comes from. And I think that's one of the key things that I would be looking to try and do. And then understand from a climate perspective what are the vulnerabilities. I mentioned on a call that I had before we recorded this podcast. I was talking about if you're currently sourcing from organizations who are at or below sea level, that is a risk. And there are two things that we have to do. Number one, we have to think about, well, there's an immediate issue, because if those supplies aren't there anymore, because the locations aren't there anymore, where else are we going to get it from? But then more fundamentally, we'll actually want them there. We just talked about the balance of power shifting, didn't we? Well, that's going to make the balance of power even more so, because you've got even fewer supplies to choose from, even fewer, even less choice, which means you're going to have less innovation, less benefits. So I do think that's a key thing, that transparency, I think, allows decision making to happen before a crisis happens, which makes us appear much more agile when those events do actually transpire. We've talked about these four different scenarios, the order reset and globalization, the talent cliff and how automation and training of the people need to work together, the whole concept of digitization and AI and cybersecurity, and then sustainability. And each of these scenarios are powerful on their own, but they're also deeply interconnected. You can't make a decision not at the cost of ignoring the others. It's a typical supply chain problem, but one decision you make here will impact something else here. But which of these scenarios will impact us first in your mind? Has it happened already? Well, I was about to say, I think the international order reset is happening now. I don't think climate is not happening. I think climate change is happening. I think that's been proven, right? We're pretty sure climate change is happening. Most people would agree with you. Yeah, everybody, but most people don't. I don't think it's fantasy. So maybe the one is the latest, is the talent, necessarily because it's not important. It is massively important. But I don't necessarily think that we're seeing the impacts and effects. I think traditionally, and this is, I wish we could get away from this, but it's in some ways it's human nature. We'll wait until something actually is directly impacting us before we do something about it. As opposed to trying to say, if I carry on this route, that's going to be the issue. Let's try and get ahead of the curve. I do think that we're still firefighting an awful lot. I'll say, we're worrying about today's issues, not the bigger picture. And one of the reasons why I keep coming back to this is, every time I do this piece of research, sustainability always tops the three-to-five-year time horizon. It never tops the short-term horizon. Always tops the three-to-five-year horizon. Because there's always something else that's more important right now. Well, you can think back to the pandemic. Sustainability was top of mind before the pandemic. It wasn't that important for a little while during and after the pandemic. We are dealing with the fallout of the pandemic still. It just has a different rise. Right. But as I was saying, the slowdown in global trade can trace its roots to 2015, 2016. That's when the numbers started to change. So we can actually see the pandemic didn't cause it. Accelerated it. I think if there was no pandemic, it would have just been a very gradual decline for various reasons. There's a great book called The Undoing Project that digs into quite a lot of the reasons as to why some of these things are happening. So as soon as the witch is going to impact us first, I think the international order reset is happening right now. And that's probably the one that is front of mind for everything. We've touched on this a little bit about the importance of that visibility at multiple tiers down your supply chain. What's the role of collaboration and business networks across departments, across functions, across industries, across companies and geographical borders? How are you seeing companies leveraging or how should they be leveraging business networks? I think collaboration is everything. I think we've tracked the way the procurement and the rest of the business has been increasing its collaboration and we've tracked the benefits of that collaboration and we've tracked how well procurement teams and their suppliers are collaborating and we've tracked the benefits of that collaboration. I think the next logical step is collaborating throughout the supply chain to recognize that it's throughout the supply chain. It's not a one-to-one relationship. I think it's recognizing that supply chain is essential for all components within that supply chain to work. In order for that collaboration to happen, there needs to be trust throughout that supply chain. And that, I think, is critical. And it needs to be a trust between the buyer and the supplier. Then there needs to be trust between the supplier and the supplier and trust all the way down the line that when we expose who we all are to everybody, that there's not the, oh, we don't need them anymore. They don't have any value, we'll go there. And that's always the risk. Yeah, and that's what I turn and say, that if you want collaboration to happen, then trust is critical. In many ways, this, I think, is the opportunity for a genetic AI to help break down initially the internal silos that happen within a real organization. Because essentially, the bots don't care who you are. The bots don't care. They don't care about ifdoms. They're about the data. They're about sharing the information and breaking those silos down. That's exciting to me. That means that you're going to be able to share all of this stuff and stuff's going to be able to happen in real time. And you're sat there making decisions based on the totality of information that's available. Now, imagine throughout the supply chain, imagine knowing that there's actually a material problem overheat. Imagine knowing that ahead of time. So that's why I think the collaboration is absolutely critical. And we have to start, for me, collaboration starts with building trust throughout without supply chain. Like AI doesn't work without good data. Collaboration doesn't work without good trust. And so trust for me underpins everything. Right, I totally agree. Gordon, we're coming to the end of a scintillating conversation. But I asked one question to everybody. You've asked you this before. So I'm sure you've got a lovely answer prepared. But in a sentence or two, what's the future of supply chain? Rather than give you a sentence, I'm going to give you three words because I think the three words sum this up. What? First one, complex. But because it's complex, it's fun. Because we don't want to be boring, do we? Not at all. And then after that, I think once we create the fun that we recognize the complexity, it's rewarding. When we solve problems, when we get the outcomes that we want, I think it's personally and professionally rewarding. And I think the more difficult the problem, the more rewarding it is. What a wonderful way to wrap up the conversation. Nice. Hey, Gordon, thanks again for spending the time. It's always a pleasure to talk to you. And likewise, we're always rewarding. Hey, just a question around the procurement imperative document itself. We'll keep an eye on it, become available and share it with our readers. I'll have them by through. Out Now, my friend. It's like I'll channel our inner Englishers. Out Now from Kate Ellen Roncoe. It's available. It's on the Economist Impact site, which I think we'll share with you in the show. It is right now. You've got those four scenarios. It's a bit of like an immersive thing. You tweak through what we're seeing. The causes are what the impacts are, the trigger points, what it means, and then what to look out for. OK, well, thanks again. And thanks for the hot of the press update. And everyone listening, go to the show notes and we'll make sure we include a link to the research. But until next time, from Gordon and I, thanks for discussing the future of supply chain.