Sustainability as Strategy: AI, Risk, and Resilience: The Future of Sustainable Procurement

00:00:00: Hello, everyone, and welcome to.

00:00:02: Sustainability is Strategy, a podcast brought to you by the experts at Rollin' Burger Americas.

00:00:08: I'm your host, McKenzie Puttesy, and the topic for this episode is sustainability in procurement.

00:00:15: Joining me for today's conversation is Shantanu Verma, partner and North America procurement practice lead at Rollin' Burger.

00:00:22: Hello, Shantanu.

00:00:23: Welcome to the show.

00:00:24: Thanks.

00:00:25: Thanks for having me.

00:00:26: I'm happy to be here.

00:00:27: I'm excited to have this chat.

00:00:29: All righty, excited as well.

00:00:31: I think as we dive into sustainability and procurement, this is going to be a great conversation here.

00:00:37: Basically, why don't we dive into the hot topic AI and AI specifically in procurement and supply chain?

00:00:47: How are you seeing this?

00:00:48: How did it come in when it first started and where is it going?

00:00:53: What are you predicting the use going to be?

00:00:56: Yeah, I mean, I think the initial hype around AI was really tied to the near human interaction and the conversational ability of AI, right?

00:01:05: I think a lot of companies saw a lot of promise and a lot of our clients, frankly, saw a lot of promise in the way you could interact with AI.

00:01:14: So there was a lot of push around thinking through things like, can AI start negotiating with my suppliers?

00:01:19: Certainly on the procurement side, we started having those conversations.

00:01:23: What's happened over time and what is happening over time is the human interaction.

00:01:30: I think still holds a lot of promises just further away.

00:01:34: So what you're getting to is companies are now systematically starting to think through solving pain points within an organization.

00:01:42: So really thinking through where are the pain points in my supply chain processes or my procurement processes and how can I use AI to one, solve the pain point to make data more accessible.

00:01:58: An example of this was I was talking to a client who talked about how they had millions of lines of data around inbound and outbound shipments into the warehouse.

00:02:07: As a result, they were left with a mess of data that they couldn't systematically look at and categorize.

00:02:18: This resulted in a challenge as far as their visibility into both what they were ordering and inventory.

00:02:25: What we've been able to do very quickly is co-develop with them a way to categorize systematically and dynamically things that are coming into the warehouse and thereby creating much more visibility into exactly what they're ordering, how much of it they're ordering, and what's actually sitting in their warehouse.

00:02:46: not something as exotic as a negotiation but still a very relevant and real-world problem that we were able to solve.

00:02:54: Great.

00:02:55: I love that.

00:02:57: Now as we get those more realistic use cases that are helping us, is there anything on the horizon that you think is hopeful that we can really leap?

00:03:10: or are we at a pretty good point of adoption?

00:03:14: I mean, I think we're still early in the adoption stages, right?

00:03:19: I think the bias towards leveraging technology to alleviate pain points as far as processes are concerned, I think is a good one, right?

00:03:30: I think there is still a future when you can think about bots negotiating on your behalf, but it's still a little bit further off, I would say.

00:03:38: That makes sense.

00:03:39: That makes sense.

00:03:40: It's a lot to hand off at this point and take a full leap of faith.

00:03:45: Exactly, exactly.

00:03:47: I think the human portion of the reliance on AI or the dependence on AI is going to be the most challenging thing.

00:03:52: I don't think any of us are quite ready to let go of the steering wheel, so to speak.

00:03:57: Fair, fair.

00:03:58: So I want to dig into a topic.

00:04:00: we've seen a lot of shifts this year in finances and global tariffs and a lot of challenges for supply chain.

00:04:10: So I'd like to kind of dig into expense management and how to look at financial discipline at this time.

00:04:19: Yeah, no, and actually this kind of ties really well to the topic of AI that we were just speaking about, right?

00:04:25: So one of the real interesting wins with AI that we've had working with our clients is around creating a systematic way in looking at how you can better assess Sort of your financial entitlements right.

00:04:45: an example of this is and we were working with a client right now and hopefully going to work with a couple of different clients where you know client contracts with their suppliers are often sitting in a mess.

00:04:57: right they're sitting in.

00:04:58: they're sitting in either hard copies or PDFs documents that are not very accessible and initially.

00:05:05: We were thinking about a solution that would allow clients to systematically ingest the information from these contracts, really create a contract database and create a terms database.

00:05:15: But the interesting thing that happened and the metamorphosis that happened, thanks to the fact that we were using artificial intelligence or an artificial intelligence backbone to build a scanner was that As we started collecting client payment data, what started happening was that the system was able to start making links between disconnects between the client's contract at terms and how they were paying.

00:05:42: Example of this, clients were paying quickly, but not collecting.

00:05:48: the discounts associated with with quick pay right there's often often incentives associated with quicker pay that suppliers offer you and as a result we were able to unlock essentially lost money for a client in a north of seventy million dollars for one particular client through going through this process.

00:06:07: the recovery process still involves negotiation and personal contact with vendors, but we were very encouraged by what we saw.

00:06:15: as far as financial management is concerned.

00:06:17: I mean, another area we're starting to see a lot of interest as far as financial management and sort of leveraging technology is really thinking through very systematically how companies budget and allocate funds associated with spend, right?

00:06:32: So, you know, there's a lot of third party tools available that actually allow you to more systematically look at both the approval process associated with spend, but also and also the analysis of spend after the fact or sometimes even proactively.

00:06:48: Okay.

00:06:49: Yeah.

00:06:49: Thanks for sharing that.

00:06:51: to sort of build a little further on some of the uncertainty and some of the challenges with the global supply chain, tariffs, geopolitical shifts and changes right now.

00:07:04: I want to look at, is the supply chain sustainable and dig into the sustainability bit with you, but also kind of looking at a resilience in operations?

00:07:14: What can you say is sort of the reality right now and where are the opportunities?

00:07:20: Yeah, I think the risk has lessened as far as the supply chain is concerned.

00:07:25: I think what we saw early on, particularly as the regulatory environment was changing, and the trade picture seemed uncertain, was a little bit of paralysis.

00:07:36: A lot of companies got into paralysis because we weren't sure how the trade environment would settle down.

00:07:44: Now that we're starting to see a little bit more settling as far as where we think tariffs and trade flows are going to end up, I think you do have a little bit more certainty as far as the supply picture is concerned.

00:07:59: To be sure, geopolitical tensions still remain.

00:08:03: So there's obviously other geopolitical tensions.

00:08:05: There's always the potential for the flare up of a trade war.

00:08:09: But generally, what we're starting to see is a little bit more of a steady state.

00:08:12: And companies are starting to think through baking in costs or incremental costs associated with either tariffs or just thinking through geopolitical risk.

00:08:24: One of the things that we've seen with clients is now that the settling has happened, they are really starting to think about diversified and geographically diversified sources of supply.

00:08:36: Sometimes the supplier comes along with them.

00:08:38: Other times the suppliers, they have to think about alternate suppliers and alternate geographies.

00:08:45: But really it is supplier plus one or two in a lot of cases that clients are starting to think of in terms of critical products.

00:08:54: The other thing that's interesting that we've seen is the identification of potential criticality or supply constraints is happening earlier in the process.

00:09:10: There's a lot of conversations we're starting to have around how design can be designed for not just manufacturability, but also designed for supply.

00:09:23: You're thinking through whether certain parts are forecasted to be supply constrained in the future, or are tied to a particular region globally, which may impede the ability for companies to be able to build.

00:09:39: products in a certain way.

00:09:40: So, I mean, an example of this, you know, when we were at the peak of the trade war with China, there was a real shortage as far as rare earth minerals were concerned.

00:09:51: And, you know, what struck me was there was a conversation happening with the CEO of Rivian.

00:09:56: And one thing he mentioned was that he was, you know, Rivian was starting to think very deliberately about designing with a lower dependency on rare earth minerals, right?

00:10:07: And this is something that we're starting to see with engineering teams and design teams across our client base.

00:10:13: Again, just kind of getting into the mode of, will there be a challenge as far as manufacturing these products or sourcing these products or concerns?

00:10:23: Yeah, that makes a lot of sense.

00:10:24: I think in the past, probably there was a little more thought of We're going to set up this way, and it's kind of a given that we're going to have access to these things.

00:10:31: But maybe now we need to be a little bit lighter on our feet to think about the ifs and whens and buts that could happen.

00:10:41: Well, kind of going from there into my next topic, I want to pick your brain about if people are looking to diversify their geography in terms of where they're producing, where they're getting their supplies from.

00:10:55: What's sort of the feasibility and the reality right now with nearshoring and reshoring?

00:11:00: if that's something a company wants to go through?

00:11:03: Yeah.

00:11:03: I mean, I think initially there was a very, I think the hope was with a lot of the trade policy in the spring and in the early part of the summer was there would be a boom as far as nearshoring and reshoring was concerned.

00:11:19: The challenge was I think that you very quickly ran into the reality of a few things.

00:11:27: One was capacity constraints.

00:11:30: So while nearshoring was interesting, Most of the suppliers that were going to benefit were already quite tapped out.

00:11:40: I was speaking to a panel of manufacturers in the Midwest.

00:11:45: They were all very interested in thinking about or the potential for nearshoring, but a lot of them didn't have capacity.

00:11:55: Their challenge kind of interesting was there was hesitation within this manufacturer group about adding capacity because the trade environment was so dynamic, right?

00:12:06: There were pauses, there were new trade agreements that were being signed.

00:12:09: So the challenge was these manufacturers weren't sure how the trade picture would settle out and how much would be reshored.

00:12:21: which created a pause essentially as far as investment is concerned.

00:12:25: The other thing you run into as far as reality is concerned is adding capacity is typically not a short-term game.

00:12:32: It's usually a twelve to eighteen month at a minimum endeavor to add manufacturing capacity, which is really what we were looking at through this process.

00:12:41: So while investments could be made, we will likely see sort of the it bare fruit you know, at the end of twenty.

00:12:50: twenty six at the earliest is what I would predict, right?

00:12:53: So there's not necessarily a ton of capacity available.

00:12:57: And then, you know, as a result, you know, while a lot of companies and clients considered nearshoring and reshoring, what they realized was even in a high tariff environment, the financial benefit associated with with nearshoring and reshoring was relatively small, right?

00:13:15: I think the challenge you ran into was the costs of building closer to home became too high.

00:13:24: So our advice to clients was if you're looking to hedge on a financial basis, don't necessarily focus on this nearshoring and reshoring quite yet.

00:13:38: There are other advantages to doing it.

00:13:41: Being closer to your source of supply is always a good thing or is a good thing in a lot of cases.

00:13:46: So definitely something up for consideration, but it's the short term.

00:13:50: financial benefit is likely not there.

00:13:53: Good point.

00:13:54: Good point.

00:13:55: And well, to get a little more advice from you, if people are looking to undergo this process and they want to sort of manage their risk, what would you give as advice for those?

00:14:08: taking on this challenge or taking on this shift?

00:14:11: Yeah, at this point, I think what we're starting to see early on as far as this process was concerned, we were very much in the pause and think through your risk perspective.

00:14:24: I think what we're getting to now is a little bit more certain picture as far as supply risk is concerned and supply costs are concerned.

00:14:35: So I think it's probably While it's probably prudent to wait, you can't certainly start thinking about adjusting your supply strategy.

00:14:46: And actually, I mean, if you think about it, and as we think about risk management, I think this is one of the areas where a lot of firms, us included, are focused on investing and using AI.

00:15:06: the way you can leverage artificial intelligence to refresh the news feed and refresh the variables in a dynamic way.

00:15:17: You can scrape news reports associated with a particular geography or a particular commodity or a particular supplier and really dynamically think about the risk associated with your supply is something that's relatively new to the industry.

00:15:34: One of the things that A lot of folks are working towards, including us, is really how we can leverage artificial intelligence to more dynamically model out the risk associated with not just a supply picture, but certainly a supply picture.

00:15:50: Yeah, that's really interesting.

00:15:51: And I think that'll definitely become more utilized and more popular as time goes on, I imagine.

00:15:58: Yeah.

00:15:59: Okay, Shantanu, I know we've only got a little more time with you today, and I'm really curious as we sort of wrap up twenty twenty five here and move into the new year.

00:16:10: You know, what are sort of the industry trends that you're seeing specifically around consumer behavior?

00:16:18: Yeah, no.

00:16:19: So I mean, my background is in retail and sort of the consumer goods side.

00:16:23: So it's very interesting for me to observe the consumer and I do have a little bit of a third person view, because most of the consumption in my household is happening via my teenage daughters.

00:16:38: But what we are starting to see as far as general consumers are concerned, particularly as we get to the holiday season, is while spend is up, I think the number of items purchased is lower.

00:16:52: So consumers are really seeing a challenge as far as as far as likely costs are concerned, and therefore are being more conscious about what they're spending on.

00:17:04: So there is definitely a little bit of a tightening of belts that's happening across North America as far as consumers are concerned.

00:17:13: The other thing that's obvious, and this came up again as I was having a conversation with my kids, is that younger consumers, particularly sort of, you know, you get into the, you know, you get into the teen slash early twenties, they're very, they're very attuned to sort of a brand's values, right?

00:17:36: Sort of the value proposition associated with the brand and sort of what sort of values it projects as far as, as far as sustainability is concerned, as far as equality is concerned, etc.

00:17:46: They are willing to invest in these brands that have a message that aligns with their values.

00:17:54: However, there is a sweet spot that they hit as far as cost is concerned.

00:18:01: So it's not sort of the consumer.

00:18:04: goodwill associated with value alignment is not infinite, so to speak.

00:18:10: Consumers are very still cost-conscious and more so.

00:18:14: So while they will invest in brands that align with their values, they are willing to invest a certain amount.

00:18:22: Again, they are still price sensitivity Trump's values alignment, at least in my view.

00:18:28: That

00:18:29: makes sense.

00:18:30: They're willing to pay a little bit more, but not infinitely more.

00:18:34: There's definitely a limit there.

00:18:38: Yeah, fantastic.

00:18:39: And then, you know, before we wrap up with you, I guess, you know, as we think about sort of the consumer behavior and what's gone on there versus sort of the supply chain and the manufacturer side, is there any sort of like golden nugget of wisdom or any thing that's sort of at the top of your mind as you're wrapping up this year on this topic?

00:19:01: Yeah, no, I mean, you know, supply chain risk.

00:19:05: and sort of supply risk definitely starts influencing consumer behavior, right?

00:19:12: Because nobody is immune to the news of the day.

00:19:16: I think by and large, folks are aware, and even if they're not aware, supply chain risk or supply chain uncertainty or supply uncertainty tends to manifest itself as higher costs, higher prices, or just you know, less availability.

00:19:36: So you do start to see consumers looking at alternatives, you know, in, you know, to, for example, EVs, if the rare earths issue persists, right?

00:19:50: Or electronics or anything else, right, as far as costs are concerned.

00:19:54: So you will start to see consumers start to think about alternate purchases or, you know, delayed purchases.

00:20:02: as far as products are concerned.

00:20:03: So at the end of the day, we're all part of this global supply chain and we're all subject to this global supply chain.

00:20:10: So it's important to remember that and remember that everybody who consumes anything is at the end of the day going to be impacted by the turbulence in it.

00:20:23: All right.

00:20:24: Well, thank you so much, everyone.

00:20:26: This has been Shantanu Verma, partner and North America procurement practice leader, Roland Berger here with me today, chatting around the topic of sustainability and procurement.

00:20:36: Shantanu, thank you again for this conversation.