The Impact of AI and Automation on the Global Supply Chain Part 1

Published December 21, 2018

Category: ESG | Innovation

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Written by: Padmini Ranganathan
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Padmini Ranganathan

Padmini Ranganathan is Global Vice President, Product Strategy, SAP Procurement solutions, SAP Ariba.  In this role, Padmini is responsible for defining and delivering solutions to drive transparency, impact and shared accountability, leveraging key technology areas of network, big data tools and data science.

Prior to Ariba, Ms. Ranganathan was with SAP for seven years, developing and delivering industry specific use cases, solutions and analytic applications based on SAP’s market leading Analytics portfolio.

Ms. Ranganathan brings a wealth of experience in the domain area of supply chain and procurement having worked at Ariba as a product manager and at Oracle as a technical consultant and product management in the areas of order management, inventory & distribution, procurement and manufacturing.

Ms. Ranganathan is a passionate advocate for bringing technology to business users simplifying and enriching daily work and decision making, and has been a sought after speaker at key notes, webinars, events and interviewed by the media.

Ms. Ranganathan has a post-graduate diploma in computer science from UC Berkeley, California, and a bachelor’s degree in commerce with a major in Cost & Management Accounting from Bangalore University, India.

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Recently, at the United Nations Forum for Business and Human Rights at the Palais De Nations in Geneva, Switzerland, my colleague David Herman, Chief Data Scientist at SAP Ariba, and I had the honor of reflecting on the role of artificial intelligence and technology automation and their impact on human rights – especially as they relate to workforce displacement in the supply chain. From UN and non-governmental organization (NGO) delegates to business and academic representatives, a number of people reached out to me affirming the relevancy and urgency of this topic and agreeing with the possibilities I laid out for responsible business practices. Here is a synopsis of our perspective. 
According to McKinsey’s 2018 report on robotics and the future of the workforce, automation can raise productivity globally from 0.8 to 1.4 percent annually. This is a positive outcome impacting economic growth, consumption and gross domestic product (GDP) of nations around the world, as new technologies including artificial intelligence (AI) and automation make their way into product and service design for the future. However, with the wide adoption of technology across all sectors – from manufacturing to services – there are some inherent risks for which businesses need to take responsibility. In this article, I will share a perspective on responsible business and sourcing practices that can play a part.  
Let me start with automation. Sewbots in the apparel industry and robotic automation in many other sectors are replacing the human workforce and impacting the basic right to earn a living wage. Many aspects of machinery operations, fast food prep, data collection and processing are automated, displacing workforces typically much lower in the supply chain.  
So, what can brands do to protect the future of work while taking advantage of the Internet of Things
McKinsey’s report also predicts $1.5 trillion in wage loss for workers is likely with automation by 2030. Many attendees stated that automation is not a distant future; this transformation is already underway. Some predicted that factories will be fully automated in less than five years. This has a two-pronged impact – on workers displaced by automated factories and farms, and on whole communities where factories that are unable to shift to automation lose business. 
Listed here are some responsible business practices that could positively help impact livelihoods, but only if the procurement and product management departments carrying them out jointly address the following: 
  1. Recognize potential risk of worker displacement when introducing automation into the design stages. Identify the supply chains that will be impacted and combine market intelligence to understand the cultural, socio-economic and legislative factors involved in making the transition. Distinguish the potential impact to workers, especially on vulnerable groups, such as women, and conduct a social impact due diligence amongst the impacted supply base. 
  2. Ensure enough work. Brands can work closely with their suppliers to identify the displaced workers and develop reskilling and training opportunities and job shift strategies. Where workers cannot be reskilled – as automation does change the required capabilities and literacy levels of the workers – identify income supplementation programs to help workforce transition.   
  3. Apply a portion of wage “savings” (a corollary of wage loss) gained from automation to support workforce transition, including training. There are many benefits of reallocating procurement savings to shared supplier co-development. Productivity, business continuity and brand reputation are all positive impacts of such a shared collaboration with the supply base. 
  4. Build shared communities – within or across sectors. Brands can come together to address more severe issues of income polarization risk factors and socio-cultural issues by working closely with the local NGOs and governments. Providing advance notice of automation might prompt governments and NGOs to start capacity building and community awareness, making the working communities part of the transition process. 
Businesses cannot and should not turn a blind eye. After all, this impacts fellow human beings. As one of the business leaders I met rightly said to me offline, “Can either of us imagine not being able to work and feed our families?” When procurement and sourcing professionals make decisions to source from factories and farms transforming to keep up with fast fashion and mass production trends, keep in mind the impact on the workforce displaced, the share of savings dollars that can be applied to re-skilling and capacity building, and the rights of the workers to be part of the transformation process. 
Part 2 of this series will address artificial intelligence and its impact on human rights. We’ll explore the role that responsible businesses play as AI makes decisions that create potential risks to consumers. 

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