Natarajan Chandrasekaran, Chairman, Tata Sons

Raj Subramaniam, President and CEO, FedEx

In conversation with: Clay Chandler, FORTUNE

 

Fortune Global Forum 2023: Reimagining Global Supply Chains And Manufacturing

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Ok. Well, according to the Brookings Institution, the world now has 4 billion consumers. I think consumers are defined as people who have more than $12 a day to spend. That's about half the world's population. Uh Next year, 113 million more people will join the consumer class. And India and China will contribute much of that, that growing consumer class plus rapid advancements in technology. The transition to clean energy lessons learned from the pandemic. Those are all factors that are reshaping global manufacturing and supply chains. We're going to learn how now from leaders of two truly iconic companies on how to lean into these trans nations to foster growth and resiliency. In an organization, Mata Chandra Saccharin, we all call him Chandra, he's chairman of Tata Sons, the holding company and promoter of all Tata group companies and Raj Subramaniam, president and CEO of fedex, they're going to be joined by Fortune's executive editor for Asia Clay Chandler for a fascinating conversation. Please welcome them to the stage. Thanks Alan, welcome. Uh Thank you both for uh being here. It's such a, such a privilege to have you with us. You know, as Alan uh hinted it has, uh really been, the last five years have been a period of tremendous of people in global supply chains. And if you think about kind of the major business, uh, stories of the last five years, that's got to be one of them. Uh, we've had factor after factor kind of compounding uh on each other to, to drive this change. You know, there's been, uh, things like natural disasters, earthquakes, weather, some of them climate related shocks to the system. There's been the pandemic that caused disruption in ports, borders were closed. Uh Then there's this kind of rising uh geopolitical tension between the world's two largest economies that has complicated trade and investment. And then you've got all this technological change going on and on the positive side, you've had the rise of some smaller economies, uh you know, Southeast Asia and especially now South Asia that really opened their borders to business and investment. And so firms are all trying to capitalize that, negotiate that. Uh And it's, it's just a fascinating uh moment you two are both on the front lines of that shift. And so I'm, I'm eager to kind of hear your views on on what's happening. Raj, maybe I could start with you. I mean, Fedex famously launched in 73 with 400 employees and maybe 14 planes or something like that and has now got a fleet of 650 or more and 600,000 workers, which is amazing. Uh I think I read that you deliver 15 million packages a day. How have all these disruptions kind of affected your strategy and your business? Well, I think uh it's safe to say that uh the pandemic, you know, fundamentally changed the supply chain conversation forever. But, you know, before 2019, if I had mentioned supply chain and polite conversation, I heard have been escorted to the door and now it seems to be a talk show subjects, you know, uh I think uh you know, historically supply chains have seen this bull whip effects over time and uh because of uh you know, variabilities and so on and so forth. But over a period of 2025 years because of systems like fedex and because of technolo technological advancements, those you know, were relatively muted, of course, there were some swings but they were literally muted and then came the pandemic. And now we are seeing the supply chain BW effect of that we have been seen for ages. So it went up and then on the way down and it kind of normalizing post panem. But during the pandemic, it was um especially the issues when supply chains were twofold. One was lack of availability of parts for uh for manufacture, for manufacturing and second was simply bottlenecks, but particularly on the oceanfront, on the ports. And a lot of the issues were, I mean, when you look at the United States, there were, you know, 100 ships waiting to unload. And a lot of the issues were in that 1st 20 miles of the coast from the vessel operator to the crane operator, to the trucks to the warehouse. And the lack of information flow between all of these things. It once it got bottlenecked, it was, it was very difficult to unravel. And so that was what the issues were from a fedex point of view. We are flying over it and we were, we kept the, we kept the supply chains alive, so to speak, especially in doing, as you recover from the pandemic, we distributed almost a billion plus vaccines in the, you know, and so on and so forth. So, and we, you know, we moved so much P pe and uh you know, um other healthcare related stuff during the pandemic. So we've kind of kept it going. Uh But most of the issues were on the, on the port and primarily in the ocean side in, in a way that the pandemic was a boon to your business because there was this explosion of, of, of ecommerce and then as the pandemic. And yeah, how did you adjust to that? Well, I think uh I think one way to describe that in macro terms would be, I think from uh before the pandemic, e-commerce represented roughly about 16% of retail and during the pandemic, it rose to 22%. So that was a significant increase that's now down to about 9 19% and it's stabilizing. So, if you actually think about it, if there was no pandemic and you look post prepa emic to where we are today, the trend would be kind of OK, except that we went through this uh cycle here. Uh So, uh I think that's where we are. Uh I think uh we are kind of normalizing to levels. where would we would have been, had there been no pandemic, especially on e-commerce, but that was in the middle up and down. I wanna ask you Chandra a little bit uh if I could about, about India and where India fits into this equation? I mean, we have seen increasingly global manufacturers take a look at India that they haven't been willing to, to do uh in the past. Um you know, Apple, for example, has recently Apple, I think since the iphone launched in, was it 2007 that's probably produced about 95% of the those handsets in China. Uh you know, to the point where the, the slogan for Apple became, you know, sort of designed in California assembled in, in China. But Apple has recently come out and said that it wants to uh have 20% as many as 20% of the phones produced in, in India, which is remarkable. I think it's 10% now. Uh is that indicative of other opportunities that there are in in India for, for manufacturing and becoming sort of taking some of that China share uh as, as part of the global supply chain, I think um instead of uh looking at uh whether taking share or not, um we need to see the broader trends. Uh what the pandemic exposed is the failure of supply chains, which were designed for total optimization. Yeah. Uh we saw it in the car industry, we saw it in um um aerospace industry, we saw it in everywhere. Uh We saw it in chips, um huge shortage of chips um and many parts. So what is happening is diversification of supply chain. So I call this um as an India plus opportunity because supply chain is not a one country phenomenon. Supply chain is an ecosystem. So no one country can say that we are going to replace somebody or we are going to. So you need alternative uh ecosystem and India has a role to play because of the size scale and everything else. We are right in the middle of it. Um As start a group because uh we have announced a huge enter into electronics, precision manufacturing to uh semiconductor assembly to f similarly in batteries. We are putting together a 20 gigawatt plant in India and uh 40 gigawatts in the UK. So um and we are also into telecom equipment and many other uh many other opportunities. So I think the uh supply chain is getting diversified for resilience and India because of the size scale talent uh and the large domestic market uh definitely is attracting investments and will have a role to play. And it's, and it's not just that it's also uh some of the design and the, and the engineering uh uh product development as well. I mean, the thing that everyone is so excited in the Indian Financial Press uh this weekend, I guess is that tomorrow is it that Tata technology has its has its IP O Yeah. Yeah, see, I think you have to see this uh world um where many things are happening. At the same time. I don't know whether we know any point in history, whether we have had uh such kind of transitions happening. There is one which is the A I transition. Second is the energy transition. Third one is the supply chain transition. And then on top of that, the geopolitics and everything else that's going on. So India is kind of uniquely placed primarily because uh the digital infrastructure that India has put in place probably India is the only example where there is a very large scale public services delivery happening through digital primarily because we didn't have these systems, we didn't have the alternative. So you want the whole hog similarly in supply chain, it's a unique opportunity, energy transition. India's energy needs are going to quadruple in the next uh 2530 years. And all of this is going to be new energy. So unlike many other parts of the world where the uh new energy has to replace the thermal energy in India, it's all additive. So given that I think India is uniquely well placed and as you said, design and, and uh engineering skills are plenty and other technologies which is one of our IP OS after 20 years. Um I mean, just uh even surprised me in terms of the level of interest. Uh I mean, it, it is kind of uh bit in the charts, the single largest retail applications of any company. It's a small IP O comparatively. Mm And the number of times it's been more subscribed in every segment. Um It's just remarkable. It is astonishing. Um I wanna come back to this energy and sustainability question but just to dwell a little bit more on the on the India Point. Um I mean, from a logistics and, and kind of delivery uh point of view, Raj, I, I know you've been looking a lot at what the opportunity is there for, for Federal Express. Um And I'm fascinated by that, you know, I have been going to India for for many years and you know, you mentioned that sort of ships backed up outside the US ports. One of my kind of most vivid memories of India is the line of ships and trucks backed up behind the ports in, in Bombay, which was kind of a regular everyday thing for so long. Uh And, and you kind of think of India as a place that has kind of unique logistic challenges, transportation challenges, not enough roads, that's all really changing very rapidly. And I was struck by your um announcement recently that you are, you are setting up an advanced capability community in uh in Hyderabad. Uh I wonder if you could tell us a little bit about what that is and, and why, what, what the opportunity is you see in India? Well, thank you for bringing it up clay because it very important for us. India is an extremely critical market for fedex. And um we talked about supply chains a minute ago, you know, we are really the practitioners of supply chain at a very granular level from the bottom up, especially in high value trade. So uh we're kind of in everybody's business and we see it from the bottom up. In fact, every day is a reference, those 15 million packages you talked about is a referendum on global supply chains that we see every single day. India represents 2.8% of global manufacturing today. And I I think there is every chance as the supply chain patterns are evolving and changing, that number goes north and as manufacturing goes so goes fedex. So that's why fundamentally it is a core business opportunity for fedex to be especially, you know, India, in and India out um segments of that manufacturing uh you talked about infrastructure. So one of the things that we have talked about, you know, before um is the cost of logistics as a part of GDP, I mean, in fact, relatively quite high in India. And I think so I'm very encouraged by the national launch of the national logistics policy and what the PM Gti Shakti plan in India to actually go hand in hand with uh with manufacturing, to make sure that the logistics infrastructure keeps space so that the overall cost of logistics as a personal of GDP comes down. So those things board for well for our core business. But there are two other aspects that are important for us. One is simply talent, uh fedex is, you know, and the fedex 2.0 version, so to speak, the technology and digital play a significant portion in our future. We are literally sitting on data about supply chain and insights every single day. So we are we should be able to figure out, you know, how do we create value for all our stakeholders based on both on the insights and technology plays a key role and talent plays a key role. So that's why you know this announcement of this advanced community center in the community uh capability, the community in Hyderabad. Uh it is very critical for us to launch that there's also a third element of it is the innovation part. And again, Chandra's point, I mean, I'm, I'm really struck by the amazing move move that India has made in the digital infrastructure. And uh and I think uh we think that, you know, making sure that we have innovation for our globe, you know, to be able to be seated in India is an important thing. So we have a three pronged strategy, our core business, our talent and our innovation. And that's what we're pursuing this talent innovation point is a really interesting one because we're at this moment where we're getting these real uh explosive breakthroughs in in artificial intelligence uh that people are discovering all kinds of, you know, fascinating ways that they can be applied. I mean, Raja, I know in your business that uh route optimization is an absolutely crucial thing uh for uh uh you know, I mean, I take this point that uh people are, are more willing to uh you know, shift from just in time to just in case and they'll tolerate a little bit more inventory and, and are not prioritizing efficiency as much as before perhaps. But it's still a crucial thing in your business. How does A I help you to play into to that imperative for you? Well, I think it's uh it's absolutely critical for us and I, I would, I would uh mention a couple of things, the high level. Firstly, we talk about supply chain, you know, diversification andrei well, residency by definition makes it a little bit more expensive. And so the only way we become resilient and efficient is technology. And um the second point I would make is that in the space of A I and ML, you know, especially as we go into predictive models, we have now built a digital tone of fedex. And so we are going going from reactive to predictive. And what that means for a consumer's perspective is our ability to predict that estimated delivery date and time window is better and better and better with deep learning models every single day because it's got so many different, those 15 million packages have so many different ways to go. There's weather, there's traffic patterns, there's network conditions, you know, it's so, but all those know, factors are being dialed in to get predictive, high, higher level. But even one step further is this whole talk about uh GP T and things like that. I mean, you know, the chat GP D being trained on public data but the, you know, private data, the company level data is also a place where, you know, that's not been tapped at all. And I think everybody has recognized that, but the first step is to organize that data. The good news for us is we have spent the last three or four years really building up in the latest up to date data platforms. So we are able to now, you know, use some of these modern technologies and you know, learning models on some of our data to see how we can create more value for our customers. And again, moving into that digital trend in a predictive way versus a reactive way. Uh So, Chandra before uh taking your, your role as chairman in 2017, I guess it was you were CEO of T CS, which is uh India's largest software firm filled with a lot of these kind of bright uh engineers and, and software uh experts as well as was mentioning, where do you see the A I opportunity for India? I'm just curious, I think the opportunity is huge for every business and it's a huge opportunity for India, primarily because of the talent. Um and also uh the infrastructure that we are putting in place in India, both the public and private infrastructure uh and the number of start ups that are emerging in the air space is just humongous and uh as a group, um we are uh in both traditional businesses and the new businesses and we have deployed digitally across the spectrum. So for example, take the battery plant, we have not even started the construction, ok. We've just announced the battery plan. We're going to start the construction in early 2024 and we got a 24 month schedule and April 26 we want to go production, but already we have built, we are, we are building the digital trend from CS to batteries to the supply demand, all engines in place. So that we can do the simulation uh real time. Take Tata steel, all the Tata steel plants, which was a very old company of the group more than a few years and already uh uh totally digitized. And World Economic Forum uh ranks uh Tata Steel as a light of steel plant uh for um industrial 4.0 all all technologies there. It's iot whether it is data, um um cloud analytics, everything is in place. And so we fundamentally ask every business uh one question, what is that? What is it that you're gonna do in the next generation A I? So you used to ask, what are you going to do in data? How are you going to digitize your business? Now we moved to, what is your A I plan? That's the question. But I think in India coming to the larger point, there is going to be a lot happening in the India Us Corridor with the both the governments have also announced a number of policy measures and number of joint working groups. Uh I also charge the U SDS co forum and uh we are pushing the envelope on A I. Um So there will be a lot of a lot of convergence of technologies between uh India and leveraging the West Coast. We will set up um uh large scale um cloud data centers using platforms like in media. So we want to actually democratize A I. So we are putting together um E I cloud infrastructure, not the traditional infrastructure so that companies can innovate. Uh fascinating. Well, we will, we will watch with keen interest to see how India's trajectory uh evolves and how global supply chains continues to shift. I want to thank you both for your, your insights and your perspective. Thank you very much and.

Coins2Day Global Forum 2023: Reimagining Global Supply Chains And Manufacturing