September 2023 Articles - Suits the C-Suite | SGV & Co. | EY

25 September 2023

Jan Ray G. Manlapaz and Mary Andrea T. Bacani

Navigating the supply chain maze

Supply chain management is regarded as a critical function focused on operational efficiency and controlling costs, but it has been elevated into a board-level discussion in the wake of the pandemic. Supply chain professionals are now managing significant disruptions like inflation and price increases stemming from a volatile economy, labor shortages, and the growing consumer demand for faster and more dependable deliveries. The desire for better, more cohesive planning might be a priority for professionals — but it can be difficult given the day-to-day challenges from pressures and unplanned disruptions.The pandemic truly underscored how connected the world is and the vulnerability of the supply chain process. As noted at the World Economic Forum, supply chain disruptions have resulted from factors that include geopolitical uncertainties, climate change, and inflation. The rising cost of living could also reduce the availability of goods and impact demand.With these pressures mounting, the need to optimize supply chains with new and emerging technologies becomes clear. This makes it imperative to consider integrated supply chain planning in organization planning cycles.This is the first article in a supply chain series that will first look at integrated supply chain planning, the digital supply chain, greening the supply chain, and finally, how the Regional Comprehensive Economic Partnership (RCEP) can impact supply chains in ASEAN.The digital world is constantly evolving, with innovative technologies ranging from AI to the metaverse. Yet, the logistics industry still relies on antiquated systems and processes, creating risks for organizations. Businesses must consider adopting digital solutions to create value, mitigate risks, and optimize trade flows.Given the growing pressure to optimize supply chains with novel tools and technologies, it is imperative for organizations to prioritize their integrated supply chain planning. Accordingly, companies should balance two critical areas: sales and operations. It will be vital to focus on a sustainable planning approach that underscores stability and long-term growth with the following priorities:PEOPLE: CROSS-FUNCTION COLLABORATIONManaging talent effectively is crucial to integrated planning. Organizations should first consider how they can leverage their people to truly collaborate in creating, executing and monitoring plans to realize strategic objectives. It is essential to upskill key individuals across business functions to boost collaboration, identify gaps in skills, and prepare them for the increasing pace of the modern supply chain.It is also crucial for organizations not to execute plans in silos but in a holistic alignment with various business functions. Businesses must build plans by aligning the sales and marketing, procurement, operations, supply chain, and finance functions. Furthermore, having a cohesive business plan can help companies optimize inventory, manage resources, and cut costs. Bridging customer service and fulfillment functions can also enable further strategic planning to meet developing consumer demands and instill stakeholder trust.PROCESSES: INCREMENTAL IMPROVEMENTS VERSUS A SIGNIFICANT OVERHAULThe supply chain process depends on technology, but this may involve legacy platforms and outdated applications that are incompatible. It could be time for organizations to overhaul their platforms, though this will be costly and may not be a priority in the budget yet. Alternatively, gradually adopting intelligent tools could improve process outputs without putting a heavy financial strain on organizations. Proper planning and using an integrated business planning (IBP) tool could also help. IBPs can capitalize on the Cloud’s considerable data processing capabilities, driving significant progress in crucial areas.IBPs tools can bridge enterprise resource planning (ERP), customer relationship management (CRM), and financial planning platforms to provide a comprehensive business view, allowing organizations to track their progress versus their plans. These tools also facilitate scenario planning for a dynamic landscape, tactical planning that utilizes historical and market data, predictive analytics for trend forecasting, and machine learning algorithms to forecast demand that will help businesses plan and operate more effectively.DATA AND METRICS: INPUTS AND PROGRESS MEASUREMENTWhile planning tools can be helpful, high-quality data and experience-led dashboards are imperative to create a timely and accurate internal business view that appraises external market conditions and generates meaningful business insights. Consequently, organizations should define standard terms for consistency and suitable key performance indicators (KPIs) to measure progress. Board oversight and data governance will be requisite to establish appropriate policies and practices, thereby managing standards, guidelines, and data security. Finally, organizations must use data quality assessments, documentation and dashboarding tools, and lifecycle management to reduce the risks of data degradation and loss.While managing supply chain issues is a complex task, addressing the pain points of this manifold process is necessary to drive long-term value and results.OPTIMIZING THE SUPPLY CHAINSupply chain disruptions are ubiquitous — and staying abreast of these developments is vital to identifying opportunities, managing risks, and future-proofing organizations.Volatile economies, more complex and interconnected regional and global supply chain ecosystems, and highly evolving consumer demands signify that business leaders should focus on integrated supply chain planning. Embracing the IBP concept and leveraging available tools could be a game-changer because digital solutions can elevate and streamline the supply chain process, significantly improving user and customer experiences, while outdated systems can compound business risks. However, businesses should integrate technologies into existing infrastructures in an end-to-end manner and not in silos.Optimizing the supply chain entails focusing on significant areas like people, processes, and data and metrics. It is crucial to find the balance between planning and execution while carving a path for sustainability and long-term growth.The next article in this series will discuss what is next for the digital supply chain and how supply chain leaders have the opportunity to reimagine their supply chains for the future. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Jan Ray G. Manlapaz is a consulting partner and Mary Andrea T. Bacani is a supply chain and operations (SCO) senior manager of SGV & Co.

18 September 2023

Carlo Kristle G. Dimarucut

How digital transformation enables green energy

Environmental, social and governance (ESG) considerations and digital transformation are critical issues that boards and management have to address, making it a natural decision to leverage solutions that address both. In line with this, large-scale digital transformation is driving the adoption of renewable energy in order to reduce the severity of global climate change risks — but such a transformation also introduces potentially heightened risks of cybercrime.According to The Global Risks Report 2023-18th Edition from the World Economic Forum, environmental risks are the chief concern of surveyed professionals. Of the top 10 long-term global risks ordered by severity over a 10-year period, six were classified as environmental (failure to mitigate climate change, failure of climate-chain adaptation, natural disasters and extreme weather events, biodiversity loss and ecosystem collapse, natural resource crisis, and large-scale environmental damage incidents), and one as technological (widespread cybercrime and cyber security). However, these risks are not always distinct from one another, and organizations must find ways to align environmental and technological risks. TRANSITIONING TO GREEN ENERGYRenewable energy is considered a crucial solution to address the climate crisis, although two factors have hindered the adoption of renewable energy sources — cost and reliability or dependence on weather conditions. Currently, renewable energy is more stable and economical due to technological developments like smart grids, energy storage capacities, and artificial intelligence (AI). According to the National Grid Group, an energy company operating in the UK and US working towards a clean energy future, green energy is created and sourced without damaging the environment. Conversely, renewable energy comes from sources that replenish themselves, such as the wind and sun. While the bulk of green energy sources are renewable, not all renewable energy sources are classified as green. For example, an energy source will not be considered green if carbon emissions are involved in the generation process.Hastening the transition to green energy through digital transformation in renewable energy depends on disruptive technologies and innovations integrating different kinds of renewable energy into the bulk grid. The transition to green energy requires a two-way flow of power and information, which can be managed by the smart grid.While the network topology of the smart grid has benefits like efficacious and stable power, they come with corresponding cyber considerations:• Various energy resources with no clear cybersecurity focus and ownership• Considerable interconnections with web-based or internet-facing platforms• Data security and privacy • Consumer data collection, processing, and analysis• Threat expansion with cyber attacks • Large digital landscape or increased attack surfaceCYBERSECURITY CHALLENGESTo minimize the impact of the six significant global environmental risks stipulated by the World Economic Forum, organizations should invest in renewable energy powered by large-scale digital transformation. At the same time, organizations should consider that this transformation could lead to many vulnerabilities and risks enabled by prolific cybercrime and cybersecurity. Thus, it is vital to identify and address these threats proactively.It can be challenging to build cyber resilience because digital infrastructure and systems may be antiquated in the face of ever-evolving cyber threats. The Internet of Things (IoT), the bridge between the physical and digital world, also increases vulnerabilities exponentially. To realize the benefits of green energy, large-scale digital transformation should be enabled by a resilience strategy, governance framework, and robust cybersecurity technologies.The EY Trust by Design methodology is an extensive approach to cybersecurity that can help organizations create secure digital environments, safeguard sensitive data, and foster consumer and stakeholder trust. Moreover, the methodology inculcates a risk optimization mindset and integrates trust into services and products from their inception.Overcoming cybersecurity challenges:• Governance and oversight are crucial for organizations to prevent cybersecurity incidents, manage risks, and support business objectives. • Asset visibility is requisite for a clear understanding of all organizational assets, including a comprehensive inventory.• Reliable technology is vital to creating secure systems that can safeguard data, applications, and infrastructure from cyber threats. • Trusted components and periodic assessments are essential for identifying security vulnerabilities and prioritizing technological remediation efforts governed by business impact and risk appetite. • Supply chain and third-party risk management help maintain organizational security and resilience in the face of constantly evolving cyber threats.• AI-based monitoring and detection can distinguish between operational and cyber events, helping businesses determine the root cause of the incident with minimal human effort.• Incident response plans allow organizations to promptly recognize and respond to security threats, thus minimizing the impact. GREEN ENERGY IN THE PHILIPPINESDeveloping and optimizing the country’s renewable energy sources underscores the Philippine sustainable energy agenda. As part of Republic Act 9513, the National Renewable Energy Program (NREP) seeks to drive energy security and improve access to clean energy. In line with this, the NREP aims to expand the country’s renewable energy-based capacity to 15,304 megawatts by 2030.In 2018, the Green Energy Option program was introduced as a way for consumers to purchase electricity from renewable energy facilities. By 2021, the Energy Regulatory Commission promulgated rules to govern the program, setting technical and interconnection standards and fees for the facilities supplying renewable energy. According to Reuters, the Philippines currently ranks second in Southeast Asia in combined solar and wind power generation. By 2030, it will have added 17,809 MW of solar capacity and 7,856 MW of wind power to emerge as the top green power producer in the region. THE WAY FORWARDWhile technological developments have made renewable energy and green energy more accessible and economical, they also increase vulnerability to cyber risks and threats. With the acceleration of digitalization, companies should build cyber resilience in key areas for business continuity.Digital transformation, enabled by disruptive technologies and innovations, has led to an increased adoption of renewable energy resources. Investing in green energy is a big step to reducing the gravity of global environmental risks. However, effective board governance will be imperative for organizations to mitigate the corresponding cybercrime and cybersecurity incidents and threats.Organizations should focus on creating cyber resilience strategies and governance frameworks to foster a risk-aware culture. Creating a comprehensive methodology is critical to achieving business objectives related to reliability, cybersecurity, and environmental sustainability. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Carlo Kristle G. Dimarucut is a technology consulting partner of SGV & Co.

11 September 2023

Rossana A. Fajardo

How can we harness digital public goods?

The digitalization of public services will radically change the way governments interact with the people they serve and help meet their growing expectations of online access to government services. Digital Public Goods (DPGs) have the power to meet citizen expectations and accelerate digital transformation around the world. They can create long-term value and a more efficient, equitable, and prosperous future for society, businesses, and governments.DPGs, as defined by the Digital Public Goods Alliance (DPGA), are “open-source software, open data, open artificial intelligence models, open standards, and open content” that should respect privacy and other relevant laws and best practices, do no harm, and help realize the United Nations’ Sustainable Development Goals (UN SDGs). This definition is actualized through the DPG Standard, a set of nine indicators used to determine whether or not a public solution is a digital public good. Given their open-source nature, DPGs are created by communities or organizations for public use and are readily available for all governments and other entities to use, customize, and adapt for their digital public infrastructures (DPIs). The potential of DPGs is far-reaching and can move beyond the digitalization of public services, making it a significant economic and societal opportunity. Nevertheless, collaboration between governments, the private sector, and other entities is crucial in order to truly capitalize on DPG-related opportunities.The benefits of DPGs are manifold, including but not limited to the following:• Scalability. Once established, they can be easily deployed across nations.• Flexibility. They are agile and swift to adapt and deploy.• Applicability. They can support governments of different income levels, from the most developed to the least.• Cost-effectiveness. They are economical. The total cost for large countries or populations exceeding 50 million can fall between $0.24 and $0.74 per individual.DPGs DEPLOYED/DEVELOPED GLOBALLYBetween February 2022 and March 2023, the number of registered DPGs on the DPGA’s DPG register increased from 87 to 142. The figure could grow even faster, given the momentum of DPG adoption. Several factors contributed to the growth: governments realize the cost-effectiveness and efficiency of progressing digital transformation, observe the positive effects of DPGs for themselves and others, and utilize DPGs to advance the UN SDGs.EXAMPLES OF DPGsEntities can augment DPGs to enhance service delivery across areas in the public sector, such as health and social services. The DPGs listed below are a few examples that illustrate their abilities and how they can facilitate change, improving people’s lives worldwide. DHIS2This open-source platform is the world’s largest health management information system (HMIS), utilized by 76 low and middle-income countries and capable of supporting 3.2 billion people. DHIS2 software development is a global collaboration developed and managed by the HISP Centre at the University of Oslo (UiO).MOJALOOPThis open-source software enables digital financial service providers (DFSPs) to connect to each other, aiming to address the digital financial needs of 1.7 billion unbanked people globally in a profitable and straightforward manner. Mojaloop is ready to use in Tanzania and Uganda, with pilots being launched in other countries. It was first established in 2017 by the Bill & Melinda Gates Foundation to support its financial inclusion work. It is funded by the Foundation and has more than 400 developers collaborating on the software.SINGPASSThis digital identity authentication system is utilized in Singapore to give citizens access to several online government services, creating opportunities for innovation and economic growth. For example, users can use the platform to file taxes, renew their passports, and apply for housing grants. The platform’s ease of use and convenience help Singapore establish its national digital identity. Managed by the Government Technology Agency of Singapore (GovTech), Singpass is one of Singapore’s Smart Nation projects, with a vision to improve the lives of citizens, create opportunities for businesses, and transform the capabilities of government agencies.MOSIPIndia’s Modular Open-Source Identification Platform (MOSIP) DPG, as part of the government’s Aadhaar biometric identification program, supplied 1.3 billion people with a digital ID. Consequently, this allowed many unbanked individuals to open bank accounts. According to a 2019 Bank of International Settlements report, it would have taken 47 years for 80% of adults to open a bank account had India relied on traditional processes.MOSIP was first initiated by the International Institute of Information Technology-Bangalore (IIIT-B) with the vision of developing a non-proprietary platform on which foundational ID systems could be built. It became a global project five years later, funded by The Bill & Melinda Gates Foundation, Tata Trust, Omidyar Network, NORAD, and the Pratiksha Trust.COMMERCIAL OPPORTUNITIES FOR DPGsThe DPG market is in its nascent stage, and EY teams researched to evaluate and understand the commercial opportunity it poses for the private sector. EY estimates that the annual DPG market will be $100 billion by 2030, potentially growing further. The forecast shows a considerable and lucrative market for many players — spanning roles across the creation, implementation, and integration of DPGs.THE LOCAL DPG LANDSCAPEBased on a study done by the DPGA in March 2023 for six test countries, the Philippines ranked 4th in the number of deployed DPGs. With support from the DPGA, the United Nations Children’s Fund (UNICEF) Philippines is working to foster awareness in the Philippine technology sector about DPGs and identify promising solutions that could reach DPG status. Currently, the country has one registered DPG – Project AEDES.Project AEDES is a dengue data modeling portal by CirroLytix, a social impact tech company based in the Philippines, working with the support of the Department of Science and Technology. It is used to monitor dengue cases and is being implemented in select pilot cities and other countries with high cases of dengue and similar data challenges. The AEDES prototype is an information portal that forecasts dengue hotspots using correlations from dengue cases and deaths, real-time climate data, and satellite maps. The portal is also the first local tech solution assessed by the DPGA as a digital public good.Another related example is PhilSys, the country’s national identification system. PhilSys is not a DPG but an implementation of the DPG MOSIP, customized to become part of the country’s DPI. THE FUTURE OF DPGsDPGs provide countries with opportunities to build accessible, inclusive, and secure digital public infrastructure and to achieve the UN SDGs. DPGs could transform business, deliver significant economic and social value, and create a dynamic public-private sector. While there are implementation challenges that include limited financing, limited manpower, and concerns around market incentives and data security, the benefits of DPG applications are significant.Collaboration, information sharing, and education are vital for future DPG growth, but this will require coordination among diverse entities, including private-sector tech firms, experts, government agencies, and civil society organizations. Governments, the private sector, and relevant communities must work together to capitalize on DPGs’ abilities to address issues, innovate solutions, and improve lives. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

04 September 2023

Anurag Mishra

How generative AI can reshape the financial crime landscape

Financial crime is estimated to cost $1.4-3.5 trillion worldwide. With sophisticated methods deployed by criminals, government, regulators, and law enforcement often play catch-up to maintain trust in the financial system. There is an increasing need for change and innovation to tackle financial crime. Generative artificial intelligence (GenAI) has transformative capabilities for organizations, with business applications evolving rapidly. The financial industry is an early adopter of technology and is witnessing the increasing application of GenAI in fraud prevention, anti-money laundering (AML), counter terrorist and proliferation financing (CTPF), and cyber security, collectively referred to as FinCrime.THE CASE FOR GENAI ADOPTIONGenerative AI (GenAI) can boost efficiency across AML controls, allowing individuals to play a more prominent role in detecting and preventing FinCrime. Different entities are experimenting with large language models (LLMs), with results underscoring opportunities for FinCrime operations. LLMs are a type of AI algorithm that uses massively large data sets and deep learning predictive techniques to understand, summarize, and generate contextual content. GenAI is not limited to text, but can be used to extract, analyze and classify data, and augment case summaries.GenAI can train on large real-time data sets that include both normal and anomalous transactions, and can then perform statistical analysis to determine what is normal and what is anomalous.GenAI models can analyze behavioral data and process enormous amounts of customer transaction history to identify unusual events. Different fraud detection models can be evaluated to proactively detect emerging fraud patterns. GenAI can automatically flag a suspected fraud when deviations are found and trigger a case examination. This reduces the manual effort required to retrieve, analyze, and present case summaries for decision-making.Think of GenAI augmenting case examiners to detect fraud as it occurs, make faster and value-making decisions to prevent fraud, and reduce human error and biases.It is much easier to personalize fraud detection models to customer personas with GenAI. This not only allows for a personalized banking experience but also makes it harder for criminals to scale and exploit weaknesses in the system. Eventually, GenAI can generate insights to strengthen FinCrime controls. This helps banks stay ahead of the curve, detect, and prevent fraud.Malicious fraudsters are also employing GenAI technology to launch highly personalized and specific attacks on their victims. For example, fraudsters could use GenAI to analyze publicly available information and simulate fake accounts, e-mails, and calls. As such, the technology can also increase individual and organizational vulnerability and susceptibility to fraud.In the complex, digitally connected world, FinCrime poses systemic risks to the global economy. Business leaders can stay abreast of potential risks and respond with the power of GenAI to fight FinCrime. TURBOCHARGED FINCRIME CAREERSFinCrime operations are currently overly complex and manual. Detecting and preventing FinCrime is an onerous task compounded by complex policies, legacy technology, and inaccurate, voluminous and unstructured data. However, with GenAI, FinCrime roles are being elevated to the equivalent of the superhero status of saving the world in the following ways:• Auto-detection of FinCrime will reduce manual effort.• GenAI-generated case summaries will reduce manual effort and allow focus on investigation and decisions, solving and preventing FinCrimes.• Automated monitoring removes stress and allows focus on decisions and actions.• Remove the siloed view of fraud. Transactions occur across different product types, instruments, and modes. With GenAI, it’s possible to have one collaborative, informed view of customer and rogue transactions that are in deviation.• Regulatory changes and policies can be easily applied across customers, products, and modes of banking. Less time is required for compliance reporting to regulators.• Anxiety of human oversight gets eliminated with better insights and traceability.• Generates high-skilled jobs based on the interpretation of insights and faster augmented learning.• Better risk assessment, response, and efficient management.• Greater adaptability to changing strategies of criminals and fraudsters, ensuring trust in the financial system.GenAI can supplement risk assessments and detection. While FinCrime experts will still have to manage the output produced, they will have more tools and information to analyze the results, detect FinCrime, and safeguard against risk.While the technology significantly enhances organizations’ capacity to respond to FinCrime, employees and leaders should train on new skills, embrace collaboration of AI with humans to turbocharge outcomes and learn to deal with ethics, fairness, privacy, and AI-related bias and concerns.THE FUTURE OF FINCRIME AND GENAIFighting FinCrime was hostage to intrinsic human inefficiency, manual errors, and administrative burden. However, GenAI is empowering FinCrime fighting efforts with unprecedented speed and effectiveness. By utilizing LLM tools, professionals can seize opportunities to strengthen and expand the field.While GenAI has considerable promise, it may take time for specific industries to adopt the technology on a large scale. Consequently, organizations should delineate ethical considerations and data protection policies to safeguard their assets while capitalizing on the technology’s power.As FinCrime continues to evolve, business leaders must find the balance between efficiency and effectiveness, especially when dealing with risk. Organizations must be vigilant and utilize novel tools and technologies to adapt to and safeguard against the evolving digital landscape. Companies can remain competitive in the global market by seeking the advice of professionals with a deep understanding of FinCrime and AI and identifying GenAI-related opportunities and risks. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Anurag Mishra is a Financial Services Organization Technology partner of SGV & Co.

September 2023

Navigating the supply chain maze

How digital transformation enables green energy

How can we harness digital public goods?

How generative AI can reshape the financial crime landscape

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