Managing cybersecurity and sustainability in an increasingly digital world

To put it mildly, recent years have served as a shakedown for global supply chains. We have seen fluctuations in the price of raw materials, resulting in an added layer of uncertainty to new builds and retrofits. According to the UK Office for National Statistics’ August Business Insights and Conditions Survey, 38% of UK construction firms reported having to absorb the added costs, 32% passed on prices to consumers and 22% had to change suppliers. This speaks to a survey we conducted earlier in the year, which highlighted the negative outlook a sample of mid-to-late career real estate professionals perceived the cost of materials would have on the real estate sector in the coming zero-to-four years (see below).

Digitalising the supply chain

Although supply chain resilience has become a familiar catchcry since the coronavirus pandemic, logisticians had been banging the drum for some time before that. One example is McKinsey’s commentary on ESG in supply chains — taking into account ‘emissions and labour practices across all tiers of their supplier networks’. Another is the apparent lack of sophistication of ‘technologies used to exchange data between supply-chain participants’. McKinsey estimates that in the automotive industry alone, supply chain integration could save €40 to €65 billion a year. Complicating matters is the apparent rise in ‘economic nationalism’, classified as ‘make-where-you-sell-and-buy-where-you-make’ in a 2020 KPMG report. Multiple forces have influenced the rise of this phenomenon. KPMG gesture to political events such as Brexit and the renegotiation of NAFTA, as well as the coronavirus pandemic’s aforementioned role in shedding light on the fragility of international supply chains. Since then, many would argue matters have been amplified by the precarious position Europe currently finds itself with respect to Russian gas during wartime.

When solving one problem creates another

According to recent due diligence by Pi Labs Principal, Hugo Silva, making improvements to the supply chain isn’t as simple as prompting technology adoption, but also an understanding and management of new risks which emerge from such changes. One example is cybersecurity. This is a tough nut to crack because on one hand stakeholders along a supply chain are incentivised to be efficient, but on the other hand they are incentivised to control their cybersecurity (and trade secrets) at the organisational level. Security measures are therefore likely to vary substantially from one entity to another.

Cybersecurity in construction

Andre Turville, CEO at ARX Alliance, cautions firms who take an easy handed approach to cybersecurity. He states that 60 percent of cyberattacks come through the supply chain, and that hackers are always on the lookout for the weakest link. Whether you’re an SME or multinational corporation, do you want it to be your lacklustre cybersecurity that affects not only your own firm, but also your suppliers and customers? In 2019, insurance broker Russell Scanlan offered context into this issue for the construction sector, which often involves elaborate tiers of suppliers, contractors and subcontractors — making it all the more susceptible to a breach at the weakest link. He warns that contractors who do not meet minimum cybersecurity standards will likely lose contracts as a result. Once the construction site becomes an operational building, owners and managers need to account for the risk of cyberattack on digitally enabled smart buildings. Siegeware, for example, is a phenomenon made possible by the advent of smart buildings, whereby ransomware is deployed to prevent access or use of a building’s digital assets (including entry) until a ransom is paid.

Cybersecurity for households

Although cyberattacks might be more familiar in the context of commercial real estate, it also serves as a cautionary tale for our homes — themselves becoming increasingly digitally augmented with the likes of virtual assistant technologies (such as Amazon’s Alexa and Apple’s Siri); smart locks; smart televisions and streaming; work-from-home innovations; as well as digitally-enabled quick commerce (Gorillas, Amazon, Deliveroo, Cure, etc). With projections of wider adoption of extended reality technologies, dark stores and advanced air mobility in the immediate future, cybersecurity is going to become a growing priority. Consumers should expect legislation to this effect also, with one example being the UK’s ‘Product Security and Telecommunications Infrastructure (PSTI) Bill’ currently in the final stages of approval.

Sustainable supply chains

To further McKinsey’s commentary around environmental sustainability and labour issues in the supply chain, one could consider the crossroads innovators currently find themselves at. On one hand, the likes of Uber, Amazon and Gorillas have come under fire for their labour practises in a comparable way their globalised predecessors did with their approach to labour arbitrage (think Nike, as well as the countless number of firms who moved home operations to a lower-cost labour market) — all taking place in a world where raw materials travel intercontinentally before being sold as finished products. On the other hand, labour arbitrage is steadily becoming a thing of the past thanks to rising living standards in emerging markets, the financial cost of emissions, improved exchange rates, and the growing role technology plays in completing routine tasks. Combined, this offers an economic case to make-where-you-sell (when possible), but still raises the question of how to prevent quick commerce from filling this environmental void. For example, what is the environmental footprint of that pint-sized ice cream chauffeured to your door at 7pm, and what if we start having everything delivered this way..?

Pi Labs has been investing in supply chain innovation and sustainability for a number of years, boasting portfolio companies such as QFlow, ConWize, and Adeptmind. We are always on the lookout for more innovative approaches to supply chain optimisation. If you’re one of them, we would welcome you to email investment@pilabs.vc