Supply chains in the digitised world
PwC’s «CEO Panel Survey» captures the sentiment and outlook of almost 700 CEOs from a cross- section of industries worldwide that are facing lasting impacts from the pandemic. The study was conducted in June and July 2020 as an extension of «PwC’s Annual Global CEO Survey», and it shows a digital, virtual and flexible reality that will define the future of business and work – pressuring leaders to accelerate the transformation of their organisations. (Read «What CEOs learned from the crisis»).
One of the most direct fallouts of the COVID-19 pandemic – apart from the lockdown measures worldwide, especially in China – was the temporary disruption of international supply chains. The dependence on certain suppliers and trade partners, along with the interconnectivity of countless processes, were brutally exposed. It is time to re-examine globalisation, and time to think about supply chain security and management.
Will this lead to less globalisation and more nationalism? Will companies bring their operations «home» rather than relying on their international purveyors? As many countries and companies are still struggling to find a way out of the devastating impact of the pandemic, it might be too early to tell. So far, not all surveyed CEOs think so. Two in five CEOs stated that there will be a permanent shift towards onshoring and insourcing; the same percentage expects nationalism to play a greater role in the future. However, two in five CEOs also think onshoring is just a temporary shift, and 43 percent believe nationalism will drop back to pre-COVID levels.
But what they agree on is the importance of secure supply chains, and 58 percent of CEOs say ensuring supply chain safety is a central piece of their digitisation initiatives. A recent PwC study shows that so-called digital champions ¬– companies that have high-level digital capabilities and a digitally skilled workforce – achieved a 7.7 percent increase in revenue and a supply chain cost savings of 6.8 percent annually.
«There is no free lunch in securing and diversifying supply chains, but increasing the resilience of the operating business can provide a competitive edge.»
Workflow management and collaborative solutions
The shift from physical to virtual products also requires a shift from traditional supply chain management practices towards workflow management, in which loosely connected people collaborate on common projects. This entails new forms of organisations with a higher degree of flexibility and agility. Networked teams, comprehensive system thinking, flexible organisation design and holacracy become necessary, also leading to new legal structures and thereby raising issues about quality assurance and liability.
Generally, Swiss companies are very well integrated in the value chain. Both large multinational organisations and SMEs have sought and implemented collaborative solutions with suppliers and customers, and they show a high degree of technological maturity. Advanced platforms, for instance, enable the connection of respective ERP systems; stock inspection, ordering, delivery and invoice reconciliation can be compared and confirmed by all participants in the portal. Switzerland, as a small and open economy, has always had strong links to foreign markets, and with regard to workflow management, the country is ahead of its European and Asian peers.
Learnings from recently interrupted production processes and a more difficult communication with suppliers might lead to further integration of production systems across companies. Systems integration with suppliers to better monitor potential delays in supply could become as important as product quality and price. Current market conditions definitely will result in more thorough risk assessments of suppliers and more detailed delivery contracts to account for a wider variety of potential outcomes. An increased flexibility of suppliers offers options to satisfy peaks in demand, but, on the other hand, supplier relationships could become less personal as contact persons change frequently, leading to additional costs.
Companies should also consider that shifting supply chains is not an easy task. Moving suppliers out of mainland China especially – or finding replacements in other Southeast Asian markets – might prove difficult. These markets often lack the know-how and capabilities to substitute Chinese producers.
How to diversify your supply chain
Even though the survey shows a trend towards more digital and virtual services, the delivery of physical products remains crucial, and on-time delivery is at the same elevated level of importance as quality and price. This puts supply chain safety at the top of executives’ transformation agendas. To secure their supply chains, companies should consider the following actions:
- To avoid failures or delays in the supply chain, each business needs a Plan B. However, second or third suppliers need to be remunerated for the provision of capacities; reduction of dependence leads to higher costs.
- In the short term, companies could build up their inventory and safety stock, e.g. from 2 weeks to 3 months. This also means higher costs in the form of tied-up capital.
- As a long-term solution, businesses should use buffers in stock keeping to explore and build up alternative supply channels.
There is no free lunch in securing and diversifying supply chains, but increasing the resilience of the operating business can provide a competitive edge and thus help to offset the additional costs.
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