Focus supply chains: around the world and back - but safely

Reto Brunner Partner, Advisory, PwC Switzerland 14/02/22

In spring 2020, the pandemic showed internationally networked companies that their supply chains can cause them existential risk. In some sectors, production facilities had to close entirely, and raw materials, semi-finished products and components could not cross borders at all, or were severely delayed, during the lockdowns. Common global supply structures were rendered useless overnight. So companies tried to rid their supply chains of weak points and dependencies – as much as they could – and to purchase and produce more regionally and locally.

Short-term logistical bottlenecks

Some sectors are still experiencing severe delivery problems and the waiting times for many goods (including cars, wooden furniture and electronic equipment) are very long. The pandemic is just one of many reasons for this situation.

Sluggish acceleration: some companies were unable to ramp up their supply chains to keep pace with excess demand after the pandemic.
Less ‘just in time’ production: Learning from their experience in the 2020 lockdowns, companies are now storing increased quantities of safety stock in their warehouses. This is causing a shortage of key components like semiconductors.
Mismanagement: Several car manufacturers responded to the pandemic-related decline in orders by reducing their orders for semiconductors. The home and consumer electronics industry snapped up the allocations that this freed up. The car industry is now struggling to regain the allocations that it gave away.
Shortage of coal: China still relies on burning coal, a fossil fuel, for more than 50% of its electricity. It is rationing electricity because coal is currently in short supply due to its trade dispute with Australia. 44% of Chinese industrial enterprises are believed to be affected. This is in turn reducing supply. This is contradictory because coal-fired power generates carbon emissions and increases climate risks.
Timber beetles in Canada: Demand for timber rose to unprecedented levels during the pandemic, because people suddenly had time for renovation and construction work. The mountain pine beetle has been ravaging Canada’s forests for years due to the timber industry’s unsustainable monocultures. British Columbia used to provide 15% of the USA’s construction timber imports; today it provides less than 10%. American importers engaged in a bidding war with Chinese and Indian buyers in Europe, which caused a 500% spike in timber prices.
The logistics bottleneck factor: Transport logistics is battling capacity bottlenecks and incidents worldwide. In March 2021, for example, the container ship Ever Given blocked the Suez Canal. In August 2021, a COVID-19 outbreak occurred in China’s second largest cargo port and caused an extensive closure. This resulted in delays of bulk shipments from overseas and extreme price increases.

"The goal of resilient and sustainable supply chain controls should be to design supply chain processes and structures more robustly and to communicate them more comprehensibly. "

Reto Brunner,Partner Advisory, PwC Switzerland

A paradigm shift in B2B commerce

B2B companies tend to focus on product characteristics and customisation. They often lack an end-to-end view of their customer interaction along the value chain and focus instead on their ability to offer responsiveness at a competitive price. A paradigm shift towards a new focus on holistic value creation is currently taking place in this type of commerce. With this new focus, manufacturers of industrial products engage their B2B customers in a similar way to online retailers – who engage their users by offering positive experiences and ensuring visibility into their products’ availability.

Creating transparency and security

The current spate of bottlenecks in many supply chains is likely to prove a short-term operational problem that will be resolved in the next few months. Even so, Swiss companies should examine their supply chains and consider multi-sourcing approaches. The increasing demand for transparency in the supply chain, as part of the drive for sustainability, may warrant a report on system and organisation controls for the supply chain (a SOC for Supply Chain).

Swiss edition: "25th Annual Global CEO Survey"

Cyberrisks, sustainability, strategy and supply chain – are some of the issues keeping Swiss decision-makers on their toes. Read more about the pulse of the Swiss C-Level here.

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