Future-Proofing Supply Chains
Creating More Resilient Supply Chains to Withstand Disruption and Uncertainty
Editor’s Note: For more great articles, visit KPMG’s own blog page. Reprinted with permission.
One of the most significant weaknesses that COVID-19 exposed for many organizations was their unpreparedness and susceptibility to supply chain related risks. Whether supply and demand shocks, geopolitical strife, or backlogs and delays across the global logistics infrastructure, firms across all sectors found themselves needing to drastically rethink their supply chain networks to source materials, as well as to deliver products and services to customers. Now that we’re a year and a half into the pandemic, Canadian CEOs are prioritizing supply chain resiliency so they’re ready for future disruption, uncertainty, or opportunity. Our research has revealed that 34 per cent of Canadian CEOs are monitoring their supply chains to mitigate risk and diversifying sources of input.
Our recent research also shows that supply chain risks are seen as a significant barrier to growth for organizations both large and small. According to our 2021 CEO Outlook survey, CEOs of Canada’s largest organizations continue to view supply chain as a risk to their future growth, although, it has dropped in terms of urgency from the number three spot in August 2020 to number seven. However, a recent KPMG poll of more than 500 Canadian small- and medium-sized businesses (SMBs) found that supply chain is a leading risk for smaller organizations, taking the number two spot after talent.
Exposing Risks in the Supply Chain
Pre-pandemic, many companies were operating with lean processes and reduced inventory to optimize costs. But 59 per cent of Canadian CEOs—and the same percentage of global CEOs—say their supply chains have been under increasing stress over the past 18 months. With globally dispersed suppliers, companies have found themselves at the mercy of the weakest link in the chain—and are experiencing a lack of visibility into those links.
“Customer demand for variety is growing exponentially thereby creating increasing complexities as well as the costs associated with delivering on customer expectations. Prior to COVID, it was critical to manage costs in your supply chain. The shift in focus for supply chain leaders is now to balance complexity and manage global risk,” said Jérôme Thirion, Partner, National Lead Supply Chain, Management Consulting, KPMG in Canada
As a result, 59 per cent of CEOs are looking to ensure their supply chain is resilient in the event of another global lockdown or future travel restrictions. And this is a top priority; 85 per cent say protecting their partner ecosystem and supply chain is just as important as building their cyber defences.
In our SMB poll, 85 per cent of Canadian SMB leaders say they’ve experienced disruption because of the pandemic. 35 per cent worry their company won’t survive the next three years—particularly if there’s another pandemic-related lockdown or if supply chains don’t start moving again. Of those surveyed, 79 per cent want to source more products within Canada, but 61 per cent say this isn’t possible yet.
Know Your Suppliers
While companies might have a strong relationship with their tier-one suppliers, few understand what’s going on with their tier-two suppliers—and only a fraction know what’s going on with the suppliers of their tier-two suppliers. Many businesses have succumbed to suppliers’ liquidity issues, a lack of inventory buffers, and have been unable to react to changing consumer demand. Organizations on the leading edge of supply chain practices have implemented Third-Party Risk Management (TPRM) processes; for some up to 6th party view bringing together engineering and product development, operations, procurement, finance, and compliance.
Just short of 80 per cent of multinational companies will start culling ”slow to transition suppliers” by 2025, and 15 per cent have already begun to do so. (1) Visibility throughout the supply chain is becoming increasingly important for ESG purposes, and it’s also becoming important for building resiliency. For aspiring industry leaders, traceability of compliance providing end-to-end supply chain visibility and track and trace solutions are paramount.
Fit for Purpose Supply Chains
The exponential increase in customer segments cannot be addressed through a ”one size fits all” operating model. The key is designing with flexibility and agility in mind.
The idea isn’t to repatriate all production to Canada; rather, it is about understanding the value chain and where to press for changes to improve resiliency and cost management. Leading organizations are rebalancing global versus local supply chain operations to better manage risks, enhance resiliency, and increase customer service levels. They are establishing micro supply chains.
Micro supply chains are mini operating models based around customers, not processes. They help guide companies in customizing products, policies, production systems, flows, and systems around specific customer segments. When fully deployed, it is a shift away from owning all assets and capabilities to leveraging the company’s eco-system of partners. More partners and modularity can increase the need for collaboration platforms and cognitive decision centers.
Supply Chain as a Differentiator
Supply chain has evolved as a critical business partner and differentiator that tightly aligns the business functions to the business strategy and enables the organization to deliver on its customer promise. Data science has replaced ”gut feeling” and acts as an ”always on” sentinel for disruptions and events. To drive new value and benefits, control towers present trade-offs with cost, revenue, profit, and metric impacts. For companies that shift focus and look at their supply chain as a market differentiator, they can completely change the equation.
By recognizing how customers see the world and predicting their future needs, organizations can create agile supply chains with the customer at the centre and increase value:
- Map the customer experience journey: understand client personas so your supply chain can become a competitive differentiator for your business
- Understand cost to serve and profitability: build on the learnings from recent disruptions
- Take a fresh look at your value chain: what does your eco-system look like? And define the capabilities needed to source more efficiently, manage costs and risks, and deliver operational agility
- Digitize the front-, middle-, and back-office: accelerate digitization and leverage data to gain visibility, develop intelligent forecasting, and run predictive models to manage risks
- “Carbon Dated: Multinational companies planning to cut suppliers by 2025 for failing to curb carbon emissions.” Standard Chartered, June 2021.
About the Author
Jérôme Thirion is a Partner and National Lead Supply Chain and Operations, Management Consulting for KPMG in Canada. A trusted advisor to senior leadership, Mr. Thirion has over 20 years of international experience in industry and advisory services, helping organizations to enhance business effectiveness, improve controls and reduce operational costs.