After enduring countless shortages and disruptions during the pandemic, most companies came away from the experience knowing at least two things: Their supply chains weren’t ready to absorb the impacts of those events, and it doesn’t take a global pandemic to bring these critical networks to their knees. One plant fire, one supplier that goes out of business or a strong weather system can all have a profound impact on how a supply chain does (or doesn’t) operate.
Knowing this, more organizations have set their sights on improving their resilience and driving the risk out of their supply chains. These initiatives continue even as the pandemic continues to fade in the rearview mirror, according to McKinsey & Co.’s new 2023 Supply Chain Pulse Survey.
Based on input from about 100 respondents from around the globe, the survey included questions on four major areas of supply chain management: network design, planning, digitization and risk management.
Addressing Major Challenges
According to McKinsey, nearly every respondent said they had experienced “significant issues” over the previous 12 months. About 44% reported major challenges arising from their supply chain footprint that required them to make changes during the year, for example, and nearly half said that supply chain disruptions had created significant planning challenges.
McKinsey says companies are taking two different approaches to solving these problems: They’re increasing inventory buffers and pursuing dual-sourcing strategies for critical raw materials. “Those actions are still the most popular strategies, with each adopted by 78 percent of respondents—a similar level to last year,” the firm reports.
Some of the other key findings from the report include:
- Two-thirds of respondents obtained more input from suppliers located closer to their production sites over the past 12 months. That’s double the share of companies who reported using such nearshoring strategies last year. “The biggest reported increases came from the automotive and consumer goods industries, where use of the strategy rose by around 60 percent,” McKinsey reports.
- The talent shortage is keeping supply chain professionals up at night. According to McKinsey, just 8% of the companies have enough in-house talent to support their digitization ambitions. Even more concerning, the efforts to build the required capabilities appear to be foundering. “Over the past three years, the share of companies running internal reskilling programs in the supply chain function has dropped by 27 percentage points, while reliance on external hiring has increased by 15 points,” the company points out. “That might be good news for the job prospects of today’s digital supply chain professionals, but it isn’t clear how industry will nurture the next generation of talent that it so urgently needs.”
- The shift from global to regional supply networks continues to gain momentum. Almost two-thirds (64%) of respondents are currently regionalizing their supply chains, up from just 44% last year. Only half the companies say that their supply chains are dependent on inputs from another region, but 89% of those respondents want to reduce that dependency over time. “The push for independent regional supply networks is most prominent in two regions: Europe and Southeast Asia,” McKinsey points out.
- Inventories remain high, but companies are divided about their future direction, with roughly equal numbers believing that stocks will continue to rise, remain at today’s levels or fall back to pre-crisis levels. Around a quarter of respondents have particularly aggressive inventory reduction goals, expecting stocks to drop even below those levels. “That finding surprised us,” McKinsey states in its report. “It suggests either that these organizations historically held more inventory than they needed or that they do not expect significant supply disruptions soon.”
- More companies are using technology to improve supply chain resilience and drive risk out of these critical networks. This year, the share of respondents that have implemented dashboards for end-to-end visibility jumped significantly to 79%, and attention has switched firmly to improving supply chain planning processes. “That might be because improved visibility has revealed weaknesses in the underlying processes companies use to manage their supply chains,” McKinsey reports. “71 percent of respondents say that they expect to revise their current planning processes and governance over the next three years.”