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.

34%

of Canadian CEOs are monitoring their supply chains to mitigate risk and diversifying sources of input

35%

of small-to-medium sized business leaders worry their company won’t survive the next three years if there’s another pandemic-related lockdown

Our recent research 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 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% 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."

—Jérôme Thirion, Partner, National Lead Supply Chain, Management Consulting, KPMG in Canada

Jérôme Thirion
59%

of Canadian CEOs say their supply chains have been under increasing stress over the past 18 months

As a result, 59% 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% say protecting their partner ecosystem and supply chain is just as important as building their cyber defenses.

In our SMB poll, 85% of Canadian SMB leaders say they've experienced disruption because of the pandemic. Thirty-five percent 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% want to source more products within Canada but 61% say this isn't possible yet.

85%

of Canadian CEOs say protecting their partner ecosystem and supply chain is just as important as building their organization’s cyber defenses

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 succumb 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% of multinational companies will start culling ''slow to transition suppliers'' by 2025, and 15% have already begun to do so.1 Visibility throughout the supply chain is becoming increasingly important for ESG purposes, 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.

Key takeaways:

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

1 "Carbon Dated: Multinational companies planning to cut suppliers by 2025 for failing to curb carbon emissions." Standard Chartered, June 2021.

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