A global pandemic, climate change and geopolitical volatility have cooked up the perfect storm for global manufacturing CEOs. KPMG's Global Manufacturing Prospects 2022 reveals that seismic change is leading to a shift in CEO agendas.
The global pandemic has been a wake-up call in an unfathomable number of areas. According to the KPMG Global Manufacturing Prospects 2022, manufacturing CEOs have learned two important lessons from the pandemic: the vital importance of a resilient supply chain and the need to invest in new technologies that can both fend off business disruptions while taking advantage of them.
The findings of the Global Manufacturing Prospects 2022 report are based on a global survey of almost 150 CEOs in manufacturing companies in 11 countries in Europe, North America and Asia-Pacific. Three quarters are at companies with annual revenue of $1 billion or more.
Supply chain health check
By far the most significant threat perceived by CEOs in the industry is supply chain risk. A staggering two thirds of CEOs cite the urgency to ensure their supply chain can withstand future major global disruption. Caught off guard by the pandemic, they are now playing catch-up and plan to mitigate supply chain stress by extending their monitoring deeper into the supply chain to anticipate changes before they have a severe impact. Operational effectiveness cannot be achieved without a healthy supply chain.
Unsurprisingly, CEOs shared additional focus on investing in the digitization and connectivity of their operations in the next three years. They plan to invest heavily in this area, not only to counter disruption, but also to create new operational value and economic growth. However, the true value of digital transformation can only be released when considered holistically, not in fits and starts. The survey suggests that CEOs may not yet have grasped that the goals of digital transformation and ESG are both consistent and work powerfully together. Digitization can mitigate supply chain risk and enhance sustainability, but CEOs need to see ESG as a strategic imperative not simply a means to an end. Just how relevant certain technologies such as AI and blockchain are in the manufacturing space is presented in the report in more detail.
Purpose as a strategic lever
Looking at further feedback from the survey, it appears the global pandemic has triggered some existential questions and prompted CEOs into taking a long hard look at the purpose of their firm. 77 per cent of them admit to feeling a stronger emotional connection to their purpose since the beginning of the corona crisis. In addition, 67 percent say the overall objective of their organization is the long-term value for shareholders, almost five times more than the number focused on economic returns. Above all, 92 percent believe that conveying a sense of purpose will have the greatest impact on customer relationships. The increasing demand from workers, customers and investors only serves to drive home the growing realization that purpose should be embedded in firm strategy.
Questioning the very purpose of a firm ties in well with growing ESG considerations. Manufacturers are well aware that they need to invest in more sustainable operations: 71 percent of the CEOs do see "global challenges", such as income inequality and climate change, as the biggest threat to long-term growth of their company. Although ESG is not seen primarily as a tool for growth, 31 percent of the manufacturing CEOs think that their company’s ESG programs improve financial performance, while only 15 percent see a reduction of the financial performance by their ESG programs (54 percent: neutral effect).