CEOs at manufacturers have learnt two important and related lessons from the pandemic: the vital importance of a resilient supply chain and the need to invest in new technologies to strengthen resilience, by both avoiding business disruptions and taking advantage of them. If manufacturers take timely actions to ensure a healthy supply chain, it may enable manufacturers to withstand economic shocks in the future and improve competitiveness.
When asked in the KPMG International survey about the impact of the pandemic on their organizations in 3 years’ time, more than two-thirds (68 percent) of CEOs say they aim to ensure their supply chain is resilient in the event of a global lockdown. The focus on resilience is the top answer to this question and reflects a new priority. “The need for resilience is forcing companies to be more agile and make decisions faster. Digitization plays a vital contribution to this,” says Grant McDonald, Global Industry Leader, Aerospace and Defense at KPMG International.
The renewed preoccupation with the supply chain is connected to the second big lesson of the pandemic — the need to invest in new technologies, both (1) to decrease vulnerability and (2) to accelerate the recovery of business from a massively disruptive event. Take the first part of these twin objectives.
Chief executives say that the top way to mitigate stress on the supply chain is to extend their company’s monitoring deeper into the supply chain to anticipate changes before they have a severe impact. To do this, requires technology that can track the myriad transactions, not only with their direct suppliers, but also to the fourth tier, or even further, if possible. This is not something most original equipment manufacturers (OEMs) felt was necessary before the pandemic.
Artificial intelligence (AI) is one answer. “Manufacturers are adopting supply chain solutions which are AI-centered. These enable companies to manufacture, based on demand and supply data they analyze in real-time. The technology helps them to focus on ensuring that, at any vulnerable point in the supply chain, executives develop risk management around it. AI sits on top of ERP systems to help companies gain end-to-end visibility,” says Vinod Ramachandran, Partner and National Leader, Global Head – Industry 4.0, Automobile and Industrial Manufacturing, KPMG in India.
Another potentially game-changing technology is blockchain, but this is not always a realistic solution. “More enterprises are considering blockchain technology to improve the way they track the supply chain, but for it to work you need a broad array of suppliers, and many are not capable of using it, especially in tier 3 and 4,” says Stéphane Souchet, Global Head of Industrial Manufacturing at KPMG International. “An electrical equipment maker may be able to extend the use of blockchain that far, but in metals and mining it is likely to be more difficult to do so.”
The second objective of new technology investment revealed by the survey is to use it to expand revenue more rapidly. According to the survey, the top operational priority to achieve growth objectives over the next 3 years is to invest in the digitization and connectivity of all functional areas. If integrated effectively, this type of investment may also improve agility and speed up innovation.
“In Japan, more companies need to take a ‘lighthouse’ approach to accelerate digital transformation,” says Hidenori Sakata, Supply Chain practice, KPMG in Japan. “Choose a pilot factory or process and radically digitize the operations. Once the benefits are realized, roll it out to other factories.”
Amid a period of transformative industrial change, the main lesson to be drawn from the CEO survey is an evergreen theme that is more urgent than ever: companies shift attention away from their supply chains at their peril. Operational effectiveness cannot be achieved without a resilient supply chain. This report’s analysis of top executive opinion strongly supports the view that a healthy supply chain is likely to support a healthy manufacturer. But how can this be achieved?
The excerpt was taken from the KPMG Thought Leadership publication Global manufacturing prospects 2022 which can be downloaded in this link Global Manufacturing Prospects 2022 (kpmg.com).