Message from Jeff Dobbs, KPMG’s Global Head of Diversified Industrials
When we initiated this research paper, the world seemed to be returning to normal. The reality has been anything but, as the stock market recovered then fell, inventories improved then cooled, and employment figures remained anemic. Globally, business attitudes vacillated between confidence and caution, jarred by surprises such as the European sovereign debt crisis, relief at better than expected consumer spending then disappointment over sagging consumer confidence. All of this showed us that normal was far from here.
Our survey findings suggest that uncertainty is holding companies back from executing bold changes to their supply chain structures. Still, with uncertainty showing little sign of going away, organizations may be compelled to reassess their strategy and operations. In this environment, the advantage will go to those organizations best able to anticipate and respond to changing business conditions.
This study, produced in collaboration with the Economist Intelligence Unit, surveyed 196 senior executives worldwide to understand how the supply chains of industrial manufacturing firms are shifting as a result of prevailing economic uncertainty.
The overall picture is not one of revolutionary change toward a commonly accepted, new set of best practices. Rather, many companies are experimenting with a range of approaches. Some of these may not stand the test of time. Given, however, the standing of the companies studied—all have annual revenues of over US$1bn—those innovations that prove their value are likely to shape the sector’s supply chain strategies in the years to come. Among the survey’s key findings are:
Strategic suppliers are increasingly becoming partners rather than purveyors of goods and services. Many companies are looking for fewer, longer-term supplier relationships, and more than half plan either to collaborate more closely with suppliers on—or give responsibility to them for—product innovation, product development, research and development (R&D), cost reduction, and supply chain agility. Interviewees suggest that building closer relationships was worth the price of helping suppliers financially during the downturn.
Management of supplier risk has become more hands-on as a result of the downturn, but by avoiding certain risks, companies may be losing out. The recession has caused companies to look more closely at supplier risk. In other areas, though, the tendency seems to be to avoid potential problems altogether, or diversify around them, rather than to understand the risk. This can mean companies lose out on opportunities, such as tapping into the research potential of China.
The geography of sourcing, a combination of the global and the local, is in flux as companies consider the appropriate link between customer and supply chain location. Low-cost country sourcing remains the priority for most supply chains, with China as the big beneficiary. While expected geographic shifts within supply chains are largely cost-driven, a significant minority of companies expect them to more closely reflect consumer markets in the future.
KPMG International commissioned the Economist Intelligence Unit to conduct a survey investigating how industrial manufacturers are adapting their business models and supply chain tactics to address the ever-changing global economic context. A total of 196 senior manufacturing executives, all of whom are responsible for, or significantly involved in, supply chain strategy, participated in the survey. Respondents were drawn from the aerospace, metals, engineering and conglomerates sectors, and 40 percent were C-suite executives or above. Thirty-six percent were based in Western Europe, 32 percent in North America, and 23 percent in the Asia-Pacific region, with the remainder coming from across the rest of the world. All participants represent companies with more than US$1 billion in annual revenue; 42 percent work for firms with more than US$5 billion.
To supplement the survey, the Economic Intelligence Unit interviewed senior executives from a number of major companies. We would like to thank all the participants for their valuable time and insight.
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