Supply chain executives encounter a unique blend of interconnected difficulties: the pressing need to lower costs, enhance the robustness of vulnerable and antiquated supply chains, and fulfil the ongoing demands of achieving net zero emissions.
To regain command, supply chains must undergo a swift and comprehensive transformation.
Nevertheless, the conventional compartmentalised approach to supply chain management has left numerous organisations ill-prepared to adapt to a new, dynamic landscape. Supply chains that previously emphasised speed, cost-effectiveness, and predictability now find themselves inadequately equipped to effectively tackle increasingly unpredictable crises and disruptions.
However, while some entities perceive these challenges, others recognise the potential for growth and advancement.
A fresh approach is essential to address this challenge. It involves redefining the once-conflicting priorities of cost, resilience, and sustainability as mutually supportive considerations.
To seize these opportunities, leaders must combine insights, expertise, and strategic thinking with powerful tools to construct a robust and socially responsible supply chain. Simultaneously, it is crucial to ensure that any changes made are viable, valuable, and sustainable. Striking the right balance between human intelligence and technology holds the key to achieving all targets in harmony.
PwC’s 26th Annual CEO Survey shows UK CEOs are under no illusions that after a tough few years things are about to get tougher still
This imperative emerges at a time when organisations are compelled to transform themselves, as revealed by the [PwC 26th CEO Survey] which indicated that 22% of chief executives in the UK believe their current business model will not survive the decade. Globally, this figure rises to 40%. Consequently, business leaders must strike a balance between talent and technology across the supply chain and the wider organization to deliver trustworthy transformations.
Time is of the essence. While there are evident measures that all organisations can adopt to optimise costs, real success hinges on the speed and decisiveness with which changes are implemented. Forward-thinking businesses have already taken proactive steps to modify behaviours and optimise critical expenditures.
Those who are serious about staying ahead should consider that some are already planning 12 months ahead, envisioning the future landscape. Several organisations have already established comprehensive plans; those aspiring to lead must do the same.
During past crises, it was evident that forward-thinking organisations were actively investigating investment opportunities to facilitate their recovery. If you are genuinely committed to forging ahead, it is crucial to acknowledge that some entities are already projecting their strategies 12 months into the future and contemplating the potential transformations that lie ahead.
Organisations that delay taking actions to mitigate the impact on revenue, costs, investments, and capital allocation may find themselves surpassed by more audacious competitors. According to the [PwC Global CEO Survey] 43% of global CEOs anticipate that supply chain disruptions will affect profitability in the next decade. While many organisations are urgently striving to implement digital supply chain transformations, it can take up to 22 months before investments in advanced supply chain capabilities yield returns.
A fresh perspective on supply chain management is required. Decades of relentless cost reduction have led to the global dispersal of supply chains. However, this pursuit of efficiency has come at a price.
While supply chains have always possessed a certain degree of vulnerability, recent months have exposed their true extent. Some organisations feel the impact more acutely than others, such as the manufacturing sector, where 73% of UK manufacturers identify supply chain fragility as their primary challenge in the coming years.
Maintaining visibility across complex and expansive systems has long been a challenging task. Just-in-time supply chains have had limited capacity to absorb shocks, rendering them brittle,” explains Fred Akuffo, Partner at PwC UK. “Whether due to Brexit, the pandemic, geopolitics, or international sanctions, this fragility has been amplified in the modern era. These events have initiated shifts in behaviour, both among individuals and businesses.”
Sustaining visibility across intricate and expansive systems has been a persistent challenge. Just-in-time supply chains have historically exhibited limited resilience to absorb disruptions, rendering supply chains fragile. The contemporary landscape has further intensified this vulnerability, influenced by factors such as Brexit, the pandemic, geopolitical dynamics, and international sanctions.
The scarcity of resources and limited capacity have intensified competition and costs, extending beyond inventory to encompass transportation, storage space, and more. As a response, many organisations focused on accumulating and acquiring as much stock or security of supply as possible. However, this approach has hindered their ability to unlock working capital for reinvestment in the business.
Consequently, the primary challenge for organisations has become the pursuit of liquidity and capital release while ensuring seamless operations throughout the supply chain. To overcome these challenges and emerge as stronger, leaner businesses capable of sustainable growth, a fundamental shift in behaviour will be required.
Initiating change involves revisiting the strategic approach and establishing clarity regarding essential requirements and significant opportunities for future success across various economic scenarios. This should be accompanied by comprehensive cost transparency encompassing both human resources and procurement expenses, enabling informed strategic decision-making and evaluation of trade-offs across the entire value chain. It is crucial to ensure that decisions are not knee-jerk reactions solely focused on cost savings.
Organisations must also emphasise the development of differentiating capabilities compared to their competitors. This involves benchmarking cost structures, identifying areas for investment, and determining appropriate funding mechanisms. Subsequently, the entire cost structure of the organisation should be reassessed, and short-term, medium-term, and long-term actions should be implemented to fundamentally realign for the future.
Reimagining operating models and effectively deploying suitable technologies will not only expedite change but also enhance resilience and drive a cultural evolution that ensures the sustainability of any transformation.
Successful teams are already digitizing their supply chains, leveraging advanced technologies such as cloud computing, artificial intelligence (AI), and machine learning to capture relevant information and streamline processes. However, they also recognise the importance of combining these technologies with the right people and skills to transform data into actionable insights, facilitate integrated business planning, and make informed decisions about outsourcing.
Finding the right balance between technology and human capabilities can be challenging for some organisations. The proportion of these components will vary based on the specific circumstances and challenges faced by each organization. It is crucial to avoid overemphasising technology at the expense of the significant value that individuals bring, and to embrace new technologies without fear, considering their potential impact on teams.
Shifting from competition to complementarity
Although implementing strategic changes in the supply chain may entail higher short-term costs, it is a necessary step to prevent operational breakdown during future disruptions. This approach offers enhanced security, long-term savings, and safeguards against reputational damage. It also enables organisations to focus on strategic objectives such as building resilience, ensuring certainty, and reducing emissions across the value chain.
Unstructured cost reduction is not the appropriate strategy for organisations aspiring to lead. Leading organisations are embracing strategic cost optimisation instead of simply cutting costs. While it may seem counterintuitive, optimising current expenditures yields significant long-term results and drives sustainable growth beyond the current cost pressures. Organisations must ask themselves whether they aim to be future leaders or if they will merely endure by digging in.
Effective cost optimization necessitates breaking down silos across the entire organisation. Different areas of expenditure need to collaborate across teams, emphasising the importance of having visibility and fostering discourse among procurement, planning, logistics, commercial, finance, and other departments. Real change requires internal teams to collaborate and create a unified perspective that informs the overall strategy.
The right strategy will not only optimise costs but also fortify a fragile supply chain with resilience. While some still perceive cost, resilience, and sustainability as competing priorities, by redefining the challenge and placing productivity at the core of the strategy, these goals can be achieved in unison.
Although there are those who perceive cost, resilience, and sustainability as conflicting priorities, it is possible to reconcile these objectives by revaluating the challenge and prioritising productivity at the heart of your strategy. By doing so, organisations can successfully pursue all these goals in tandem.
Organisations must carefully consider how to align these areas, considering the ability to gain visibility not only across the business but also in terms of performance and competitor insights, while obtaining a comprehensive view of the entire value chain. Only with the right level of data and intelligence can informed strategic decisions be made regarding critical matters such as technology implementation, deployment, and fostering successful behavioural change.
Furthermore, leaders must prioritise net-zero and sustainability requirements when implementing any changes. According to a recent survey by [PwC on ESG] Empowered Value Chains, while 77% of respondents aim to achieve net-zero emissions across all value chains by 2050, only a third have taken concrete measures for emission reduction, with 53% still in the early stages of transformation. Transforming the supply chain with a net-zero mindset provides organisations with the opportunity to become ESG champions. The benefits can be substantial, including strong support from top
