Seeking Supply Chain Success
The supply chain disruption story isn’t ending anytime soon. Major events like the semiconductor chip shortage, skyrocketing container costs and congested ports lead to delays throughout the supply chain that compound one another. The interconnectedness of the global economy necessitates a deep understanding of possible implications before making any business decisions. Ongoing supply chain dysfunction makes every decision a complex one. In 2022, 56% of manufacturers anticipate supply chain disruption will be a significant risk to their business.
The sources of the disruption are largely out of manufacturers’ direct control, but there’s good news: Manufacturers have plans to mitigate these pressures. BDO’s 2022 Manufacturing CFO Outlook Survey polled 100 manufacturing CFOs to understand their plans to navigate threats and unlock new value across their supply chains.
Companies might be tempted to raise prices or discontinue products or service lines, however, this could damage customer relationships and lead to lost revenue. This will be a particular challenge for the 31% of manufacturers that already expect their revenues to decrease in 2022, as respondents say two of their top priorities are improving capital efficiency and lowering costs. A singular focus on cost reduction and capital efficiency won’t help manufacturers protect revenue or recoup losses.
Manufacturers may want to prioritize their customers in supply chain planning to mitigate the impacts that their other business moves will have on customer relations. For example, many manufacturers are considering shifting their geographic footprint as they prioritize financial optimization, but they should consider how those plans will alter customer service levels. Cost reduction and capital efficiency are important goals, but the key objective behind changes to manufacturers’ geographic footprint should be getting physically close to key customers or markets to better insulate themselves from external disruption.
Some manufacturers are waking up to this — 40% of respondents are planning to shift their operations because they aren’t currently meeting customer demand. This may require investment in the short-term, but in the long-term, the benefits will be well worth the spend.
SPOTLIGHT: Customer service is critical to solving the chip shortage
The semiconductor chip shortage continues to send shockwaves throughout global supply chains, and there are no signs that it is abating. From cars to kitchen appliances, children’s toys to smartphones and toothbrushes — it is hurting manufacturers across all subsectors.
Cost optimization strategies will not likely solve the chip shortage challenge. Manufacturers should also consider focusing on strategies that enable them to adequately meet customer demand. Chipmakers need to build more production capacity, and ideally should look to do so closer to key markets to insulate their supply chains from disruption. Manufacturers that rely on chips may want to look for alternative chip suppliers closer to their own domestic production facilities. Those seeking alternative chip suppliers should prioritize quality control and verify the legitimacy of their chip supply. There will likely be bad actors pushing fraudulent chips into the market to capitalize on the surge in demand for chips, which, if undetected, could cause cascading issues throughout the supply chain from the manufacturer to the end consumer.
BDO Insight
To succeed in 2022 and beyond, it is important manufacturers adopt a 3-pronged approach to supply chain management that prioritizes cost, capital and the customer. They’re already focused on lowering costs and improving capital efficiency but without focusing on the customer, these efforts will have limited ROI. If they aren’t focused on this already, manufacturers should consider improving the quality and speed of customer service and reduce exposure to disruption. Manufacturers should be proactive and transparent in communicating delays. They should also seek to improve supply chain resilience and agility when reevaluating their geographic footprint, either by moving operations physically closer to key markets or simplifying their supplier base.
There are a multitude of considerations when shifting operations, however, including availability of local suppliers, incentives, and tax and talent implications. For example, if the location a manufacturer is moving to doesn’t have a sufficient labor pool or will expose them to significant new tax liability, it could outweigh the benefits of being closer to their customers. The decision whether to re-shore to the U.S. or nearshore to Mexico or another location will be different for every manufacturer depending on their business model, customer base and tax structure. Every manufacturer needs to take a holistic approach to supply chain planning that incorporates all these factors and puts the customer at the center.
Although not every manufacturer is a multinational company, nearly all manufacturers should think globally in their business planning. All businesses, regardless of industry, subsector or where they are in the supply chain, are affected by shifting global economic and demand trends. Even if a manufacturer only sources from U.S.-based suppliers and sells to U.S.-based customers, their suppliers’ suppliers and customers’ customers may be located elsewhere. It is important manufacturers understand how global forces will impact their own suppliers and customers and ultimately, how the downstream effects will impact their business. Analyzing these factors and their potential consequences will also give them better insight into the pain points of their customers and suppliers and provide an opportunity to deepen a relationship by offering support and flexibility.
Methodology
BDO’s 2022 Manufacturing CFO Outlook Survey polled 100 manufacturing industry CFOs with revenues ranging from $250 million to $3 billion in October 2021. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.
