With supply chain disruption becoming more commonplace, businesses are reviewing and reshaping their supply chains to build resilience
Research suggests supply chains will face disruptions lasting a month or longer every four years.5
Firms view these disruptions as the biggest internal factor hindering growth (19%). More than nine in ten (93%) have concerns relating to their supply chain. These concerns are consistent across industries. In response, businesses are making changes to how they select suppliers and manage their supply chain.
In terms of suppliers, July’s Navigator Resilience showed more businesses were diversifying rather than restricting suppliers. This trend continues with more firms diversifying (28%) than reducing (20%). This gap widens for higher-growth businesses and companies that perceive protectionism rising. Automotive and manufacturing firms, particularly in the computer and electronics sector, are diversifying most through adding new suppliers.
Factors threatening supply chain resilience
| Suppliers in countries / territories which are unstable or at risk of tariffs / sanctions | 40% |
| Increasing cost | 39% |
| Suppliers are too distant from target customers or from our business | 33% |
| Suppliers which are not sufficiently agile | 23% |
| Financial resources / time spent on managing the supply chain | 23% |
| Deteriorating/variable quality of suppliers | 23% |
| Lack of transparency on supplier (and their suppliers) |
20% |
| Suppliers not meeting our sustainability requirements |
20% |
| Suppliers not matching our digitisation requirements |
19% |
| No concerns | 7% |
5 McKinsey Global Institute: Risk, resilience, and rebalancing in global value chains, August 2020
Diversifying vs reducing the number of suppliers: the regional picture
| Asia Pacific | South America | Middle East & North Africa | North America | Europe | |
| Diversified | 34% | 33% | 32% | 24% | 21% |
| Reduced | 19% | 17% | 25% | 22% | 20% |
This diversification is a strategy to deal with external uncertainty, enhancing control and reducing risk. And consistent with increasing trade flows within regions (Section 5), for two-fifths of firms, focusing on suppliers in their home region will be their immediate priority for 2021 (40%). The most significant short-term change is choosing suppliers based on their country’s control of COVID-19 (32%).
On supply chain management, half of businesses see digital and technology as the immediate priority (48%). Companies that identify as thriving are making greater changes to their supply chain, particularly in digital adoption.
Supply chains shape sustainability outcomes. Large corporates place considerably greater emphasis on this. One in five firms hold concerns around suppliers’ lack of transparency and ability to meet sustainability requirements. Over the past year, around a quarter of firms have selected suppliers based on sustainability practices (24%) and increased transparency deep into the next tier of suppliers’ supply chain (26%).
Businesses are prioritising resilience across their supply chain. To achieve this firms are enhancing control, reducing cost and increasing speed.
93%
have concerns relating to their supply chain
Winning strategies
COVID-19 highlighted the risks of concentrated and opaque supply chains.
Mapping supply chains right down to component level can ensure no single point of failure. Supply chains can maintain efficiency while adding geographic diversification that can be flexibly deployed. Transparency, digitisation, resilience and incorporating ESG factors will set companies apart.
And as volatility increases, trade finance can bridge spikes in the need for working capital.