Not long ago, supply chain issues were a concern mainly limited to operations professionals. But in the past two years, supply chain disruptions have moved up the agenda and are now widely discussed in C-suites and even the highest levels of government—essentially, because of their widespread economic impact. Even the White House has weighed in, with an order last year saying, “The United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security.”
The call to action to improve supply chain resilience has been loud and clear. And now, some recent surveys provide a snapshot of what companies have been doing in response, and what they plan to do.
For example, while companies are exploring a variety of new strategies for resilience, many have simply turned to a traditional approach. The most common approach to coping with disruptions over the past year has been to increase inventories of components and finished goods, according to a recent survey from McKinsey & Company, which reports that 8 out of 10 respondents increased their inventories last year.
Budgeting for Supply Chain Resilience
That approach can be effective but brings its own challenges in terms of paying for and maintaining that inventory. And it seems that many companies have seen it as a short-term, expedient solution and are now looking at other approaches. McKinsey reports that 90% now want to increase their supply chain resilience, and almost three-quarters expect to increase their budgets to accomplish that goal.
Meanwhile, many companies are planning to make “wholesale changes” to their supply-chain footprints, according to a study from the Interos supply chain technology company. It notes that 89% of surveyed executives think their suppliers are too concentrated in certain geographic locations and that 51% have plans to reshore or nearshore suppliers.
Other strategies beyond building buffer inventory include dual sourcing and engaging two suppliers for each component, which has now been implemented by 81% of respondents in the McKinsey survey, compared to 55% the year before. Forty-four percent are developing regional supply networks—presumably to shorten supply chains to reduce risk. That’s up from 25% the previous year. Many executives expect to continue to work on dual sourcing (69%) and regionalization (51%) through this year and beyond. From Dynamic’s perspective, this suggests that they see supply chain disruptions and risk as ongoing challenges in managing the supply chain.
Just Getting Started on Managing Supply Chain Risk
Companies are doing a lot to strengthen the supply chain, but they have a lot more to do—particularly on the risk-assessment front. The Interos study found that only 57% of suppliers are usually evaluated during a risk assessment. In addition, just 11% of respondents said that they monitor supplier risk on an ongoing basis.
These findings underscored the need to look further up the supply chain to understand risk, with 76% saying they have been affected by risk events occurring beyond second-tier suppliers—that is, their suppliers’ suppliers. McKinsey echoes that problem, noting that 45% of respondents in its survey can only see up the supply chain as far as their first-tier suppliers or have no visibility at all into the upstream supply chain.
Industry surveys show that the turmoil of the past few years has been a tremendous motivator for change, and supply chain professionals are working to increase resilience. There is progress being made and more is needed—and companies have clearly found powerful reasons for moving forward.
