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Business Assurance - Viewpoint

Competitive advantage through supply chain resilience

A North American perspective

How are companies hit hardest by the pandemic managing their supply chains?

A crisis tends to expose issues previously not on the radar, driving immediate actions and future strategies. The ongoing COVID-19 pandemic has pushed supply chain resilience higher on most agendas. What is the response where companies’ supply chains seem to suffer the most? 

The impact of COVID-19 on supply chains varies greatly especially by industry but also geography. The latest ViewPoint survey on supply chain resilience found that North American companies seem to have been hit particuarly hard. When asked about supply chain disruptions caused by the pandemic, 66.7% of North American companies indicated it an issue. This is 10 percentage points higher than the survey average. Percentages are higher for each disruption with one exception only: limitations to international trade (14.8% vs. 24.3% on average). For three actions, in particular, rates are significantly higher: delays in supplies (61.1% vs. 44.6%),  general lack of available materials/services (40.7% vs. 22.8%), and supplier closure/failure (20.4% vs. 11.2%).  International trade may not have taken such a hard hit, but North American companies’ supply chains have definitely been disrupted. 

Not surprisingly, North American companies report negative impacts at higher rates. A total of 64.8% vs. 56.4% on average experienced reduced sales. In addition, 48.1% vs. 34.8% reported increased operational costs, and 42.6% vs. 24.3% suffered workforce capacity and availability issues. Only 11.1% vs. 24.9% reported of no significant consequences. 

The reason why North American companies are so heavily hit does not seem to be due to lack of supply chain risk management capabilities.  A total of 50% self-assessed as having a mature approach before the pandemic. This is significantly higher than the average (34.9%). 

Indications are that a large share of the North American companies have a well-rounded approach to supply chain risk management. A total of 72.2% (vs. 76.7% average) start by identifing and assessing risks. The shares of companies identifying (57.4%), implementing (51.9%), and monitoring (57.4%) mitigating actions are between 12 and 7 percentage points above average. 

It may be the severity with which COVID-19 has hit North America that is coming into play. When asked about the most important supply chain risks, North American companies rate epidemic/pandemic (50%) and natural disasters (46.3%) top of the list. This differs from the average sample, where the primary risks are perceived to be shortage of manpower and competence, market volatility and price shocks, and product quality and safety issues (recall).  

North American companies have moved actively to mitigate identified risks and deploy a range of actions. Those that stand out in particular are: requesting suppliers to provide specific information (61.1%, +16.9 percentage points vs. average) and expanding and diversifiyng their supplier base (48.1%, +14.6 percentage points). In addition, three other moves score significantly higher than the average: communication of expectations and specifications, replacing suppliers, and in-sourcing activities. 

To preserve continuity, North American companies indicate more favorable lead and delivery deadlines at a higher rate (38.9% vs. 31.4% on average). This indicates that they intend to both work with existing suppliers and ensure that alternatives are in place. 

The pandemic has drastically changed how companies can and must work to manage existing or qualify new suppliers. The number of onsite audits during the pandemic is almost halved. A total of 44.4% say they have decreased/relaxed onsite audits, which is at a much higher rate than the average (28.4%). To compensate, companies worldwide have primarily moved to remote audits and document-based qualification of suppliers.  For North American companies, this substitution almost makes up for the gap left by reductions in onsite audits. In addition, they also show a higher inclination to apply technologies and tools to execute remote audits (51.9% vs. 40.6% average) over the next three years.  

Is all this having a lasting impact? It is too early to predict the outcome of what now certainly is an uncertain, prolonged situation. A high number of North American companies do intend to make one change in particular, though. A total of 68.5% vs. 57.3% intend to pursue alternative suppliers in the next 3-5 years.  This seems to support the notion that one strategy is to diversify. 

In such an extraordinary situation, companies with complex and international supply chains are more exposed. North American companies may in part be suffering from the impact on international shipping and logistics. Whether predications of supplier “reshoring” will become a long-term outcome caused by the pandemic remains to be seen. The survey does indicate that North American companies are solidifying their approach along a threefold path by first and foremost working with existing suppliers and diversifying. In addition, but at lower rates in-sourcing is a third tactic.  If this is the case, it could help mitigate multiple risks, provide more than one leg to stand on during a lengthened pandemic or in case of a future crisis similar in nature but impossible to predict.