In a new Protiviti survey released Sept. 20, nearly three-quarters of global finance executives (72%) said their organization "experienced disruptions or delays because of supply chain challenges, pandemic-related impacts, or the effects of inflation" in the past year.
Indeed, supply chain disruptions are still cropping up. Just this week, Ford warned of cost increases from supply chain pressures and a large buildup of unfinished cars in its factories. Volkswagen's head of procurement told a German trade publication the structural shortfall in semiconductors would last through 2023. And dock workers in Liverpool went on strike, exacerbating problems in the already congested European port network.
Supply chain problems haven't stopped at the loading dock or the factory floor, of course. In the past two years, they rippled through finance in the form of higher costs, lower sales, and lost growth opportunities when parts shortages slowed down production volume.
"In most of my CFO conversations, they’re very concerned with the lack of ability and transparency in delivering revenue and its long-term effects on shareholder valuation," said David Petrucci, a managing director and leader of Protiviti's supply chain and operations practice. He added: "Board members [I speak to] are asking many questions about what should be the board's responsibility in the future related to governance and oversight from a more detailed supply chain and operations viewpoint ... putting pressure on the CFO’s office to better evaluate the overall supply chain risk level and to make the proper investments to prevent the disruptions of the last three years."
Not surprisingly, due to the depth or duration of supply issues, many CFOs are putting their whole operations under a microscope.
Nearly half (45%) of the 1,064 global CFOs, vice presidents, directors, and managers of finance Protiviti surveyed were ditching the just-in-time supply chain model (focused on efficiency and low costs) for a revenue assurance model (emphasizing flexibility and resilience). The survey found this change especially popular with health care, oil and gas, and retail companies.
Other popular post-pandemic actions included diversifying supply chains to multiple sources and regions while also improving communication with either select suppliers or across the value chain. (See chart below.) A smaller percentage (32%) are looking to source more materials and products locally. (That policy change was more prevalent among finance executives of consumer packaged goods and manufacturing companies).
Technology adoption will play a part in the overhaul. In CFO's annual survey of finance chiefs, 30% said the procurement/supply chain function would get new tech solutions in the next 6 to 12 months, close to the percentage (34%) of firms implementing new FP&A systems.
Petrucci said it's essential for CFOs to look beyond "traditional cost calculations."
As part of adapting supply chains to be more durable, CFOs are being forced to pay more attention to:
- The locations of key suppliers
- The reliability of second- and third-tier suppliers
- The availability of qualified alternative sources of supply
- The length of time suppliers can operate and meet obligations amid a catastrophic event
- The length of time their own organizations can operate amid prolonged supply chain disruptions
A unified approach to supply chain risk management is key, according to Protiviti, and risk identification needs to be comprehensive — across all operations and regions and across different time dimensions: "Focus not only on current risks but also those likely to pose challenges to short-term and long-term operations based on the organization's strategic trajectories."
The imperative to rethink supply chains in light of the past two years is not just about preserving businesses, customers, and profitability. If the private sector can't devise anti-fragile supply chains, governments seem willing to step in.
The European Commission on Monday debuted the Single Market Emergency Instrument, a proposal that gives it powers to regulate industries during crises. If approved, the law would require companies to give priority to orders of particular goods upon the EU's say-so. EU officials could also prevent member countries from unilateral supply chain decisions, such as export bans.
In the United States, meanwhile, the Biden administration appears to have failed in its effort to get shipping ports to operate 24/7. The initiative provided unpopular with port operators and businesses due to the costs involved, Supply Chain Dive reported on Tuesday.
Protiviti surveyed the finance executives in June and July 2022. Nearly half (48%) of the organizations were in the United States, and 78% were privately held.