SupplyChain - Research Report - UST - 2022

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Risk & Resilience Survey IN ASSOCIATION WITH:

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Table of Content Intro. . . . . . . . . . . . . . . . . . . .

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Consultant View. . . . . . . . .

4-5

Industry View . . . . . . . . . . .

6-7

Academic View. . . . . . . . . .

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Survey Analysis. . . . . . . . . .

10-31

Conclusion . . . . . . . . . . . . . 32-33

Managing risk in a chaotic world For decades, value chains continued to grow in length and complexity, as companies increasingly came to see supply as a source of cost savings, mainly through cheap labour. As a result, from the 1980s onwards there was a sizeable shift in manufacturing and production away from the West and towards the East.

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But the COVID-19 pandemic changed everything. Wave after wave of lockdowns combined with stratospherically high levels of e-commerce - saw supply chains overheat.

Congested ports and a chronic shortage of container capacity caused shipping costs to soar, and all of these problems are ongoing.

The pandemic also caused a societal factory reset, prompting people to re-evaluate what is important to them. This has resulted in the Great Resignation, and supply chains have been especially badly hit, because haulage and warehousing are two areas in which recruitment

RISK & RESILIENCE SURVEY

and labour retention have never been more challenging.

The pandemic is estimated to have cost the world economy US$10tn, and counting. Then of course we also had the Suez Canal blockage, which added a further US$40bn to the tab.

Now there is war in Ukraine, which is disrupting the supply of energy, cereal crops and microprocessors and is sending us into an even steeper inflationary spiral.

All of these things - the coronavirus pandemic, Suez, labour shortages, Ukraine - have pummelled supply chains so hard that they are shortening, as organisations look to mitigate risk by reshoring and nearshoring manufacturing.

The need for greater supply professionals will resilience in today’s share insight and advice on uncertain world has also how to equip yourselves for seen supply becoming the challenges - known and more network-fed rather unknown - that lie ahead. than chain-driven. The Industry 4.0-fuelled digital But as well as vital bigtransformation of business picture advice, we wanted to is prompting organisations get granular on the nature of to view supply less as a risk, and your response to it. cost-control centre and Hence this Risk $10 Trillion more as a & Resilience means to drive Survey, which Pandemic’s cost to world economy competitive is sponsored advantage. by the These days, leading digital $40 Billion keeping transformation Suez Canal consumers solutions blockage impact and customers company, UST. supplied and happy can potentially Among the questions we deliver a brand a huge put to you and your supply captive audience, whose chain professionals are: loyalty can be bought by availability.

• Is re-shoring something you are considering?

Supply is undergoing • Are you leaning towards generational change a just-in-time inventory change that is being driven model or just-in-case? by an urgent need for • How confident are you greater agility, so that the that supply chains will wheels of commerce can return to ‘normal’? continue to turn, whatever fate has in store.

These and other questions were designed to elicit just This is why BizClik Media how disruptive COVID-19 Group chose Risk & has been, how you rate the Resilience as the theme for importance of proactive our Procurement & Supply risk mitigation, and how key Chain LIVE event. Over you feel that supply chain the course of the next two modelling is to effective days, you and your fellow risk and resilience. supplychaindigital.com

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Consultant View

He has worked in both the private and public sectors including pharmaceuticals, banking, FMCG, manufacturing, consulting, retail, aerospace & defence, venture capital, healthcare (NHS) & local Government.

With over 30 years of experience at senior executive and director level driving value and change through procurement, organisational transformation and change management, David’s background spans a variety of roles with significant global experience and responsibilities.

Formerly Group CPO for Rolls Royce, he was the principal architect behind the behavioural science-led approach to the adoption of a new digital platform.

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Loseby remembers an old procurement acronym, AQSCIR, which he believes procurement professionals should still live by.

A – Assurance of supply Q – Quality S – Service C – Cost I – Innovation R – Regulatory compliance

“As far as I’m concerned, unless you can sufficiently satisfy all of those six factors, you’re not delivering the right solution”

“As far as I’m concerned, unless you can sufficiently satisfy all of those six factors, you’re not delivering the right solution,” he says. “You’re not delivering value.

And it’s imperative that you get that balance right. You can’t have the best price without assurance of supply, for example.”

Loseby says procurement leaders show their value DAVID LOSEBY through their ability to focus CONSULTANT on all six of the attributes. A weighted discussion involving areas of risk as well as potential opportunities safeguards a company’s continuity of business. Putting talk of cost on hold opens the door for procurement to hold more value-add discussions. The cost of disruption far outweighs savings while putting your company’s service levels and reputation on the line.

“Putting the entire business at risk for comparatively small savings is not a good value equation,” he says. “By engaging with stakeholders in terms of the value agenda, they recognise that you’re making it easier for them to do what they do. Removing the friction from contracts or solutions increases their likelihood of adoption.

So, for me, that is fundamentally the difference between driving cost vs value.”

Global Strategic Sourcing | Programme Management | ERP SAP Design | Supply Chain Finance | Change Management | Business Transformation | Organisational Design | Behavioural Procurement | Public Sector Procurement | Business mentoring and coaching | Sustainability programmes | Social & Decision Sciences I Supply Chain Management •

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Chartered Construction Manager and Procurement & Supply Chain professional Top 50: Recognised thought leader in Procurement & Change Management – Thinkers360 Top 100: Global Thought Leader in Supply Chain, Diversity & Inclusion, Design Thinking, COVID-19 & Management Author: “Soft Skills for Hard Business”, published by Cambridge Academic

01 DAVID LOSEBY TITLE: CONSULTANT COMPANY: AQUITAINE STRATEGY LIMITED

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Industry View Jonathan Colehower is UST’s Global Supply Chain Practice Lead, where he brings deep supply chain functional expertise and extensive strategy consulting experience.

For over 20 years, Colehower has focused his career on management consulting, with McKinsey & Company and Accenture.

In addition, Jonathan has deep experience in application software. At Oracle Corporation, he led its supply chain sales and marketing organisation.

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secret in IT”, you’re not alone. He was in a similar position when a recruiter called him in 2021 to discuss joining the global IT service provider after a career working for leading consulting firms Accenture and McKinsey.

Despite its low profile, UST has been established for more than 20 years, has a billion-dollar-plus valuation and employs some 28,000 experts worldwide.

“I’ve always wanted to build and manage a supply chain management practice, and so when the opportunity came around I thought ‘wow!’ – maybe this is my opportunity,” he says.

His core functional experience includes product design, sourcing, supply chain planning, network design, warehouse management and transportation management.

“When I look at the work that we’ve done in supply chain over the last 20 or 25 years, we’ve done some really, really good work, and created very lean, efficient supply chains – almost ridiculously efficient. What I don’t think we really considered along the way, was are they resilient? Can they withstand a shock?”

Colehower will be the first to admit that if you’ve never heard of UST and don’t know “the best-kept

Colehower believes that global supply chains will rebound but that executives are going to be

“I’ve always wanted to build and manage a supply chain management practice, and so when the opportunity came around I thought ‘wow!’ – maybe this is my opportunity” JONATHAN COLEHOWER GLOBAL SUPPLY CHAIN STRATEGY PRACTICE LEAD, UST

looking beyond lean and also demanding resilience.

Technology will provide more simulation and game theory to test resiliency, using digital twin tech to model and see what happens “when you throw a rock at it”.

And that is often when organisations turn to UST, to solve their most complex problems.

02 JONATHAN COLEHOWER TITLE: GLOBAL SUPPLY CHAIN STRATEGY PRACTICE LEAD COMPANY: UST

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Academic View Dr Soroosh Saghiri is a procurement and supply chain thought leader, senior lecturer and programme director at Cranfield University, School of Management. He has BSc and MSc in Industrial Engineering and PhD in Supply Chain Management from the University of East Anglia.

Founded in 1967, Cranfield School of Management has been educating the future supply chain business leaders of tomorrow for more than 50 years.

Saghiri is a Chartered Fellow of CILT and Senior Fellow of HEA. He has published two book chapters and more than 50 articles in peerreviewed journals, international conferences, and professional magazines. Soroosh has been involved in training, research, and consultancy in the UK and internationally, in fields of procurement and supply chain management, Industry 4.0, and digital transformation for the past 21 years.

In terms of the immediate future, Saghiri explains that there are many things that procurement functions should prioritise to secure the flow

of material supply from around the world.

“COVID-19 was a massive disruptor. It may take some time for some of those suppliers to go back to full capacity. Some were totally wiped out, so we will need to develop a new generation of suppliers and new technologies that can help secure products and materials. Attached to the challenges of COVID19, we have trade wars, economic changes, and social changes that have implications. Resilience will be something that, on both the operations and strategy side of the business, will be looking to improve in order to battle risk and uncertainties.

“So that is one priority for procurement, another is continuous digital transformation and adopting an effective strategy. It’s not just about applying new technologies.

Having everything automated and sensors everywhere is no good if they are not aligned with a

clear strategy on how the entire supply chain is going to be managed.

“We need to evaluate whether there are enough leaders in this function.

Do we need to train more in this area? What lesson do they need to learn? This will be a long journey, but we need to assess what is needed when it comes to procurement and supply chain leadership.”

“COVID-19 was a massive disruptor.

It may take some time for some of those suppliers to go back to full capacity” DR SOROOSH SAGHIRIE SENIOR LECTURER AND COURSE DIRECTOR, CRANFIELD SCHOOL OF MANAGEMENT

02 DR SOROOSH SAGHIRI TITLE: SENIOR LECTURER AND COURSE DIRECTOR COMPANY: CRANFIELD SCHOOL OF MANAGEMENT

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RESEARCH REPORT

Inventory Management Lean & JIT Strategies

Do you think we still need to retain principles of lean & agile supply chains?

16.7% No

83.3% Yes

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Soroosh

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The results confirm that the respondents appreciate the value of lean in cost reduction, process improvement, and waste reduction.

They also still need agility to adapt and respond to market changes rapidly.

Hence, this is widely accepted that while leanness maximises profits through cost reduction, agility maximises profits through providing exactly what the customer requires – each suitable for different conditions. Lean performs better when there is high volume, low variety and predictable demand.

Conversely, in high variety and volatile markets agility is required.

I can understand why some might think we have “over-cooked” lean. It is true that lean alone is not sufficient.

The super-lean supply chain, without reliable safeguards, will fail every time there is a crisis.

The “no” responses probably seek the solution to the current business complexities and uncertainties out of the conventional lean and agile strategies, where resilience, adaptability, and more fundamental business model transformations are needed.

David In its simplest form this is a case of “don’t throw the baby out with the bath water”. In essence, SCM practice has proven these techniques in disruptive times in the past. However, we now need to adapt them to respond to the constancy of a VUCA world as the norm.

Jonathan

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RESEARCH REPORT

Inventory Management Lean & JIT Strategies

Is re-shoring something you are considering?

30% No

70% Yes

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Whilst there is a great “sentiment” behind re-shoring as well as recognising the USA’s new Executive Order 14017 (and the earlier EO14005 – “Ensuring the future is made in all of America by all of America’s workers”) that effectively demands this. The speed and reality to be able to do this in complex and regulated supply chains is an entirely different matter!

No surprise. It is a mistake. If we learn anything from the crisis, it is that we need to be ready, not necessarily local.

This is a knee-jerk reaction. We have spent three decades building efficient supply chains. Consumers have come to expect US$400 flat screen TVs. We are smart enough to keep the efficiency without sinking shareholder investment into redundant infrastructure.

David

Jonathan

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Soroosh The move towards reshoring clearly indicates that businesses now understand the increasing risks of offshoring. They also have better visibility of hidden costs of offshoring (e.g., delivery disruption, extra and obsolete inventory, export/import duties, and geopolitical tensions). These all may encourage businesses to review the offshore-outsourced products/processes and seek the possibility to find local suppliers for them.

The “NO” answer here (30%, which is not that low) may refer to two things: • •

Reshoring is not easy, if possible at all. The local capacity may not exist, or the reshoring cost is still extremely high.

Offshoring decisions are to be revised, but the alternative may not be reshoring. It might be nearshoring.

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RESEARCH REPORT

Supply Chain Risk Management

Do you feel you have enough transparency in your supply chain?

37.9% Yes

62.1% No

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David Personally I would have expected an overwhelming “no” to this question and can’t help feeling when we then task organsiations with calculating Scope 3 emissions the realistic number of those that have total transparency and visibility will “truthfully” be much closer to 95%+.

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Jonathan Of all the questions, this one is the most evenly split. The 60% that feel they have enough transparency are confused. It is imperative to have a shared understanding of what “transparency” means. In multi-echelon supply chains, there is never enough.

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Soroosh It is not surprising to see the majority of the respondents see low visibility in their supply chains. This is for two reasons: • There is still a long journey ahead to have enough supply chain transparency (e.g. in terms of supplier performance, stock availability, product/production status, supply/demand status, logistics status, and so on) • Supply chain professionals have a much better understanding of transparency these days, and what they might have considered transparent 5-10 years ago is not enough for them today – so they believe they do not have enough transparency in their supply chains.

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RESEARCH REPORT

Supply Chain Risk Management (SCRM)

Do you plan to adopt more cloud and IoT into your supply chains?

79.3% Yes

20.7% No

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Soroosh

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David This supports other current research and insights published over the past 2 months, with IDC and Mordor Intelligence both reporting CAGR rate of 17.55 with a resultant digital transformation market worth US$2.75tn by 2026!

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Jonathan You can’t avoid it.

Enterprise-grade solutions have no plans to create anything but cloudbased software.

I’d like to see the answers if asked about just IoT. I have countless clients that have placed sensors on anything that moves – yet, they don’t know what to do with the data.

Good sign of the move toward advanced technologies, although cloud, big data and IoT refer to a wide range of applications and may mean something totally different for different businesses.

A further sectoral investigation is needed to find which industries are leaders or laggards in adopting those technologies.

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RESEARCH REPORT

Supply Chain Risk Management (SCRM)

Do you plan to invest in supply chain technology in 2022?

16.7% No

83.3% Yes

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David This supports other current research and insights published over the past two months with a consensus of 88% of companies saying they will invest in 2022 from the likes of the Economist Intelligence Unit amongst others.

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Jonathan As two-thirds of the 203 respondents are neither CXO nor Owners, the questions can be misleading.

Directors and Senior Managers don’t set their budgets and rarely have accountability for ROIC. So, it makes sense that they all say, “yes” to increasing investment.

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Soroosh Investment in supply chain technology is needed more than any other time, as 80%+ of the respondents go for it. The minority here may need the financial resource for SC technology investment. They may also use (or plan to use) SC technology but do not necessarily refer to it as “supply chain technology” – for example, the idea of cyberphysical systems or smart tags may be seen as manufacturing, robotic or warehouse technology. This needs further investigation.

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RESEARCH REPORT

Supply Chain Risk Management (SCRM)

Is real-time visibility important?

97% Yes

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David No BIG surprises here. This is a project that was and is an area of interest to the Alan Turing Insitute (data science driven new projects) and is a clear gap in the current marketplace.

3% No

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Jonathan This is surprising. With good planning, supplier development, inventory visibility, you really don’t need real-time. Realtime is important when managers are consistently having to react to variability because of poor planning.

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Soroosh It is good to see the value of real-time visibility is highly recognised. It shows that the increasing complexities, risks, disruptions, and uncertainties necessitate access to real-time data. It also approves that the majority of supply chain decisions are largely data-driven.

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RESEARCH REPORT

Impact of COVID-19 on your Business & Supply Chain

How disruptive was COVID-19 on your business?

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Low Impact (1-3) = 13% of respondents Moderate Impact (4-7) = 48% of respondents High Impact (8-10) = 39% of respondents 30

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David Like all situations that centre around global disruption and significant changes to market dynamics, there will be winners (PPE providers, couriers, online retail, etc.) and losers (traditional industries that are largely manufacturing/production based such as aerospace, construction, heavy engineering, etc.)

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Jonathan No surprise. It shows how much the economy was surprised. Managers must behave like an NFL coach – they have a set of plays already formulated, practised and perfected. On a 2nd and 6-yard drive, it’s a “Jet Sweep Right”, there is no debate, no question… just execution.

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Soroosh This indicates that a vast majority of industries are affected by the pandemic, and the impact of COVID-19 was not limited to the health sector and hospitality sector.

At the same time, the results show that the COVID-19 impacts were not extremely high for about half of the businesses, indicating that they could manage the disruption relatively well.

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RESEARCH REPORT

Supply Chain Design & Planning

How would you rate proactive risk mitigation within your global supply chain?

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Low (1-3) = 6% of respondents Moderate (4-7) = 47% of respondents High (8-10) = 47% of respondents 30

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David For me the responses seem to show a response that invokes a number of cognitive biases, such “selective perception bias”, “belief bias” and “confirmation bias” (www.visualcapitalist.com/24-cognitive-biases-warping-reality). The impact globally was significant and we are still seeing the bullwhip effect of this in supply chains now but possibly attributing it to other factors incorrectly.

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Jonathan I want every organisation to have a complete “playbook” of “what if” scenarios. We have a good idea of the global risks today. Suppose Russia closes Nord Stream 1? Germany relies on Nord Stream for 30% of its natural gas and there is no immediate alternative. I believe that every organization must have a ready-to-activate plan, should this occur. Or, suppose China disrupts the flow of semiconductors out of Taiwan? Again, every manufacturer that sources semiconductors should be prepared for this. Waiting is not an option. Federal agencies need to engage with enterprises on planning for realistic scenarios.

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Soroosh This is quite interesting. Obviously, it is expected that many businesses have risk mitigation plans these days. But how much of it is really proactive? This needs further investigation.

If such a majority of companies are so proactive, they should not really face many interruptions/difficulties in their business, should they face incidents and unforeseen uncertainties in the near future – and this will be excellent news.

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RESEARCH REPORT

Supply Chain Design & Planning

How important is supply chain modelling to understand risk & resilience?

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Less Important (1-3) = 4% of respondents Moderate (4-7) = 19% of respondents More Important (8-10) = 77% of respondents 40

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David A totally expected result here and something that is going to increase in importance for sure.

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Jonathan Agree. Too many variables and too many outcomes.

Unfortunately, managers are already doing this today – in their heads. They need better decision support tools.

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Soroosh Very good to see that the value of the supply chain modelling is highly appreciated. This is a good start to approaching risk and resilience more analytically. This is also very well connected with the concept of data-driven decisions, addressed earlier (in YES/NO questions)

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RESEARCH REPORT

Inventory Management: Lean & JIT Strategies

Will you be leaning more towards JIT or JIC? 43.3% JIT

56.7% JIC

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David The move away from JIT will have clear cash flow implications for many many organisations that can’t be sustained or absorbed and long-term there needs to be a more nuanced strategy to bring into play for complex supply chains of length, vendor managed inventory solutions and with this greater transparency throughout the entire supply chain back to the raw materials.

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Jonathan This is disappointing. Inventories will swell. We are back to “just in case” inventory. This is a monumental step backwards for supply chain value creation.

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Soroosh Overall, it shows the need to learn more about both JIC and JIT. The share of JIC looks higher, which reflects the need to respond to the market fluctuations and all uncertainties around them.

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RESEARCH REPORT

Inventory Management: Lean & JIT Strategies

How confident are you that supply chain will return to normal?

16.7% Not Confident

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16.7% Very Confident

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David Having researched this issue recently in terms of the impact of the Ukraine-Russian conflict there are differing views being presented by economists and analysts from a broad spectrum of markets. The consensus is that the current impacts are likely to run to Q3/Q4 2023 at least, but there are still too many variables to be confident of such an outcome...

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Jonathan Normal? Unfortunately, we don’t really know what the new normal is. Think about the kids that were in high school or college during this period. They are the next generation of leaders and they are experiencing the direct impact of the pandemic. The mindset that they bring into the new operating model will be radically different from the install base management thinking.

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Soroosh Clearly, not many people expect the return (to normal supply chain). They may need to define the term “Normal” too, but overall it seems that the majority accepts that uncertainties and disruptions are part of the new supply chains; hence we should be prepared for them.

48.3% Somewhat Confident supplychaindigital.com

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RESEARCH REPORT

Conclusion The headline objective of this survey is to get a handle on how disruptive COVID-19 has been to organisations’ supply chains - the answer to which is ‘very’.

Asked to mark out of 10 how disruptive the pandemic has been, the most common score among the 203 respondents was eight. This is largely reflective of the global picture, with only a few sectors untouched

by COVID-19, such as real estate and insurance.

The widespread, deepseated and ongoing disruption of the past two years is also reflected in replies to questions asking how supply chains need to respond.

Asked if lean and agile supply chains are something we need to retain, 83% said yes, while 70% said they were considering re-shoring as a means to achieve this.

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RISK & RESILIENCE SURVEY

“COVID-19 was a massive disruptor.

It may take some time for some of those suppliers to go back to full capacity” DR SOROOSH SAGHIRIE SENIOR LECTURER AND COURSE DIRECTOR, CRANFIELD SCHOOL OF MANAGEMENT

Similarly, asked if their business has plans to embrace cloud, IoT and big data supply chain solutions, 79% said they do.

Most emphatically, though, 97% of organisations see real-time visibility as being important to today’s supply chains.

No one can argue with that.

Every supply chain chief officer, consultant and analyst has been beating the visibility drum loud and long for some time now.

The days of siloed data are numbered. Peering through a series of letter boxes at a world in chaos is no way for an organisation to equip itself for the supply chain challenges of the present and the future.

But of course, knowing where to head and actually arriving are different things, and this is also reflected in responses.

“Will you be leaning more towards just-in-time (JIT) supply or just-in-case (JIC)?”

A total of 56% answered Asked ‘Do you feel you have enough JIC, and this marks a sea transparency in your supply chain?’ change from the pre38% said they didn’t. This points to pandemic situation, where the reality that digital transformation JIT inventories made is no small undertaking. It takes a commercial sense in a hefty investment of time and money, world where supply more and - as any supply chain consultant or less ran like clockwork. will tell you - a positive corporate But in these turbulent mindset, too. Now is no time for the times - where being able we’ve-alwaysto guarantee that done-it-that-way customers are kept 83% school of thinking. supplied is a way Lean & Agile Things are unlikely to secure brand Supply Chain to end well for loyalty - then JIC are something to retain businesses that inventories make fail to evolve and strategic sense transform their for many. supply chains.

97% This survey has Companies see real-time visibility For the fact is, sought to get as important many of you granular about believe that supply chain, what we are experiencing now something that you, our disruption, geopolitical uncertainty, supply chain professionals, inflation, labour problems - is the do on a daily basis. ‘new normal’, and is here to stay.

Yet occasionally it pays to Of Europe-based respondents, take a step back, in order 42% feel that things will never return to see the bigger picture. to the way they were, pre-pandemic.

Doing so, most of us will It’s a similar story for those in North admit that many of the America (39%) and Asia (46%). problems we face today were already evident This ‘new normal’ will require back in 2019. It’s just that new thinking - and such thinking now, we can no longer is already in play, evident from afford not to act on responses to the question, resolving them.

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