A combination of accelerating disruptions
Many factors are responsible for the recent disruptions in industrial manufacturing: the COVID-19 pandemic, war in Ukraine, impacts of climate change, and the withdrawal of stimulus packages. As a result, manufacturers are contending with multiple complexities—supply chain disruption, commodity and energy price increases, and skilled labour shortages—that underpin continued uncertainty across global markets.
The impact of disruption
Supply planning
Supply planning has become increasingly difficult due to changes in consumer behaviour (for example, heightened e-commerce adoption). Compounding this difficulty, manufacturers have struggled to pivot their supply chains to meet consumer demands and are unable to access alternatives, such as goods, raw materials, logistics and labour.
Access to base materials
Access to some base materials has been constrained by war, sanctions and heightened demand, and has led to higher commodity prices. Fertilizer, wheat, computer chips and base metals—and many other base materials—have been subject to ongoing scarcity and price volatility.
Logistics
A typical shipping container takes 20% longer in transit than it did before the pandemic. Manufacturers are looking for alternative routes and methods of transport, or are moving from “just-in-time” operations to stockpiling and increasing orders. This increases storage costs at a time when warehouses are in high demand.
Transportation
Transportation costs have skyrocketed amid disruption. The war in Ukraine has affected shipping, flight and rail routes across Eurasia; China’s zero-covid policy has locked down ports; and a heightened volume of containers have choked ports not under lockdown. As a result, more than 1 million containers are missing from the supply chain, and the constrained capacity has wreaked further havoc on the movement of merchandise.
Labour shortages
Labour shortages, which began during the pandemic, evolved into the “great resignation,” just as industrialised countries experienced an exodus of workers who were at or near retirement age. Alongside these labour challenges, workers are being displaced by digitisation. The resulting challenges for many employers are manifold: upskilling the labour force at unprecedented scale, automating roles when possible and seeking alternative sources to backfill vacant positions.
How can you create value amid disruption? Use a value bridge.
For companies surrounded by economic uncertainty mixed with a competitive surge of deals worldwide, creating value is a real challenge. A value bridge can be used to identify actions that can prevent value loss and preserve value in times of disruption, while also strengthening your company's competitive positioning to help it come out ahead.
Value levers
Enterprise value
Value Creation
Full potential value
How can companies preserve value?
Managing these operational challenges is complex, and business leaders need to understand the levers they have available to help navigate them.
Identify vulnerabilities
Develop an understanding of where risks lie through mapping the entire supply chain in order to scenario-plan and manage crises; assess whether the business has the necessary resources to optimise network flow and determine potential bottlenecks.
Diversify the supply base
Review supplier health metrics to assess the financial stability of suppliers and risks in the operating environment; diversify strategic suppliers by adding more sources in locations not vulnerable to the same risks.
Invest in supply and demand planning capabilities
Combat inventory shortages through sophisticated supply/demand-planning capabilities and longer inventory visibility supported by sales and operations-planning practices. Shortages can also be prevented by negotiating longer-term supply agreements.
Take advantage of process innovations
Make use of AI and digitisation to address supply chain distortions. Innovations can improve logistics network design and optimisation, increase inventory visibility, and improve cost management.
Revisit trade-off between product variety and capacity flexibility
Assess the pros and cons of stock-keeping unit (SKU) diversification, as product variety adds complexity to demand forecasting (maintaining capacity flexibility allows businesses to pivot quickly).
Reshore supply base
Address vulnerabilities in different regions of the world by looking to a supply strategy to produce key goods within the region in which they are consumed. This also helps alleviate logistics challenges in the shorter term.
Adjust working capital
Improve cash-flow projections, as changes to the supply chain can impact cash flow on various fronts, including working capital requirements (modelling potential outcomes is an integral part of improved supply chain management).
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