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The Economist Intelligence Unit Rebooting Supply Chains 2017

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PART OF THE GROWTH
CROSSINGS SERIES
A report from The Economist Intelligence Unit
Rebooting supply chains
Shorter, smarter and more sustainable?
Commissioned by
Rebooting supply chains
Shorter, smarter and more sustainable?
CONTENTS
1. Executive summary
2. Confidence, commodities and costs
3. Strategic innovation and supply chains
4. A future with shorter supply chains
5. Treasury: Supply-chain leader
6. Conclusion
Appendix – Survey results
4
8
12
16
20
24
26
© The Economist Intelligence Unit Limited 2017
Rebooting supply chains
Shorter, smarter and more sustainable?
1
EXECUTIVE SUMMARY
Concerns about geopolitical and economic
risks have grown among those who oversee
company supply chains. Both Brexit in
2016 and the seeming arrival in 2017 of
a new era in US trade policy under the
presidency of Donald Trump have created
new uncertainties. For example, factory
managers in Asia, whose operations are
vital links in many companies’ global supply
chains, may read nationalistic rhetoric from
the West and logically wonder whether some
of their supplier relationships have become
politically inexpedient. Senior executives
at multinational companies with complex
sourcing networks spanning the globe may
worry that populist pressure could force
them to re-shore jobs or to rethink how
their products are made and where they
come from. These are not necessarily
unfounded fears, as this Economist Intelligence
Unit (EIU) report concludes.
The rules of global trade are shifting and
companies will need to make sure their
supply chains have the agility and
resourcefulness to deal with potential
challenges and disruptions that may lie
ahead. Questions remain about whether the
pace of globalisation will slow considerably,
shift its direction or possibly reverse
A survey about the future of supply chains,
conducted by The EIU and commissioned
by Standard Chartered Bank, found that
4
© The Economist Intelligence Unit Limited 2017
company executives are focused on keeping
down operating costs over the next year and
increasing operational transparency through
technological innovation. Over the next five
years, companies envision bigger changes:
sourcing networks will be simpler, smarter
and ideally more sustainable.
Key findings from the research include:
Most companies are confident about being
able to deal with supply-chain disruptions
over the next year, but they are very
sensitive about costs.
The survey found that those who are better
prepared are more confident about dealing
with challenges and disruptions. There was
substantial agreement on another point:
lowering costs in the supply chain.
Innovation is seen as a crucial part of
strategic supply-chain management because
it will help create full visibility across
production networks and thereby support
sustainability.
Commitment to technological innovation is
extraordinarily widespread in supply chain
management. More than nine-in-ten (93%)
executives surveyed have identified it as
important. Companies that believe innovation
is very important are also more confident they
can address external disruptions.
Rebooting supply chains
Shorter, smarter and more sustainable?
Global supply chains are expected to shorten,
but depending on the industry may not
necessarily become less complex.
More companies (49%) expect supply chains
to become shorter and simpler in the next
five years than those (33%) who expect them
to grow longer and more complex. Even so,
some companies that expect to shorten their
supply chains may increase their complexity
in response to consumer preferences.
Shortening and simplifying are seen as
ways to reduce the vulnerability of the supply
chain to external disruptions, as well as to
lower costs and improve effectiveness.
Treasury may yet emerge as a leader of
strategic supply-management efforts.
Are treasurers ready for the challenge?
Companies rate core skills of the treasury
function highly when it comes to managing
supply chains in the future. But most companies
still see treasurers in a governance role, rather
than having a strategically important role for
supply chains. Treasury will have to be enabled,
and some industries, such as IT, energy and
industrials, are more likely to thrust treasury
into a leadership role. This begs the question:
are treasurers ready to embrace the challenge
of leading a supply chain?
© The Economist Intelligence Unit Limited 2017
5
Rebooting supply chains
Shorter, smarter and more sustainable?
About the study
Rebooting supply chains: Shorter, smarter
and more sustainable? is an EIU report,
sponsored by Standard Chartered Bank.
It is part of the Growth Crossings series. The
report explores the objectives, challenges
and potential disruptions facing companies
with global supply chains and how they are
preparing to deal with them in the future.
The report draws on two strands of research
for its findings:
nIn February 2017, The EIU surveyed 522
business leaders in 13 countries. Six of
the nations represented are in Asia Pacific,
five in Europe, and two in North America.
Nearly half (48%) of the respondents hold
C-level or board positions, while the
rest are senior executives and other
senior managers.
nIn terms of corporate functions, financial
executives and managers represent
28% of the sample. The remaining
three categories of respondents each
represent 24% of the sample: strategy
and business development, procurement,
and supply-chain management.
Survey respondents are distributed across
seven types of businesses. Three of them
– energy, materials and healthcare – each
represent 19%. Industrials are the next
largest segment at 12%, followed by consumer
discretionary at 11%, and information
technology and consumer staples both at 10%.
Respondents participating in The EIU survey are spread around the world in countries from
North America to Europe to Asia Pacific.
EUROPE
247
ASIA PACIFIC
NORTH AMERICA
135
140
6
© The Economist Intelligence Unit Limited 2017
Rebooting supply chains
Shorter, smarter and more sustainable?
In-depth interviews were conducted with the
following individuals (in alphabetical order by
their surname):
• Deborah Elms, founder and executive
director, Asian Trade Centre
• John Hayduk, chief operating officer,
Tata Communications
• Tom Linton, chief procurement and
supply chain officer, Flex
• Ernest Mui, director of treasury and
tax, Asia Pacific, Knorr-Bremse
• Corrado Snaiderbaur, supply chain
manager, Chiesi Farmaceutici
• Sander de Vries, manager, Zanders
• Roy Williams, managing director,
Vendigital
We would like to thank all interviewees and
survey respondents for their time and insight.
The EIU bears sole responsibility for the content
of this report. The findings do not necessarily
reflect the views of the sponsor. n
© The Economist Intelligence Unit Limited 2017
7
Rebooting supply chains
Shorter, smarter and more sustainable?
2
CONFIDENCE, COMMODITIES AND COSTS
Supply chains today face myriad risks, but
business leaders have prioritised several,
according to the survey. Whilst headline risks
related to political changes over the past year
clearly have entered the radar of executives,
other issues are also of concern. The following
external factors were rated by respondents as
the top three most disruptive to their supply
chains in the next year: fluctuating commodity
prices, political instability, and competitive
pressures that speed up product innovation.
In 2016, the CBOE crude oil volatility index,
a measure of oil price fluctuations, reached
its highest in nearly eight years. Later in the
Figure 1. Bigger businesses, more confidence
% respondents who say they are “very
confident” their company can address
external disruptions to supply chains
Figure 2. Finance executives nearly twice as
confident as non-finance ones
% respondents on level of confidence to deal
with external disruptions to supply chains, by
finance function and by non-finance function
5% 1%
5% 3%
26%
48%
Finance function
44%
67%
Non-finance function
Very confident
Not confident
Somewhat confident
I don't know
report, we will see how these factors may
be driving a focus over the next twelve months
on reducing supply-chain-related costs.
43%
57%
>500m US $ total annual revenues
<500m US $ total annual revenues
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© The Economist Intelligence Unit Limited 2017
A key goal within companies has been
preparedness: 93% of respondents say they
are either confident or very confident in
their companies’ preparations to deal with
external disruptions to their supply chains.
Notably, respondents with a finance function
were nearly twice as likely as
non-finance functions to be very confident.
Rebooting supply chains
Shorter, smarter and more sustainable?
This report will make the case that whilst
internal collaboration between operations
and finance is taking place to manage supply
chains, much more needs to be done to
achieve strategic objectives.
Size matters, but also
preparation
Among the respondents who said they were very
confident about their company’s ability to deal
with external supply-chain disruptions, 57%
came from firms with more than US$500m in
annual revenues. This suggests the size of the
principal in a supply chain matters when it comes
to provision of resources to deal with disruptions.
But this is only one factor.
Collaboration between internal
teams, including finance
and risk management, is
the top action that 42% of
respondents said they were
taking to reduce fallout from
supply-chain disruptions.
Overall, collaboration between internal teams,
including finance and risk management, is the
top action that 42% of respondents said they
Figure 3. Internal collaboration tops action plans
% respondents by action taken to limit fallout from external disruptions
Collaboration among internal teams
42%
Mitigation plans for disruptions
42%
Demand planning for new products
29%
Product portfolio review for resilience
28%
Scenario planning
28%
Online analytical tools to mitigate risk
25%
Insurance against specific events
23%
Internal unit to study disruptions
22%
Secured more lines of credit
21%
Hired risk management specialists
21%
0%
10%
20%
30%
© The Economist Intelligence Unit Limited 2017
40%
50%
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Rebooting supply chains
Shorter, smarter and more sustainable?
Figure 4. Virtuous circle of confidence and preparedness
% cohort, by actions taken to reduce fallout from supply-chain disruptions
40%
30%
31%
30%
20%
29%
28%
20%
18%
18%
17%
10%
0%
Internal unit to
study disruptions
Insurance against
specific events
Very confident in addressing external disruptions
10
Hired risk
management specialists
Added lines
of credit
Less confident in addressing external disruptions
were taking to reduce fallout from supply-chain
disruptions. A third of those surveyed report
their companies have then taken the next logical
step and developed plans to mitigate the fallout
from disruptions. Being prepared to mitigate or
hedge potential disruptions allows companies
to be more flexible with their responses, says
Roy Williams, managing director at Vendigital,
a consultancy focused on supply-chain
management. “If your supply chain is more agile,
you can adjust to changing trade policy and other
challenges,” he says.
(28%) respondents say their companies have
also engaged in scenario planning.
Given that the pace of new product innovation
can be a significant challenge to supply chains,
29% of respondents in the survey also report
their companies are conducting demand
planning for new products to mitigate fallout
from disruptions. And nearly three-in-ten
A closer look at the cohort of respondents who
said they were very confident about dealing
with supply-chain disruptions reveals a simple
rule: those who are very confident are more
likely to have taken steps to limit supply-chain
disruptions. Among the actions taken to reduce
© The Economist Intelligence Unit Limited 2017
Scenario planning is particularly handy during
a time of geopolitical uncertainty, and should
also include disruptions in trade policy, such as
fallout from Brexit, says Deborah Elms, executive
director of the Asian Trade Centre in Singapore.
“It will take a while for companies to grasp how
damaging this will be,” she says because clarity
about the new rules governing trade flows in
Europe will not be known for quite some time.
Rebooting supply chains
Shorter, smarter and more sustainable?
fallout, the very-confident cohort was more likely
than the less-or-not-confident cohort to set up
internal units to study disruptions, buy insurance
against specific events, hire supply-chain
management specialists and secure additional
lines of credit.
There is no silver bullet for supply-chain risks
however. A significant majority of respondents
take multiple actions to prepare against
potential disruptions.
Delivering value, or slash
and burn?
Supply-chain-related costs are a top concern
among businesses globally, particularly as
customer expectations for product quality
increase. Reducing costs in the supply chain
over the next twelve months is the most-cited
objective, with 50% of respondents identifying
it as a focus. Respondents are also keen on
increasing sales (42%), improving customer
service (36%) and improving the quality of
products and services (35%).
Controlling costs is important because companies
have to provide a return on their investment
earlier and earlier in product cycles, according
to Corrado Snaiderbaur, supply chain manager
at Chiesi Farmaceutici in Parma, Italy. Even
patents, which offer protection for new
pharmaceutical products, do not provide a long
term safe harbour like they used to do. “If you
are not able to earn a return on investment in the
shortest possible period, you may be exposed to
risk from competitors who may put a better drug
on the market,” he says.
Cutting costs is a logical reaction to higher
levels of market uncertainty, but businesses
should be focused on delivering value to
customers rather than getting caught in
relentless drives to reduce expenditure.
Boosting profitability and competitive position
undoubtedly gives companies a better chance
of dealing with disruptions. The survey found
that difficulty controlling costs in the supply
chain is the most significant challenge, a
view cited by half of respondents. However,
there is often a lack of clarity around what is
really driving costs within an organization.
Later in the report we will explore how achieving
complete transparency in supply-chain
operations isa major strategic goal.
Vendigital’s Mr Williams adds that it is
important that business leaders avoid a
“slash and burn approach” to cutting costs.
Indeed, there are good costs and bad costs.
Bad costs may be more associated with fixed
legacy costs in a part of the business where
margins are eroding, and these should be the
focus of cost reduction drives. “Good costs are
things that help the business grow,” he says.
These are usually variable costs that, when they
are rising, translate into higher revenue and
profit growth. The next section of this report
will focus on what may be one of the most
important “good costs” when it comes to strategic
management of supply chains: innovation. n
© The Economist Intelligence Unit Limited 2017
11
Rebooting supply chains
Shorter, smarter and more sustainable?
3
STRATEGIC INNOVATION AND
SUPPLY CHAINS
Innovation, especially through the use of digital
technologies, will likely transform supply-chain
management over the next five years. This
study found that business leaders are focused
on using innovative technologies to increase
efficiency and ultimately to achieve much greater
transparency about operations.
Nine-out-of-ten (93%) respondents say
innovation is important when it comes to supplychain management. Nearly half (49%) rated
innovation very important, with 44% rating it
somewhat important.
Companies clearly are embracing an innovation
ethos when it comes to their supply chains, and
over the next five years they will be focused on
improving two related aspects of supply-chain
management: data analytics and visibility. For
senior executives, this will likely mean that the
kind of skills and capabilities needed to manage
supply chains will evolve and may require much
more collaboration with hitherto unrelated
functions, such as treasury and IT systems
management.
Technology improvements that enhance visibility
can also improve productivity, says Tom Linton,
chief procurement and supply chain officer at Flex
in San Jose, California. He cites as an example
the company’s creation of a cloud-based platform
that allows it to be better informed in near realtime about the functioning of the supply chain.
12
© The Economist Intelligence Unit Limited 2017
“We know how our materials move in different
areas of the world and how finished products
reach our customer’s door step,” says Mr Linton.
“In times of crisis and disasters, we can quickly
react to it because the system allows us to run
‘what-if’ scenarios and hypotheses in a very
detailed manner.”
Strengthening data
reliability
The need for better information to make
business decisions lies at the heart of data
reliability issues. Supply chains can generate
huge amounts of valuable data, such as delivery
times, shipment locations, inventories, new
orders, payments and the list goes on. But
before a company can process and analyse
this information, it needs to know the data
is clean and reliable.
When asked what their companies will
do in the next twelve months to improve
data reliability, 43% of executives surveyed
said they would establish new supplier
relationships. This strongly suggests
suppliers themselves will need to improve
their data management capabilities or face
the risk of being replaced. Companies plan
to automate processes in the supply chain
to improve their ability to monitor inventory.
More than four in ten (41%) in the survey
Rebooting supply chains
Shorter, smarter and more sustainable?
Figure 5. Priorities for improving data reliability
% respondents according to planned course of action in next twelve months.
50%
40%
43%
41%
38%
34%
30%
33%
29%
20%
10%
0%
New supplier
relationships
Automate monitoring
of inventory
Improve supplier
data collection
When asked what their
companies will do in the
next twelve months to
improve data reliability,
43% of executives surveyed
said they would establish
new supplier relationships.
identify this as one of the steps their company
plans to take over the next twelve months.
Almost as many companies (38%) also plan
to engage suppliers to improve their data
collection and dissemination.
Trace origins of
materials and goods
Define common
data standards
Add or upgrade
cloud-based platforms
Companies are seeking to improve their ability
to trace the origins of materials and goods in
their supply chain. About one third (34%) of
executives in the survey identify this as one
of the steps the company will take in the next
twelve months. Defining common data standards
for the organization is also identified as a step
companies plan to take.
From data reliability to
complete transparency
Innovation is expected to have a transformative
effect on strategic supply-chain management,
and most importantly on creating see-through
sourcing networks. Respondents cited
improving supply-chain visibility as the area of
greatest need to manage the supply chain more
strategically. Better visibility can help companies
be aware of weak points in the physical
© The Economist Intelligence Unit Limited 2017
13
Rebooting supply chains
Shorter, smarter and more sustainable?
Figure 6. Supply-chain visibility in need of innovation
% repondents, according to areas in greatest need of innovation to manage supply chains
Improve supply chain visibility
39%
Contingency plans for disruptions
36%
Managing supplier payments
32%
Optimising working capital
31%
Quicker receivable collections
30%
Digitising supply-chain transactions
29%
Procure-to-pay technology
27%
Supply-chain finance platforms
21%
Dynamic discounting
16%
0%
10%
production process or in financing that could
lead to slowdowns in deliveries or disruptions.
By knowing where these weak points are, supplychain leadership can take steps to mitigate or
hedge those risks.
Innovation is expected to
have a transformative effect
on strategic supply-chain
management, and most
importantly on creating
see-through sourcing networks.
14
© The Economist Intelligence Unit Limited 2017
20%
30%
40%
50%
Better visibility can help companies decide
where in distribution they need to send new
product shipments, according to Mr Snaiderbaur,
who implemented a supply -chain planning
tool for group affiliates when he came to
Chiesi twelve years ago. In 2012, the company
implemented an enterprise resource planning
(ERP) platform to monitor data from affiliates.
“Having clear visibility of data across the supply
chain from the corporate position allows you
to make a common decision with the affiliates
based on data and not based on a negotiation
basis, which is always better,” says Mr
Snaiderbaur. Such decisions involve where
Chiesi will ship new products so that the
company can be sure they are sent to where
they are needed and not to where inventory
may be too high.
Rebooting supply chains
Shorter, smarter and more sustainable?
Companies also see a need for contingency
plans to deal with disruptions. More than a
third (36%) of executives in the survey identify
this as an area of greatest need for innovation.
Nearly a third (31%) of respondents identify
optimising working capital as an area of
greatest need, while 30% also named quicker
receivable collections.
of funds in the financial supply chain. These
include procure-to-pay technology, cited by
27%, supply-chain finance platforms (21%)
and dynamic discounting (16%). n
Improving financial flows
can reduce delays in the
financial supply system that
can slow down movement in
the physical supply chain.
Digitising supply-chain transactions
was cited by nearly one-in-three (29%)
respondents as an area of greatest need
for innovation. Why is digitisation so
important? It automatically identifies
and records which part of a supply chain is
involved in a particular event or issue, according
to Vendigital’s Mr Williams. When transactions
are digitised, it frees up resources than can
be applied toward reducing costs and improving
the effectiveness of the supply chain.
Improving financial flows can reduce delays
in the financial supply system that can slow
down movement in the physical supply chain.
Thus, it should not be a surprise that companies
also identify as areas of greatest need several
innovations designed to streamline the flow
© The Economist Intelligence Unit Limited 2017
15
Rebooting supply chains
Shorter, smarter and more sustainable?
4
A FUTURE WITH SHORTER SUPPLY CHAINS
share of respondents (33%) still expect their
supply chains to lengthen, while 15% expect
their supply chains to stay the same in that
time period.
Economic historians see globalisation as
the result of two ways in which international
commerce has been unbundled. Trade allowed
production to be distanced from consumption in
the first unbundling, and then production was
further broken down into tasks that were spread
around the world in the second unbundling.
Supply chains greatly increased in length and
complexity during the second unbundling.
Company size, and therefore the resources
they have, does not appear to be a large
factor in supply-chain expectations. Among
the respondents who said they expect their
supply chains to shorten, 49% came from
companies with US$500m or less in annual
revenues and 51% from companies with more
than US$500m in revenues. The cohort of
respondents who said they expect their supply
chains to lengthen had a similar breakdown.
While it is far beyond the scope of this report
to suggest the fate of globalisation, this study
shows many business leaders expect to see fewer
links in their supply chains in the next five years.
Nearly half of respondents (49%) say they expect
their supply chains to shorten and become
simpler. A reasonably significant
While size doesn’t matter, location does. Nearly
six-in-ten respondents in Asia Pacific (59%) say
Figure 7. Supply chains are expected to shrink
% respondents by expectations for their supply chains in next five years
49%
0
10%
20%
33%
30%
Shorten and become more simple
16
40%
50%
60%
Lengthen and become more complex
© The Economist Intelligence Unit Limited 2017
70%
80%
Stay the same
15%
3
90%
100%
Don't know
Rebooting supply chains
Shorter, smarter and more sustainable?
they expect shorter supply chains versus 46% in
Europe and 45% in North America. Businesses in
Asia Pacific may be keen on keeping their supply
chains closer to end customers in the region,
where intraregional trade has been rising.
At Knorr-Bremse, a maker of braking systems
for trains and commercial vehicles, the
general rule is that “we always want to have
a shorter and simpler supply chain,” says
Ernest Mui, the company’s Hong Kong-based
director of treasury and tax for Asia Pacific.
The company faces a challenge in achieving
that desirable goal. Mr Mui is concerned that
in the coming year, the political environment
in some countries raises the possibility those
nations may not remain committed to free trade
and keeping their market open. “For the United
States, there is already a bit of uncertainty,”
he says. “If some important markets become
less open, the supply chain would obviously
become longer.”
Shorter is not always
simpler
Shortening supply chains, of course, does not
necessarily make them less complex. More than
a third of respondents (36%) say they agree with
the statement that a rising regulatory burden
will add cost and complexity to managing their
supply chains.
Furthermore, consumer preferences for
innovation and products that are tailored to their
needs will tend to drive complexity, while also
making it more important that supply chains
are shorter to speed product innovations. Food
service companies have been shortening their
supply chains in the UK but they have also been
adding more local ingredients into their food
supply because of a strong demand by consumers
for local content. Thus, consumer preferences
and demands can act to add complexity even
when supply chains are shortening.
Consumer preferences for
innovation and products that
are tailored to their needs will
tend to drive complexity, while
also making it more important
that supply chains are shorter
to speed product innovations.
Not surprisingly for most industry sectors,
high levels of confidence about the ability to
deal with external disruptions is accompanied
by expectations that supply chains will be
shorter and simpler over the next five years.
This is true of the consumer staples, consumer
discretionary, healthcare, materials, industrials
and IT sectors. The energy sector is the
exception: respondents from this segment
have very high levels of confidence their
companies can address disruptions and also
generally expect longer supply chains.
This is understandable given the nature of
extractive industries, where production happens
where resources lie.
© The Economist Intelligence Unit Limited 2017
17
Rebooting supply chains
Shorter, smarter and more sustainable?
Important clues about why many respondents
expect to see shorter and simpler supply chains
are found in their strategic objectives over the
next five years. They suggest businesses are
seeking greater, more centralised control over
their supply chains.
Digitise, digitise, digitise!
American writer Henry David Thoreau once
said famously: “Our life is frittered away by
detail. Simplify, simplify, simplify!” Today’s
supply-chain operator would agree but
would probably suggest replacing simplify
with digitise.
When respondents were asked to rank the
objectives that are likely to be the most
important over the next five years, more
than half of respondents (55%) said digitising
most aspects of supply-chain management.
Nearly as many (54%) cited achieving
complete transparency about where and
how all products are sourced.
The strategic future of supply chains, at least
over the next five years, entails not only
making supply chains shorter to reduce
complexity, but also digitising the information
generated to enhance understanding about
production across the supplier network.
Doing this would make them transparent.
Digitisation and automation are critical to
the future of the supply chain that delivers
services to customers at Tata Communications,
a global provider of telecommunication
services. The company would like to extend
digitisation to major partners who deliver
18
© The Economist Intelligence Unit Limited 2017
services to end customers. “On the supply
side, getting our partners to digitise
operations so they can provide services
they offer today and not have a human
and not have a manual process to execute
against, will bring consistency, speed
on the transaction, and a higher level of
availability, making it possible for a machine
to run more than one eight-hour shift,”
John Hayduk, chief operating officer at
Tata Communications, says.
Tata Communications has taken steps to
automate parts of its business it controls
internally. “Now the company is taking a
bigger step to bring those same benefits to
the company as a whole,” according to Mr
Hayduk. Achieving that goal requires creating
an automated flow with its partners employing
standardised software. The company has
completed the model for how it will accomplish
this goal with its partners and will begin
execution next year. Mr Hayduk expects that
major partners will be able to complete the
digitisation project within the next two years.
Enhancing sustainability
Improving supply-chain sustainability
also strengthens it against challenges and
disruptions. To deal with regulations and
sustainability, more than four-in-ten (42%)
respondents report their companies are
increasing their monitoring capabilities or the
frequency of monitoring. By a similar margin
(40%) companies plan to consolidate their
supplier base and increase automation. Such
actions would tend to shorten the length of
the supply chain and reduce its complexity.
Rebooting supply chains
Shorter, smarter and more sustainable?
Therefore, it should be no surprise that more
than a third (36%) of companies identify supplychain sustainability as a strategic focus. This
is the case, in part, because more than one
third (36%) also see regulations governing
sustainability adding to the cost and complexity
of the company’s supply chain management.
A substantial share of respondents (38%) report
that the companies plan to take steps to raise
social and environmental standards in the supply
chain. Similarly, more than a third (36%) plan
to increase supplier audits and 32% plan to
create a supplier code of conduct.
More than a third (35%) say that social and
environmental impact of the supply chain is
just as important as compliance with standards.
A similar share (35%) say that regulations will
improve social and environmental standards
for their company’s supply chain.
Improving sustainability, however, faces
challenges. A significant share of respondents
(28%) agree or strongly agree that complexity
is preventing their company’s supply chain from
becoming more sustainable. Respondents also
see a downside to complying with regulations.
Nearly a third (32%) strongly agree with the
statement that regulations will make it more
difficult for their company to achieve greater
supply-chain efficiency. n
© The Economist Intelligence Unit Limited 2017
19
Rebooting supply chains
Shorter, smarter and more sustainable?
5
TREASURY: SUPPLY-CHAIN LEADER
The future needs of supply-chain managers
will require a much more cross-functional
approach. The days of supply chains being
run only by the COO’s office or by engineers
and logisticians appear to be fading. Instead
a highly collaborative model is emerging.
The days of supply chains
being run only by the COO’s
office or by engineers and
logisticians appear to be fading.
Instead a highly collaborative
model is emerging.
Yet, business leaders need to enable the role
of treasury when it comes to supply-chain
management and think beyond the traditional
role that treasurers play in the organisation.
Treasury may even need to lead some
supply chains.
To reduce the fallout from disruptions, 42%
of respondents say that their companies have
increased collaboration among internal teams,
such as finance and risk management. In
addition, one third of executives surveyed say
20
© The Economist Intelligence Unit Limited 2017
their companies have developed mitigation
plans to deal with disruptions. Risk management,
in fact, is identified by 68% of executives in
the survey as an important skill for managing
their supply chain over the next five years,
more than any other factor. In addition,
63% say monitoring corporate cash flow
will be important for strategic supply-chain
management in five years.
So, business leaders are encouraging
collaboration between operations and finance
teams to reduce the impact of near-term
supply-chain disruptions, and they see strategic
needs for more risk management and cash and
liquidity management skills in the future.
Can treasury lead the way?
However, when respondents were asked about
treasury’s role in managing supply chains more
strategically over the next five years, the top
three choices were traditional in scope: oversee
cost management (47%), optimise working
capital (47%) and monitor liquidity and risk
management (43%).
Less than a third of respondents (31%) thought
treasury would be regularly collaborating
with business heads, despite the importance
of its skill sets. Also, only 28% of executives
thought treasury would be leading a financial
supply chain team in the organisation and 19%
Rebooting supply chains
Shorter, smarter and more sustainable?
Figure 8. Treasurers seen handling cost controls, working capital in future of supply chains
% respondents, expectations for treasurer’s role in supply-chain management over next five years
Oversee cost
management
47%
Member of
executive committee
Optimise working
capital
47%
19%
28%
43%
Lead a financial
supply team
31%
Monitor liquidity
and risk
Collaborate with
business heads
thought treasury would be a part of an executive
committee or equivalent.
Business leaders clearly see a growing need
for the expertise of treasury when it comes to
the future of supply chains, but their vision of
treasury’s role seems limited and stricken with
unrealised potential.
Looking more closely at the data and some
industries are more likely than others to
empower the treasury function. For example,
41% of respondents in the energy industry say
in five years treasurers will be collaborating with
business heads on supply-chain management,
compared with 31% of overall respondents.
A third of respondents in the IT industry see
treasury joining executive committees in five
years, a much greater share than the 19% of
overall respondents.
Furthermore, respondents who described
innovation as being “very important” to their
company’s supply-chain management were much
more likely to be empowering their treasury
function vs the overall pool of respondents.
According to this cohort, in five years, treasury
would be collaborating with business heads (40%
© The Economist Intelligence Unit Limited 2017
21
Rebooting supply chains
Shorter, smarter and more sustainable?
vs 24% overall), leading financial supply chain
teams (36% vs 30% overall) and serving on an
executive committee (25% vs 19% overall).
Some businesses are ready to enable their
treasurers to take a leadership role when it
comes to supply chains. Are treasurers ready
for the role?
Sander de Vries, manager at Zanders, Treasury
and Finance Solutions in The Netherlands,
believes so. Treasury can play a leading role in
the implementation of financial supply chain
management strategies that work hand in glove
with the physical supply chain management, he
says. Treasury’s value-add would be to reduce
the overall financing cost for the supply chain,
at a time when reducing costs are paramount,
according to the survey findings.
The treasury department can manage risks
and increase efficiencies. For example, treasury
can streamline purchase-to-pay, as well as
order-to-cash processes. Such steps can both
improve the functioning of the supply chain
and reduce its overall costs. “The treasury
department has expertise and knowledge on
the dynamics between operational risk and
financial risk. It also knows how to quantify
different kinds of risk and to handle those
risks,” Mr de Vries says.
Skills for the future
In addition to risk management and cash and
liquidity management, respondents also see
data management increasing in importance for
supply chains. Overall, 62% of respondents think
22
© The Economist Intelligence Unit Limited 2017
that data analytics and systems management
– traditionally a role of IT departments – is an
important skill for strategic management of
sourcing networks.
Many companies have been upgrading legacy
data management systems and consolidating
platforms over the past several years. The
survey showed that over the past 2-3 years,
more than a third of businesses (37%) have
deployed data analytics platforms to manage
cash flows, liquidity and payments. Given
that this is a critical strategic area for
supply-chain management, it is surprising
that more businesses have not already
introduced these solutions.
Fewer respondents have deployed other
technologies, including supply chain finance
platforms (29%), cloud-based customer and
supplier platforms (27%), social media-based
communication tools (26%), mobile payment
systems (21%) and blockchain or XML-based
payment platforms (15%).
Businesses see the importance of liquidity
and risk management in the future, but
they have not yet deployed a solution to
monitor areas such as cash flows, payments
and risk exposures, and they may need to
play catchup. n
Rebooting supply chains
Shorter, smarter and more sustainable?
© The Economist Intelligence Unit Limited 2017
23
Rebooting supply chains
Shorter, smarter and more sustainable?
6
CONCLUSION
Donald Rumsfeld, former US secretary of
defense, in a moment of obfuscation once
said to the media: “There are known knowns.
These are things we know that we know. There
are known unknowns. That is to say, there are
things that we know we don’t know. But there
are also unknown unknowns. There are things
we don’t know we don’t know.” It’s the unknown
unknowns that have businesses encouraging
greater internal collaboration between teams
to reduce the risk to their supply chains.
Geopolitical uncertainty and political risk
are rising and supply chains could be in for
some shocks. However, companies have been
stepping up their ability to mitigate disruptions
and meet ever-intensifying competitive pressures
from consumers and customers demanding
greater levels of product differentiation.
Managing a supply chain is a never-ending,
constantly changing, demanding challenge
that requires clear thinking and sharp vision.
One needs to be prepared even for the
unthinkable, at least on some level. It is a
network that, when necessary, can hum with
more activity and intensity than even the busiest
bee hives. With so many moving parts and each
so vulnerable to so many unexpected disruptions,
it is amazing supply chains work relatively well
for so many companies.
24
© The Economist Intelligence Unit Limited 2017
This study has argued that the future of supply
chains will entail shorter though not always
simpler production links. The future will require
a varied collection of skills that include risk
management, cash and liquidity management,
data analytics and systems management among
others. It will require transparency to meet
demands of regulators and senior executives,
and digitisation of information across the
supply chain.
The stakes are high. The role of treasurers
and others on company financial and risk
management teams are likely to become
important to the management of the supply
chain, and being able to conceive of these
roles in an innovative way will be a competitive
advantage. Ultimately collaboration and
innovation will make supply chains efficient,
more reliable, more flexible and more durable. n
Rebooting supply chains
Shorter, smarter and more sustainable?
APPENDIX
A1. In what region of the world is your organisation headquartered?
135
Asia Pacific
140
North America
247
Europe
0
50
100
150
200
250
A2. Which of the following best describes your company’s primary sector?
Energy
19%
Materials
19%
Healthcare
19%
Industrials
12%
Consumer discretionary
11%
Information technology
10%
Consumer staples
10%
0%
5%
10%
15%
20%
25%
40%
50%
A3. Which of the following best describes your function in your company?
Finance
28%
Strategy and business development
24%
Supply-chain management
24%
Procurement
24%
0%
26
10%
© The Economist Intelligence Unit Limited 2017
20%
30%
Rebooting supply chains
Shorter, smarter and more sustainable?
A4. Which of the following best describes your title?
Manager
Head of department
CEO
Other c-level executive
Board member
Head of business unit
CFO
COO
SVP, VP, director
Assistant manager
CIO/Technology director
CMO
Treasurer/Comptroller
24%
15%
14%
11%
10%
5%
4%
4%
3%
3%
3%
2%
2%
0%
5%
10%
15%
20%
25%
40%
50%
A5. What are your organisation’s total annual revenues in US dollars?
Less than $50m
29%
$50m to $500m
23%
$500m to $1bn
19%
$1bn to less than $10bn
17%
More than $10bn
12%
0%
10%
20%
30%
B1. Which of the following answers best describes the main objectives that you have for your supply chain over the
next 12 months?
Reducing operating cost
Increase sales growth
Improving customer service
Improving quality of products & services
Form more strategic partnerships with suppliers
Reduce overall inventory levels
Introduce new products to market more quickly
Reduce vulnerability to external risks
50%
42%
36%
35%
27%
26%
25%
24%
22%
22%
21%
21%
20%
Expand capacity of suppliers of distributors/re-sellers to support my company
Digitise some or all supply-chain information
Expand internationally
Make the supply chain more socially and environmentally responsible
Hire new talent to manage the supply chain
0%
10%
20%
30%
© The Economist Intelligence Unit Limited 2017
40%
50%
27
Rebooting supply chains
Shorter, smarter and more sustainable?
B2. What is/are the most significant challenges to achieving the objectives that you chose in the previous
question?
34%
Difficulty controlling costs
31%
30%
Meeting customers’ expectation on product quality & service
Increasing pressure from global competition
Growing regulations
Need for faster production times
25%
24%
20%
20%
19%
Political uncertainties in markets where your company operates
Lack of visibility on demand/volatile demand
Increasing financial volatility (ie currency fluctuation, etc)
Lack of transparency with suppliers beyond first tier
Complying with sustainability rules
Weak distribution / re-seller network
Difficulty accessing finance for suppliers
Natural disasters
Pressure to re-shore jobs
Other, please specify
16%
16%
16%
13%
11%
9%
1%
0%
10%
20%
30%
40%
50%
B3. Rate the following external factors according to how disruptive they could be to your supply chain over the next
12 months.
Changing trade policies among nations
16%
Increase in extreme weather events
16%
14%
13%
Cyber attacks
12%
Rise of protectionist sentiment
11%
Political instability
11%
17%
Failure of first-tier suppliers to find reliable sub-tier suppliers
10%
19%
8%
Technological change
8%
Competitive pressures that speed up product innovations
7%
19%
21%
34%
35%
32%
12%
12%
29%
40%
Not disruptive
60%
2
13%
27%
38%
20%
9%
10%
34%
35%
16%
26%
25%
24%
29%
20%
3
10%
10%
80%
4
11%
14%
29%
35%
16%
14%
20%
33%
18%
0%
24%
32%
19%
Increasing worries about product safety
Fluctuating commodity prices
33%
20%
100%
Very disruptive
B4. How confident are you that your company is prepared to address the external disruptions in the previous
question?
32%
Confidence
0%
61%
20%
Very confident
28
© The Economist Intelligence Unit Limited 2017
40%
Somewhat confident
60%
Not confident
5% 2%
80%
I don't know
100%
Rebooting supply chains
Shorter, smarter and more sustainable?
B5. Which of the following actions has your company taken to reduce fallout from supply-chain disruptions?
42%
Increased collaboration among internal teams, e.g. finance, risk management, etc
Developed mitigations plans for disruptions
33%
Conducted demand planning for new products
29%
Engaged in scenario planning
28%
Reviewed current product portfolio for resilience
28%
Invested in online analytical tools to mitigate risk
25%
Bought insurance against specific events
23%
Set up internal unit to study disruptions
22%
Hired supply-chain risk management specialists
21%
Secured additional lines of credit
21%
Other, please specify
1%
I don’t know
6%
0%
10%
20%
30%
40%
50%
B6. Thinking about the data your company receives from its supply chain, what steps is your company likely to take
in the next 12 months to improve data reliability?
Establish new supplier relationships
43%
Automate processes to improve monitoring of inventory
41%
Engage suppliers to improve data collection and dissemination
38%
Improve ability to trace origins of materials and goods
34%
Define common data standards for the organisation
33%
Introduce and change cloud-based supply chain management platforms
29%
I don’t know
7%
0%
10%
20%
30%
40%
50%
B7. Please indicate the degree to which you agree or disagree with the following statements.
Regulations will add to the cost and complexity of my
company’s supply-chain management
16%
Supply-chain sustainability is a strategic focus in
my company
20%
14%
22%
In my company, social and environmental impact of the
supply chain is just as important as compliance with standards
12%
23%
Regulations will improve social and environmental
standards for my company’s supply chain
10%
25%
Complexity is preventing my company’s supply
chain from becoming more sustainable
10%
Regulations will make it more difficult for my company
to achieve greater supply-chain efficiency
10%
0%
35%
21%
30%
25%
36%
18%
21%
40%
22%
24%
34%
20%
24%
40%
Strongly agree
60%
2
10%
21%
37%
3
4
8%
80%
8%
6%
7%
9%
100%
Strongly disagree
© The Economist Intelligence Unit Limited 2017
29
Rebooting supply chains
Shorter, smarter and more sustainable?
B8. With regard to regulations and sustainability, which of the following steps has your company taken or do you
expect it to take in the next 12 months?
Increase monitoring capabilities and/or frequency
42%
Consolidate supplier base
40%
Increase automation of processes
40%
38%
Raise social and environmental standards in the supply chain
Increase supplier audits
36%
Create a supplier code of conduct
32%
25%
Expand corporate social responsibility and/or public relations teams
Other, please specify
1%
0%
10%
20%
30%
40%
50%
C1. Please describe the importance of innovation when it comes to supply-chain management in your company.
49%
Importance
0%
44%
20%
40%
Very important
60%
Somewhat important
6% 2%
80%
Not important
100%
I don’t know
C2. Which of the following has your company deployed in the past two-to-three years as solutions to managing cash
flows, liquidity and payments and to identifying and analysing risks?
37%
Data analytics/forecasting platforms
34%
Enterprise resource planning software
29%
Treasury and risk management systems
29%
Supply-chain finance platform
28%
Treasury management systems
27%
Cloud-based customer/supplier platforms
26%
Social media-based communication tools
21%
Mobile payment systems
15%
Block chain or XML-based payment platforms
1%
Other, please specify
10%
I don’t know
0%
30
10%
© The Economist Intelligence Unit Limited 2017
20%
30%
40%
50%
Rebooting supply chains
Shorter, smarter and more sustainable?
C3. Thinking of your answer(s) to the previous question, how confident are you in your company’s ability to apply
those solutions to the challenges specifically faced by supply-chain managers?
35%
Confidence
0%
56%
20%
40%
Very confident
5% 4%
60%
Somewhat confident
80%
Not confident
100%
I don’t know
C4. In which areas do you see the greatest need for innovation when it comes to strategically managing your
company’s supply chain?
39%
Improve supply chain visibility
36%
Contingency plans to deal with disruptions
32%
Managing payments to suppliers
31%
Optimising working capital
30%
Quicker receivable collections
29%
Digitising supply-chain transactions
27%
Procure-to-pay technology
21%
Supply-chain finance platforms
16%
Dynamic discounting
1%
Other, please specify
4%
I don’t know
0%
10%
20%
30%
40%
50%
D1. Over the next five years, I expect my company’s supply chain to
33%
Expectation
0%
49%
20%
40%
Lengthen and become more complex
60%
Shorten and become more simple
© The Economist Intelligence Unit Limited 2017
15%
3%
80%
Stay the same
100%
I don’t know
31
Rebooting supply chains
Shorter, smarter and more sustainable?
D2. Looking at the next five years, rank the following objectives based on how important they will be for your company?
Co-create products with suppliers
7%
11%
Establish financial incentive programmes with suppliers
to improve quality standards
6%
13%
34%
34%
34%
14%
32%
14%
Improve social and cultural diversity in first-tier suppliers
4%
14%
35%
31%
16%
Reduce the environmental impact of my company’s
supply chain
4%
16%
34%
32%
14%
Holistically manage physical and financial supply chains
4%
9%
Achieve complete transparency about where and how
all products are sourced
3%
11%
Digitise most aspects of supply-chain management
38%
2% 8%
0%
33%
16%
32%
34%
20%
35%
34%
21%
20%
40%
Not important
60%
2
3
80%
4
100%
Very important
D3. In the previous question, you answered that improving social and cultural diversity in first-tier suppliers will not be an
important objective for your company over the next five years. Choose the most relevant reasons why among the choices below.
My company's executive leadership is focused on
other priorities
44%
My company has already focused a lot on social
and cultural diversity in its supply chain
42%
Social and cultural diversity is too difficult to
monitor in our supply chain
12%
2%
Other, please specify
0%
10%
20%
30%
40%
50%
D4. Thinking of managing both physical and financial supply chains more strategically, what roles do you anticipate
treasury will play over the next five years?
Oversee cost management
47%
Optimise working capital
47%
Monitor liquidity and risk management
43%
Regularly collaborate with heads of businesses
31%
Lead a financial supply chain team
28%
Become member of the executive committee or equivalent
19%
I don’t know
8%
0%
32
10%
© The Economist Intelligence Unit Limited 2017
20%
30%
40%
50%
Rebooting supply chains
Shorter, smarter and more sustainable?
D5. Rank the following skills by how important they will be in five years to managing your company’s supply chain
more strategically.
Ability to collaborate with finance teams 3%
7%
Product innovation 3%
11%
Leadership on social and environmental standards 2%
11%
Risk management
2% 5%
Data analytics and systems management 2%
7%
Ability to form and direct corporate strategy 2%
8%
Monitor corporate cash flow and liquidity 1%
0%
6%
30%
39%
24%
20%
38%
24%
37%
30%
25%
20%
42%
29%
26%
36%
33%
26%
36%
29%
21%
38%
20%
40%
Not important
25%
60%
2
3
4
80%
100%
Very important
© The Economist Intelligence Unit Limited 2017
33
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