Supply chain leaders switch up plans as disruption continues

The pandemic has exposed weaknesses in the global supply chain that have been heightened for more than 18 months. The role of the chief supply chain officer has become the toughest job in the C-suite. What seemed like feasible solutions for companies last year actually didn’t pan out as expected this year, according to McKinsey & Company’s latest report.

In 2020, 40% of senior supply chain executives surveyed planned on nearshoring (transferring a business operation to a nearby country) and increasing their supplier base, but only 15% said those efforts were completed in the past 12 months, the report found. Meanwhile, less than half (47%) of respondents said last year that increasing inventory of critical products was a priority; and in 2021, 61% said they’ve implemented that practice. In addition, 38% said in 2020 regionalization (breaking down a supply chain into regional locations) was key, yet just 25% said it was implemented. Dual sourcing of raw materials is a category where planned and implemented actions were consistent.

“Some companies tried to nearshore their suppliers yet were unable to do so due to limited availability of relevant regional suppliers,” Knut Alicke, a McKinsey partner, says. It’s often easier to build inventory in the short term, while nearshoring is more of a mid-term lever to boost resilience, Alicke says.

But some industries fared better than others in sticking with set plans when it comes to regionalization. The health care sector applied the broadest range of measures, according to the report. About 60% of health care respondents said they had regionalized their supply chains, and almost a third (33%) moved production closer to end markets, McKinsey found. In comparison, only 22% of respondents in the aerospace and automotive industries had regionalized production, “even though more than three-quarters of them prioritized this approach in their answers to the 2020 survey,” according to the report. In the past year, the chemicals and commodity industry made the smallest overall changes. 

Cost is a big factor the difference in progression among industries. For example, chemicals and metals are asset-intensive sectors that have expensive production sites; and “investments in new capacity can take years to complete,” McKinsey notes in the report. Nonetheless, over the next three years, almost 90% of respondents said they expect to pursue some degree of regionalization. All respondents in health care, engineering, construction, and infrastructure industries said it’s relevant to their sector, according to the report. 

The majority (95%) of respondents said they have formal supply-chain risk-management processes. The most important step is for CFOs to work together with supply chain leaders as processes are formalized, Alicke says. This requires transparency between the functions, including providing financial data to quantify risks, he says. “Effective supply chain risk management looks across the end-to-end value chain that takes into account risks across the supplier base, internal operations, and rapid shifts in demand,” Alicke says. 

Tech can be an asset in these efforts. An organization’s successful planning was strongly linked to its use of modern digital tools, specifically advanced analytics, the survey found. “Successful companies were 2.5 times more likely to report they had pre-existing advanced-analytics capabilities,” according to McKinsey. However, there’s a talent gap. Only 1% of supply chain leaders reported having sufficient talent in-house to support their increased digitization, which down from 10% in 2020.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

Global Financial Leadership Study: The Next Era in FP&A, recently released by Tata Consultancy Services (TCS), a global IT services and consulting company, takes a look at the strengths and weaknesses of financial planning in organizations. The research identifies some finance teams whose use of data and analytics is significantly more mature than that of their peers. The "Trendsetters” account for just 6% of the organizations surveyed, according to TCS. 

Courtesy of Tata Consultancy Services

Going deeper

Jobless claims for the week ending Nov. 20 was 199,000, according to the latest report released by the U.S. Department of Labor. This is a decrease of 71,000 from the previous week's revised level, and the lowest level for initial claims since November 1969 when it was 197,000, according to the agency. The monthly jobs report is scheduled to be released on Friday. 

Leaderboard

Su Zhang was named CFO at Neurophth Biotechnology Ltd., a genomic medicines company. Zhang has more than 20 years of experience in healthcare corporate finance. He joins Neurophth from Ascentage Pharma, where he served as CFO. Prior to joining Ascentage Pharma, Zhang served as the director of healthcare equity analyst at China Merchant Securities in Hong Kong, China, as well as working at Standard Chartered Bank and BNP Paribas in London and Hong Kong for over eight years.

Julie Weedman was named CFO at Golden Minerals Company (NYSE American: AUMN). Weedman will succeed Robert Vogels following his retirement. She is expected to join Golden on January 16 as VP of finance and will become VP and CFO following Vogels’ retirement, by the end of February. Weedman joins the company with more than 30 years of financial and accounting experience, serving most recently as VP of finance for Aerospace Contacts LLC. She has held varied corporate controller, site controller and group controller roles with companies including Cupric Canyon Capital LLC, Mercator Minerals Ltd. and Ducommun Inc. Weedman began her career at Deloitte and Touche, followed by 10 years of mining experience with Phelps Dodge.

Overheard

"The brand has become like a baby to me."

—Actor, director, and producer Justin Hartley, known for his role in NBC’s drama television series This Is Us, on his investment in the super-premium alcohol brand, Revel Spirits, as told to Fortune.