The Challenges Ahead for Supply Chains
McKinsey Global Survey Results
Senior executives say their companies manage key trade-offs well, yet see barriers to better performance: rising risk, lack of collaboration, and low CEO involvement.
As economies around the world step back from the financial brink and begin adjusting to a new normal, companies face a different set of supply chain challenges than they did at the height of the downturn—among them are rising pressure from global competition, consumer expectations, and increasingly complex patterns of customer demand. Executives in this McKinsey survey are divided on their companies’ preparedness to meet those challenges, and fully two-thirds expect supply chain risk to increase. What’s more, the survey highlights troubling signs of struggle associated with key, underlying supply chain processes and capabilities, including the ability of different functions to collaborate, the role of CEOs in supply chain planning, and the extent to which companies gather and use information.
Emerging from the downturn
As companies have managed their supply chains over the past three years, the challenges they faced and the goals they set have reflected a single-minded focus on weathering the financial crisis. The most frequently cited challenge of the past three years is the increasing volatility of customer demand (Exhibit 1). This is no doubt a result of the sharp drop in consumer spending that has reverberated throughout all sectors across the globe. Looking at challenges over the next five years, though, the focus shifts: respondents most frequently cite increasing pressure from global competition. Some issues that receive a lot of public attention, such as climate change and natural-resource use, have remained a low priority since our 2008 survey. Still, the share that identify environmental concerns as a top challenge in the next five years nearly doubled, to 21 percent, over the proportion saying it was a top challenge during the past three years. This suggests that companies anticipate returning to a new normal, wherein they can focus on issues other than cost at least some of the time.
With regard to goals for supply chain management, the results show a similar shift between past and future, perhaps another indicator that companies are focusing on pursuing growth in addition to cost containment (Exhibit 2). Of course, executives are not ignoring supply chain costs altogether; after weathering a downturn, they know their companies can manage and control future expenses, now that this issue has been on their radar consistently. Indeed, reducing operating costs remains the most frequently chosen goal over the next five years—as it was over the past three—followed by customer service. In a 2008 survey, 43 percent of respondents said improving service was one of their companies’ top two goals for supply chain management, and though it fell as a priority during the crisis, it is now number two for the next five years.
Executives also indicate that many of their companies have met past goals, with supply chain performance improving in both efficiency and effectiveness as they come out of the downturn. For example, nearly half say their companies’ service levels are higher now than they were three years ago, 39 percent say costs as a percentage of sales are lower, and 45 percent have cut inventories.
What hasn’t changed much, though, is the amount of supply chain risk that executives foresee (Exhibit 3). More than two-thirds say risk increased in the past three years, and nearly the same share see risk continuing to rise. Respondents in developed Asian countries report more concern than those in any other region: 82 percent say their companies’ supply chain risk will increase in the next five years.