Dive Brief:
- Supply chains will more closely review their suppliers' financial health and diversification long after the impact of coronavirus has passed, according to more than 300 CFOs surveyed by PwC between April 6-8.
- More purposeful site selection for new product manufacturing, and pre-approving secondary sources for key materials and components are also on the to-do list for supply chains in the long-term, according to a report accompanying the survey.
- Of the financial leaders surveyed, 39% are considering changes in their supply chains as of April 8. "I think that reflects the fact that ... as companies look to China and manufacturing coming back online, they have more confidence than they did the last time around in the near term strength of the China supply chain," Amity Millhiser, PwC vice chair and chief clients officer, said on a Monday call with reporters. She also pointed out that the trend toward supply chain optimization has left many organizations heavily dependent on few suppliers or supplying countries, which has become a source of risk as the virus moves around the world.
Dive Insight:
The survey is the third in a bi-weekly series of studies the auditing firm has used to track the evolution of CFOs' thinking and priorities throughout the COVID-19 pandemic. Supply chain issues and disruptions continued to lose mental real estate among respondents — with just 21% reporting supply chain issues as a "top-three concern" as of April 8.
However, initial concerns about near-term supply disruptions are giving way to larger questions regarding procurement risk management beyond COVID-19.
"This crisis has highlighted where supply chains are more fragile, especially around the dependency on key suppliers, and geographies. And so that is causing companies to have more intense conversations with their suppliers, and looking at how they can protect their supply chains going forward," Millhiser said.
Some geographic diversification work has been underway in response to the Trump administration's tariff-driven trade strategy said PwC U.S. chairman and senior partner Tim Ryan. COVID-19 should further this trend, Millhiser said, but supplier reviews need to be more nuanced than simple geographic analysis.
Mark Hermans, managing director at PwC, previously told Supply Chain Dive that assessing supplier financial and operational health — in tier one and well beyond — is an essential part of managing the initial disruption caused by COVID-19.
CFOs have now confirmed they believe this best practice will be paramount beyond the near-term crisis. "It remains too soon to say whether large-scale sustained adjustments will be made, given how costs have been optimized and the expenses involved in making physical moves," according to PwC's report.
CFO concerns about long-term supplier diversification and de-risking are 30-60 days ahead of the concerns of chief procurement officers who are still in the weeds of ensuring supply chain continuity, according to Omer Abdullah, co-founder of procurement analytics firm The Smart Cube.
"I think we’re now approaching a point were in the medium term — 30 days — we will begin to see more receptivity to what’s going to happen next," Abdullah told Supply Chain Dive. "The question will be, what happens in two years when it is business as usual? Are we going to learn the lessons and embed proper risk controls systems and processes? Are we going to put the money aside to be able to do that sort of work?"
More thorough supplier vetting and more extensive contingency planning will likely bring more supply chain costs, which may not last when demand eventually returns to normal and procurement budgets return to the chopping block, he explained.
