Supply Chain Resiliency to Achieve a Dual Transformation

The COVID-19 crisis put uncertainty at the center of the business conversation for these past two years. Now, the Mexican manufacturing industry must focus on generating supply chain resilience to face the upcoming challenges and achieve a dual transformation, says KPMG.

“Companies are facing risks during these times. Market, customer, product and service diversification is essential to keep growing and to overcome the global economic crisis. The manufacturing is are not immune to this challenge. There is still a long way to go and while the road may be taxing, it will also bring great opportunities for those who make the right decisions,” says Mario Hernández, Head of the IMMEX Segment, KPMG México.

KPMG’s dual transformation concept refers to the adaptations to the digital age, including all new technologies, and a transformation in companies’ business models to prepare for the future. For the Mexican manufacturing industry to be successful in this transition, companies must focus on four key elements, according to Hernández: transforming uncertainty into resilience, finding new strategies to grow, accelerating innovation and digital transformation and attending emerging risks.

According to the Mexican Senior Management Prospects 2022, a study by KPMG, the main challenges for Mexico’s manufacturing industry under the current environment are to ensure the resilience of value chains to meet external demand, while guaranteeing liquidity and financing for companies, ensuring investor confidence and having solid institutions and autonomous regulators, according to the study. Regarding emerging risks, talent retention, cyberattacks and lack of liquidity were highlighted as the challenges with the greatest impact.

According to the study, 81 percent of companies will adapt their cultural organization to constant disruption and a changing reality to incorporate new generations into their workforce. “Companies are experiencing an increase in talent turnover and most are developing new schemes, seeking to improve the value proposition toward employees to retain talent,” said José Ruiz, Partner for Supply Chain Operations, KPMG México.

The public sector plays a crucial role in the development of the industry and, consequently, the growth of the country. Policies, regulations and rule of law are essential to do business in Mexico, says Hernández. According to the study, 35 percent of senior management respondents think that investment decisions in Mexico have been hampered by the government’s monetary and fiscal policies, while 47 percent said they have remained the same, 11 percent think that they have been suspended and 7 percent said that they have fostered.

Overall, investment plans have not been fully restarted after the pandemic. Only 18 percent of the study respondents said that they expect to return to pre-pandemic investment plans in 2022, while 26 percent expects to do so in 2023, 22 percent in 2024 and 35 percent are yet to define this.

The Technological Transformation

The digital age is already here and companies must adapt to technological disruption and invest in innovation, says Ruiz. The main goals of innovation are to ensure the permanence of the business, increase sales and productivity and develop new products or services, said KPMG’s study respondents.

Technology plays an essential role in improving competitiveness. Eighty-seven percent of Mexican senior management respondents said that their companies leverage data analytics while 51 percent use cloud services. Internet of things, RPA and machine learning are seen as the technologies with the greatest potential growth, according to the study.

The dual or twin transformation also refers to sustainability and ESG criteria, which are increasingly demanded by governments, customers and investors. “ESG issues have to do with where the company is headed, with a balanced focus on the core business, society and environment. In the past, companies used to invest small amounts of money in these objectives. Now, they no longer talk about specific amounts but percentages of their income,” said Juan Carlos Reséndiz, Leading Partner Corporate Governance, Risk and Compliance, KPMG México.

ESG has grabbed the spotlight globally and companies based in Mexico are increasingly paying attention to this, added Reséndiz. After the pandemic, ESG issues became more relevant for 48 percent of companies, while it remained equally relevant for 51 percent of them, according to KPMG’s study. In the global senior management’s agenda, 71 percent of the efforts will be focused on inequality and climate change. Meanwhile, 55 percent said their companies will invest between 1 and 5 percent of their income in becoming more sustainable.