Supply Chains Are Transforming: KPMGBy Alejandro Enríquez | Mon, 10/11/2021 - 09:00
Q: What is KPMG’s assessment of the disruption to supply chain and their ability to recover?
A: The pandemic caused a significant disruption to global supply chains, mainly affecting the primary suppliers of many manufacturing sectors, including the automotive industry. This led to some shortages. While demand for many products dropped, the speed at which shortages occurred outpaced the drop in demand, resulting in a reduction in inventories. Most sectors secure inventories for three to five months but drastic shortages caused manufacturers to run through their inventories and eventually halt production. Some had to find alternative sources, which is also closely related to price fluctuations.
After the peak of the pandemic passed, companies quickly adapted to resume operations as quickly as possible in a safe environment. When companies resumed operations, they were aware they would have to undergo a continuous adaptation process influenced by the pandemic. This was an iterative process that evolved daily to mitigate risks, both to finances and health. An iterative focus allows companies to provide a quick response and keep supply chain disruptions to a minimum. There were no critical shortages in primary sectors.
The automotive sector did suffer some impacts because it has a complex value chain. The recovery of basic processing of raw materials also has been slow. In some cases, some elements critical to the value chain were not labeled as essential, causing bottlenecks.
Q: How are regionalization and nearshoring trends being affected by the supply chain impact?
A: The pandemic made clear that globalized supply chains are vulnerable. By placing all elements in just one basket, or one region, globalization can diminish the degrees of freedom of the supply chain. Companies are now focusing on their local footprint rather than relying fully on globalization. Companies are balancing their supplies, moving from a high global dependence to a more balanced mix of global and local supplies. Supply chains cannot be fully local either, as costs remain an issue. Producers in Asia will continue to manufacture larger volumes at reduced costs. The name of the game is to identify the right balance between global and local. Each supply chain is quite different in this regard and every organization should address this question on a case-by-case basis.
The transformation toward balancing supplies is going slowly. Many organizations are exploring their options for local sourcing or considering landing operations in Mexico, given that the country could be the entry door to the US and within the USMCA framework. Companies from plastics to metals are already assessing projects to establish operations in Mexico and looking for local suppliers. They are now in the evaluation stage and a ramp-up of new sites in the country is likely to occur within the next two years.
Q: How have supply chains in Mexico advanced to greater degrees of digitalization?
A: The pandemic also made evident the reliance of manufacturing companies on direct manual labor, which can create vulnerabilities. Even before the pandemic, Mexico’s large industrial regions, such as the Bajio, State of Mexico and Nuevo Leon, competed ferociously for talent. This led to high turnover rates and drove organizations to consider digitalization strategies more seriously. When the pandemic arrived, the need for digitalizing and automating processes became even more evident. As companies started to look for solutions, they realized that digitalization and automation solutions were not as expensive as they thought. On the one hand, technology became more accessible with attractive ROIs. On the other, the need for digitalization and automation grew with the pandemic. With many of our clients, we make business cases or provide evaluations to assess digitalization strategies for their business models. Within two years, similar to the arrival of new sites, degrees of digitalization will increase considerably.
There are also specific methodologies, such as the agile methodology or scrum, that allow companies to iterate new solutions to innovate and generate results within weeks. This is different from traditional digitalization and automation projects. Company leaders are realizing how accessible it is to set digitalization strategies into motion.
Q: What is the potential of 5G for manufacturing operations?
A: 5G is a platform that could enhance manufacturing operations, with the possibility of providing real-time visibility and the ability to make decisions faster. 5G networks will increase speed in an environment where agility is the name of the game. Today, organizations are not competing anymore based on their size (large vs small); if a startup is fast enough, it will overcome a large organization quickly. In terms of manufacturing operations, 5G and collaborative robots, or “co-bots,” could be a winning formula as the data coming from the co-bots could be provided in real time, leading to better quality, safety and efficiency.
Q: How is the OEM focus on carbon neutrality influencing the supply chain?
A: Sustainability has become considerably important in different sectors as power supplies have become more affordable. The cleaner the energy, the better. Carbon neutrality has been widely adopted and for many companies this is a matter of efficiency. Businesses are analyzing how to make their operations more efficient, more precise and smarter by using their resources better. This could help reduce carbon footprints considerably.
KPMG International is a global network of professional services firms providing audit, tax and advisory services in 147 countries. It has more than 219,000 people working in member firms around the world.