Sergio Hernández
President and CEO
CIAL Dun & Bradstreet
/
Expert Contributor

Reintegration of Supply Chains: The Next Step

By Sergio Hernández | Fri, 03/11/2022 - 13:00

The world is entering a new stage. After the impact of the pandemic on the global economy and the consequences it has left, a process of recomposition begins. Value and supply chains are not immune to these changes; after their breakup and transformation, they now begin a new stage: reintegration.

The “value chain” concept has been present in the market for 37 years and maintains its essence. The term was used for the first time in 1985 in the book "Competitive Advantages" by Professor Michael Porter of Harvard University, who described the way in which the activities of a company are developed.

With this, it is possible to know where a differentiator or added value is generated in a certain good or service. It is crucial to identify the competitive advantage and is complemented by the supply chains, as they lie in understanding the processes between production and product distribution, dealing with suppliers and the logistics to bring the product to the market.

The importance of this topic is rising. In 2020, the global supply chain management market alone was valued at US$15.58 billion. The projections of Statista, a statistics website, point to a growth of 98 percent by 2026, to reach a value of US$31 billion.

2020 made clear the dire consequences when supply chain disruption happens. From the gap between supply and demand, inflation, job losses, shortages of materials and products, to contributing to a global recession.

In labor matters, the International Labor Organization (ILO) estimates that the equivalent of 255 million full-time jobs disappeared, which led to the loss of US$3.7 billion in income.

2022 seems suitable for a process of reintegration of production chains, but challenges are still present.

The lack of micro-components and semiconductors affects entire industries, such as consumer electronics and automotive, while other factors, such as disruption in global logistics or the lack of labor in logistics and transportation services, result in a contraction of the offer and complicate the reintegration of productive chains and reactivation of the global economy. On this, the United Nations (UN) estimates an increase of 1.5 percent in global inflation, due to the current disruption of maritime transport logistics.

Another challenge for reintegration is a lack of confidence, resulting from the great volatility of the last two years. In a study, consulting firm KPMG highlights that many companies recognize the need to shield their supply chains through alternative trade associations and not depend on a major trading partner.

In addition, supply chain leaders are focusing on monitoring third-party risks and addressing not only inherent and residual risks in real time but also cyber and counterfeit risks, according to KPMG.

The rupture, transformation and reintegration of value and supply chains lead us to think of automated and technological solutions. Attention should be focused on where the two pillars can converge, such as software as a service (SaaS), which leaves legacy systems behind and defines a trend from now on.

Key Player

In Mexico, and some parts of Latin America, suppliers are key players in value and supply chains, not only because they collaborate in the design and creation of products but also because they are the main source of financing for companies.

At the end of 1999, providers financed 46.8 percent of the working capital of Mexican companies. For 2021, and as a result of the contraction in the bank credit offer, this increased to 67.4 percent, up 20.6 percentage points, according to data from the Bank of Mexico. In other words, commercial credit of suppliers becomes the main pillar of the financing of productive activity in the private sector of our country.

According to data from our economic monitor, CIAL Insights, the total credit of commercial banks last year, which includes its commercial, consumer and mortgage segments, amounted to MX$5.29 billion (US$244 million). That is a fall of 7.9 percent in real terms, its first decline since 2009. Additionally, total credit penetration was equivalent to 20.5 percent of GDP, very far from its historical maximum of 34.7 percent, registered in 1994, or from similar economies to ours in the OECD and in Latin America.

The pandemic and its effects have forced companies of all sizes to put renewed attention and focus on their supply chains, as well as their suppliers as crucial allies for business continuity. It becomes essential to look for innovative solutions beyond traditional models, and to have a back-up in technology and innovation, providing companies with more reliable data, information, and more effective decision tools. The goal is economic reintegration.

The Next Step

Having the right allies has always been a win-win for customers and suppliers. However, being a suitable ally also means being able to show transparency and resilience, giving confidence to clients.

Companies are in the position and necessity to find suppliers and members of their chains that consistently show these attributes (transparency and resilience) to fit their needs, from simply maintaining the operation to lower costs, increased efficiency and to gain a competitive advantage. These factors will be reflected in growth and profitability, essential for the long-term sustainability and permanence of any company.

For suppliers, achieving sustained compliance, transparency, and resilience will give them the experience and visibility to win future customers, contracts, and growth, as well as continue to build reputation and credibility. Reputation is key among any buyer when acquiring a product or service. Eighty-seven percent of consumers around the world say they consider the company's reputation in purchasing decisions, according to the Ipsos Global Reputation Center.

The search for the right customers and suppliers has been simplified thanks to data science and technological platforms, which grant quality information in real time, creating an "ecosystem" of transparency and visibility on both sides, customers, and suppliers.

A system of trust between customers and suppliers, through an open ecosystem of data and information, will be necessary for the reintegration of supply and value chains in a new reality of a more dynamic, technological, and accessible world.

Sergio Hernandez is President and CEO of CIAL Dun & Bradstreet Mexico.

CIAL Dun and Bradstreet is the leading counterparty decisioning solutions and commercial data provider across Latin America and the Caribbean. CIAL serves more than 20,000 customers with comprehensive insights on 460M+ companies globally. CIAL is transforming supplier and customer risk decisioning through a powerful SaaS platform paired with unparalleled data, designed to enhance key business workflows and enable sustainable growth in all market conditions. To learn more about CIAL Dun & Bradstreet, visit https://www.cialdnb.com/

Photo by:   Sergio Hernández