Global Manufacturing Outlook: Low visibility, high supply chain risk

Low visibility, high supply chain risk

"The best way to reduce the risk of supply chain failure is by achieving greater visibility, and managing it cross-functionally deeper into the end-to-end supply chain.” – Erich L. Gampenrieder, Global Head of Operations Advisory with KPMG International

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Manufacturers say they are worried about the risk of a supply chain failure, yet only a handful can say they have complete visibility down into their second and third tier suppliers. Given that the delivery of new products and successful market entry depends on a flexible and agile supply chain, it seems many manufacturers should be placing more focus on collaborating with their suppliers.

The fact that manufacturers worry about supply chain risk is not entirely surprising. Just 13 percent of respondents to the KPMG International 2016 Global Manufacturing Outlook survey said they have ‘complete’ visibility past their Tier 1 suppliers and into their Tier 2 and beyond. About two-fifths reported ‘enhanced’ visibility, giving them full transparency into their Tier 1 suppliers and into some Tier 2 suppliers.

“The fact that so few manufacturers can claim complete visibility suggests that much more will need to be done, particularly for those with ambitions of expanding into new international markets and adjacent segments where supply chains may be untested,” noted Erich L. Gampenrieder, Global Head of Operations Advisory with KPMG International.

Much like every other manufacturing area, our survey illustrates that manufacturers expect to compete on the strength of their supply chain. And investment into technologies that improve supply chain agility, flexibility and efficiency seem to top the agenda. Sixty percent of respondents said they are looking to invest into demand sensing technologies and capabilities over the next 2 years. Fifty-six percent are exploring investment in supply chain analytics tools and skills.

More than anything, however, we expect to see the rapidly-emerging field of IoT (Internet of things) draw the most investment and interest from supply chain leaders and executives. “IoT is going to be a critical component of growth for manufacturers, both as a way to improve the value of their products by embedding sensors and connectivity, but also as a way to monitor, manage and improve the supply chain,” notes Erich L. Gampenrieder.

We believe that the current lack of supply chain visibility is limiting the agility and flexibility of supply chains around the world and increasing the risk of supply chain disruption which, in turn, can dramatically impact business performance.

What are leading manufacturers doing to respond?

  • continuously evaluating their performance and related risks within the supplier network to understand the financial and operational impacts of risks
  • addressing cross-functional components to develop a programmatic approach to supply chain risk
  • identifying any new risks that may exist and then planning their mitigation as they extend their supply chain to achieve global growth
  • setting up third party governance programs, controls and resources to reduce cost, improve performance, manage disruption and ensure compliance within contractual and regulatory obligations.

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