Manufacturing CEOs Focusing on Supply Chain Issues

The pandemic, climate change, and geopolitics are driving global manufacturing executives to focus even more than before on a twin transformation: smart digitization and a focus on environmental, social and governance (ESG) goals, according to KPMG.

The findings of the Global Manufacturing Prospects 2022 report are based on a global survey of almost 150 CEOs in manufacturing companies in 11 countries in Europe, North America and Asia-Pacific. Three quarters are at companies with annual revenue of $1 billion or more.

CEOs at manufacturers have learned two important lessons from the pandemic: the vital importance of a resilient supply chain and the need to invest in new technologies to strengthen resilience, by both avoiding business disruptions—and taking advantage of them. If manufacturers take timely actions to ensure a healthy supply chain, it may enable manufacturers to withstand economic shocks in the future and improve competitiveness. 

“The need for resilience is forcing companies to be more agile and make better decisions faster. Digitization plays a vital contribution to this,” says Grant McDonald, Global Sector Leader, Aerospace & Defense at KPMG International. 

Among the main findings of the survey:

• Supply chain risk is seen as the greatest threat to the organization’s growth. More than two thirds (68 percent) of CEOs say they aim to ensure their supply chain is resilient in the event of a major global disruption at some point in the future.
• The top way to mitigate stress on the supply chain is to extend their company's monitoring deeper into the supply chain to anticipate changes before they have a severe impact.
• The main operational priority to achieve growth objectives over the next three years is to invest in the digitization and connectivity of all functional areas.
• The pandemic caused CEOs to ponder deeper questions: 77 percent say they feel a stronger emotional connection to the purpose of their company since the pandemic began. In addition, 67 percent say the overall objective of their organization is the long-term value for shareholders, almost five times more than the number focused on economic returns.
• ESG goals, however, are not seen primarily as a tool for growth by the CEOs surveyed. A sizeable minority (31 percent) says a focus on ESG improves financial performance, but 54 percent say it has a neutral effect. Above all, 92 percent believe that conveying a sense of purpose will have the greatest impact on customer relationships.
• Of environmental, social and governance issues, CEOs are focusing more on the second of these, in response to the pandemic. But they are not ignoring environmental goals; 71 percent do see “global challenges,” such as income equality and climate change, as the biggest threat to long-term growth.

In sum, the combination of a pandemic and climate change is accelerating digital transformation, as companies search for tools to mitigate new risks and maximize new opportunities. The survey suggests that CEOs haven’t yet had the time to fully assess the relationship between digital transformation and ESG.

“Manufacturers should now focus on a twin transformation: intelligent digitization and ambitious ESG goal-setting. If they are executed effectively, they are likely to reinforce each other to create a more competitive enterprise and a more habitable planet,” says Stéphane Souchet, Global Head of Industrial Manufacturing at KPMG International.