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  - March 9, 2010 -  

Supply Chain News: How CEOs are Thinking about Supply Chain

Cost Cutting and Risk Management are at Top of the Agenda; Managing these Trade-Offs will be Key to Supply Chain Success; CEOs Fret about New Normal

  by SCDigest Editorial Staff  
SCDigest Says:
As never before, supply chain will be asked to reduce risks; but at the same time, some risk avoidance mechanisms will actually add to supply chain costs.

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What’s on the mind of corporate CEOs when it comes to strategy, the business environment, and the supply chain?


A lot is changing, suggests the latest annual CEO survey from accounting and consulting firm PriceWaterhouseCoopers (see 13th Annual Global CEO Survey). We believe strongly its generally good for supply chain executives and managers to have a feel where the CEO’s thinking is at.


In general, CEOs are optimistic about overall business conditions – in the mid-term. Most do not expect to see real economic recovery until the second half of 2010, with about 28% saying they feel confident in their prospects for revenue growth in the next 12 months, up from 20% in last year’s survey. Almost 50%, however, feel confident in their prospects over the next three years (makes you wonder somewhat about the other 50%, doesn’t it?).


Those numbers are global averages, however, and clearly the level of confidence differs by region of the world. Some 27% of CEOs in Asia say that economic recovery has already arrived, versus 13% in North America and just 5% in Western Europe.


The bottom line: CEOs think prospects for growth and better economic growth are nearing, but they are likely to remain very cautious until there are better indicators that the recovery is truly underway.


CEOs, not unexpectedly, have many business concerns, a number of them supply chain related.


54% are either extremely or somewhat concerned about emerging low cost competition, up from 48% in the 2009 survey. Interestingly though, concern about low prices competition were actually higher among Asia Pacific CEOs than those in either North America or Western Europe – reflecting perhaps concern that if your primary success driver is low cost, your company could be under attack from even lower costs from competitors or other regions of the world.


CEO concerns are also up in a number of other supply chain-related areas. The following numbers again represent the number of CEOs saying they are extremely or somewhat concerned about a particular threat: 

  • Energy Costs: 54% in 2010 versus 50% in 2009


  • Potential Protectionism as a Barrier to Trade: 49% in 2010 versus 39% in 2009


  • Climate Change Issues: 37% in 2010 versus 26% in 2009


  • Scarcity of Commodities: 35% in 2010 versus 30% in 2009
  • Supply Chain Security: 35% in 2010 versus 33% in 2009

Bottom Line: With the number and level of CEO concerns rising (these were just the supply chain-related ones; there were many others) supply chain risk mitigation will be very high on the CEO agenda (see below).


CEOs in general believe there will be a “new normal,” with long lasting changes in consumer/customer buying behavior following the recession.


Those concerns were especially high in the technology, retail/wholesale, consumer goods and transportation/logistics sectors, which ranked numbers 1, 2, 4 and 5, respectively, in terms of having concerns about this new normal (media/entertainment was number 3).



(Supply Chain Trends and Issues Article - Continued Below)




The positions of those sectors were about the same in terms of the industries in which CEOs plan major strategic moves to deal with the expected change in customer behavior.


Interestingly, in addition to expected concerns about consumers relentlessly seeking even lower prices and better value, the top expected change by CEO is an increase in the level of importance consumers/customers place on a company’s Sustainability record when making purchase decisions, expected to increase by 64% of CEOs. Another 36% expect more a product's country of origin to have increasing importance in consumer decision-making.


Bottom Line: As the economy recovers, CEOs think that we won’t be going back to where we were, and that new strategies, often impacting the supply chain, will be required as consumer/customer behavior changes.


To no one’s surprise, reducing operating costs remains the number 1 initiative on the CEO’s plate. 69% of respondents said they had major cost reduction plans for 2010 – but that’s down from 88% in the 2009 survey. Another 34% plan on major outsourcing initiatives, about flat with the previous year.


Importantly, risk management and mitigation is also high on the CEO agenda. To the question“In the wake of the economic crisis, to what extent do you anticipate changes to any of the following areas of your company’s strategy, organization or operating model?”, the top response was “Approach to managing risk,” with an amazing 41% saying that planned major changes in that area (see graphic below.)


Supply Chain Risk Management High on CEO Radar



Consistent with the cost cutting focus, “Initiatives to realize cost efficiencies,” was number 1 on the list of investment priorities, with 37% planning on a significant increase in investment. The good news is that it seems likely that many of those investments will be in supply chain.


It seems clear that a variety of supply chain issues are at the heart of CEO concerns. Most CEOs view that we are entering a “new normal,” and will challenge supply chain leaders to move rapidly to fit their new world view. As never before, supply chain will be asked to reduce risks; but at the same time, some risk avoidance mechanisms will actually add to supply chain costs.


How supply chain managers juggle these two trade-offs will be a consistent theme as we move forward over the next 2-3 years.


Does anything in this survey of CEOs surprise you? What do the results mean if anything for the supply chain? Let us know your thoughts at the Feedback button below.


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