Supply Concerns Outweigh Competition: Study

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Manufacturers are working to accelerate digitization initiatives to manage supply chain disruptions in 2022 and beyond but aren’t confident that their current technology can handle those challenges, a study has revealed.

Nearly all executives surveyed  — 97 percent — point to significant disruption today in their direct materials sourcing. A full 84 percent of procurement leaders agree that dealing with supply chain disruptions has been their biggest career challenge to date.

Beginning with the Covid-19 outbreak in 2019, the global electronics supply chain has been disrupted by shortages, factory fires, weather, grounded cargo ships, contaminated materials and yet more Covid quarantines.  Manufacturers have halted production due to missing critical components. Supply chain digitization is seen as a way to reduce the risks associated with delays and unavailable supplies.

The study surveyed 233 senior procurement executives from manufacturers in the U.S. and UK and was commissioned by Ivalua, a leading global spend management cloud provider.

Two thirds (67 percent) of respondents say they are not confident that their existing technology can adequately handle current challenges or those expected in the next 3 years. Moreover, companies slow to modernize face serious business risk as 90 percent of procurement leaders indicate that supply chain problems are a greater threat than competitive market dynamics by nearly 2 to 1.

Eighty-four percent of businesses see modernizing the manufacturing procurement and sourcing function as an organizational priority today, with a direct impact on reducing risk and ensuring supply chain continuity of direct materials.

According to the survey, two thirds (64 percent) of respondents say they are “not confident” their current supply chain is equipped to meet the increasing expectations of executives, and only 46 percent say they have a deep understanding of their suppliers’ capabilities and risks. Notably, 71 percent of procurement leaders say they’ve had a supplier take advantage of supply chain problems to unjustifiably increase prices.

Key findings:

Supply chain crisis expected to continue: Nearly half of procurement leaders (44 percent) expect the supply crisis to ease by the end of 2023 while only 18 percent expect the supply chain crisis to ease by the end of 2022. Notably, procurement leaders with modernized sourcing technology are more than twice as likely to say the supply chain crisis will end sooner in 2022 versus later in 2023.

Technology advantage: 76 percent of manufacturing procurement leaders use supplier management software to optimize supplier relationships. Procurement leaders that use supplier management software are nearly 2x times more likely to say their supplier relationships are healthy, and they also hit new product introduction deadlines over 3x more often. In addition, procurement leaders with modernized sourcing technology are 76 percent more likely to say they have an effective relationship with their suppliers, and they also consider procurement tech to be more important than growing headcount by about 4 to 1.

Technology gaps: Respondents indicated that the most significant gaps in their current procurement and supply  infrastructure include: (1) Lack of visibility into supplier risk, (2) A “disjointed” source-to-pay process due to multiple systems, and (3) lack of spend reporting.

Leadership challenge: 84 percent of procurement leaders say dealing with supply chain disruptions has been the most significant challenge of their career. In fact, 92 percent of procurement leaders say that avoiding supply chain disruption is in their top 3 priorities for this year. More specifically, the top challenges procurement leaders face as they try to modernize their supply chain include: (1) Concern of disruption during technology implementation, (2) Skills shortage, and (3) Scale and challenge of change management.

Geographical disruptions: According to the survey, managing geographical disruptions to the supply chain has been a significant challenge. A full 89 percent of procurement leaders need to view supply chain data by geography, but only 73 percent can easily access it.

ESG compliance: Procurement technology is key to contributing to organizational ESG (Environmental, Social, and Governance) and CSR (Corporate Social Responsibility) initiatives at 89 percent of organizations.

“2020’s global supply chain crisis has extended into 2022, compounded by the current geopolitical events,” said Alex Saric, CMO of Ivalua, in a statement. “As manufacturing organizations battle today’s crisis and work to avoid the next one, modernizing procurement technology has emerged as a top priority. The right technology can help provide the transparency needed to better assess risk and contingency options, and improve the effectiveness and efficiency of collaboration with suppliers.”