Date: Monday, October 4, 2021
Source: The Wall Street Journal
The global pandemic’s ripple effects on supply chains, triggering slowdowns and shortages, have raised many companies’ costs and lowered their sales, according to Deloitte’s North American CFO Signals™ survey for the third quarter of 2021.
Among surveyed CFOs, 44% report that supply chain shortages or delays increased their companies’ costs by 5% or more. Nearly one-third (32%) note that their 2021 sales have fallen due to delays or shortages, with 28% expecting future sales this year to suffer. More than two-thirds of respondents (69%) indicate that their supply chains would become more diversified over the next three years, with 23% expecting greater vertical integration of their supply chains.
In contrast, 32% of CFOs say that supply chain shortages or delays have not had a substantial impact on their costs, and 29% note they do not expect future sales or revenue to be affected this year. The survey, which was conducted between August 2-14, drew responses from 96 CFOs, with 27% from companies with more than $10 billion in revenue, 17% from companies with more than $5 billion in annual revenue, 41% between $1 and $5 billion; the remainder had less than $1 billion in revenue.
CFOs also shared the supply chain risks that most worry them, with more than 55% clustering around three different areas, notes Sharon Chand, Risk & Financial Advisory principal, Cyber Risk Secure Supply Chain Leader, Deloitte & Touche LLP. “Cyber, operational, and geopolitical risks are CFOs’ top three concerns when managing their supply chains.” Less than 20% of respondents indicate that they had concerns about environmental risk (19% of CFOs), financial risk (15%), and legal risk (9%). Other types of risk CFOs mentioned were semiconductor availability, capacity and logistics risks, access to a diverse and inclusive supplier base, and labor regulations.
Addressing Supply Chain Challenges
In addition to diversifying supply chain sources and increasing vertical integration, many CFOs expect to reshape their supply chains by region. Thirty-nine percent of CFOs say sourcing from North America will increase, while 22% expect sourcing from Asia —other than China— to expand. In addition, 13% of CFOs say their supply chains would increase sourcing from Europe, 9% from China, and 6% from South America. Nearly one-third of CFOs (32%) indicate their sourcing from China would decrease, while 11% expect to reduce their sourcing from Asia, outside of China. A smaller percentage of CFOs expect decreases in their supply sources from South America (9%) and Europe (8%).
While a majority of CFOs noted that their supply chains’ sourcing by region will stay about the same, they do expect increases or decreases within those regions.
A Closer Look at Geography
On average, less than 20% of the supply chain sources of the companies represented by respondents comes from outside North America, with the highest representation in China, followed by Europe, Asia other than China, and South America. North America appears to be companies’ primary source of revenue, with some concentration in Europe among manufacturing and technology industries.
Other insights the survey provided into the geographical breakdown of sourcing include the following, which may reflect the North American base of respondents:
The survey provided the following insights into the geographical breakdown of sourcing, which may reflect the North American base of respondents:
- Among 80 respondents with supply chain sources in North America, an average of 60% of their total supply chain sources is concentrated in that region.
- Among 61 respondents with supply chain sources in Europe, that region represents an average of 16% of their total supply chain sources.
- Of the 57 respondents with supply chain sources in China, those sources represent an average of 19% of their total supply chain sources.
- Fifty-three respondents note they have supply chain sources in other parts of Asia, excluding China, which represent 15% of their supply chain sources on average.
- For 27 respondents who noted they have supply chain sources in South America, those sources represent 10% of their total supply chain sources on average.
With supply chain disruptions dragging on, CFOs, particularly in sectors such as manufacturing, retail/wholesale, and technology, are expected to remain watchful over developments.