COO insights

COOs see need for more changes in supply chain to improve profitability

The C-suite continues to look toward operations leaders to find ways to help contain costs and preserve cash for the organization. Most COOs (80%) say it’s important to make additional changes to supply chains over the next 12-24 months in order to improve profitability, with 40% saying this is “very important” to the company. 

In all likelihood, these outlooks signal fresh rounds of cost actions related to procurement and/or production in the near term. This isn’t surprising, with 28% of CFOs PwC surveyed expecting revenue or profits to increase over the next 12 months. Responses could range from shuttering capacity to looking for ways to improve performance of existing assets to outsourcing. Here are two additional actions that some COOs are taking to help lower supply chain costs:

• Rapidly renegotiating contracts: The pandemic has affected nearly all companies (and economies) but has not done so equally. Some suppliers are well positioned to raise prices. At the same time, companies are looking to secure alternatives in order to lessen the impact of any new waves of infection affecting operations and/or end markets. Quantifying the “next best alternatives” for suppliers can allow buyers to push for pricing concessions – and long-term price decreases.
• Streamlining product offerings: Some companies have already reduced the number of products or services they have in market (SKUs) by necessity, but with end customer demand in a state of flux, this is the time to push the “reset” button on some legacy SKUs that are no longer commercially attractive.

Beyond low-cost, a favorable tax-trade environment matters most in supply chain strategy

COOs place greater weight on supply chains that are optimized for favorable trade and tax rules. They also include finding ways to update existing facilities and opportunities to increase outsourcing or insourcing among top considerations in supply chain strategies. Many executives associate outsourcing with back office activities like payroll and IT services. But with over half of respondents from industrial products companies, many executives are also considering outsourcing parts of product manufacturing as a way to lower production costs.

In a sign of the times, the trade and tax policy environment was the only consideration that a majority of COOs ranked among their top three (51%). Companies are mindful of the impacts of tariffs and preferences and/or investment incentives given cost constraints, as well as the increase in the use of tariffs or other trade measures by the US. A recent PwC analysis suggests that US manufacturers are poised to capture supply chain-related cost savings and improved resilience by reconfiguring their global footprints in light of changed tariff environments, rising labor costs in China, and the ratification of the USMCA, among other factors.

The watchword for the moment is agility. How operations leaders plan to respond to the outcome of the US elections in November is a case in point. Some say they’re likely to alter course on China. If former Vice President Biden is elected, 42% of business leaders say they’re likely to increase investment and trade with China, while just 13% expect the same if President Trump is re-elected. To compare, close to half of respondents say that the outcome of the election isn’t likely to have an impact on their plans that relate to North America (USMCA).