- Supply chains will diversify in the wake of the coronavirus pandemic, but they will only relocate completely as a last resort, according to a survey of 305 CFOs completed by PwC during the week of April 20.
- Immediate supply chain concerns are waning as CFOs gain clarity on what to expect in the short term and what kind of changes are necessary to weather shocks like the COVID-19 pandemic in the future. CFOs recognize the value of diversification (56% plan to find alternate and additional sourcing options in reaction to COVID-19) but this is a somewhat long-term goal. Diversification is three-year exercise, Amity Millhiser, PwC vice chair and chief clients officer, said on a Monday call with reporters.
- The sentiments expressed in PwC's latest biweekly survey were echoed in a separate report issued recently by the accounting firm in partnership with AmCham China, in which 74% of businesses sourcing in China had no plans to move sourcing out of the country.
Wholesale shifts in supply chains are not on the horizon for most supply chains, according to the survey of CFOs, since a return of some manufacturing activity in countries hit early by the virus has diminished the possibility of long-term supply disruption.
"As we see different parts of the world moving online, that has reduced the immediate necessity to diversify the supply but I still think that as companies look out for future incidents like this ... they are looking at ways to diversify their supply chains," said Millhiser.
The sense of urgency may have somewhat calmed down, but adjustments to improve preparedness and lessen the blow of a future COVID-19-sized supply chain shock are coming, and likely overdue. "It is very interesting to see the number of companies who have one critical supplier no matter where they’re located," said Millhiser.
Beyond diversification and some redundant sourcing, CFOs intend to be more careful about which suppliers they choose, which PwC U.S. Chairman and Senior Partner Tim Ryan predicted will be part of a trend — moving away from low-cost supply chains toward fully pricing in supply chain risk to the cost of goods.
Companies may be more tolerant of unit cost increases when they measure them through supply chain shock scenarios, said Ryan. Southeast Asia, Canada and Mexico are on the radar as alternatives, or supplements, to Chinese manufacturing, said Ryan.