Sourcing executives are taking on higher profiles and expanded responsibilities as many companies grapple with inflation, persistent supply chain snarls and geopolitical turmoil. In this environment of heightened scrutiny, major aspects of sourcing—speed to market, risk assessment and end-to-end visibility into product development—are becoming increasingly commonplace on corporate board agendas.
PwC recently conducted an in-depth survey of 40 sourcing executives. We asked about their plans and investments to better gauge how they are working to boost supply-chain resilience and cut costs—often via supplier diversification and more favorable tax and economic policies in different regions.
Given the ongoing war in Ukraine and rising U.S.-China tensions, some sourcing leaders plan to bring operations closer to suppliers while also moving farther from geopolitical pressures. They are relying on innovation and a flexible approach to buffer against future shocks. Here are among the most important takeaways from those discussions.
Renewed focus on location
Turbulent China-U.S. relations, rising costs and multinational firms’ operating challenges in China are converging to prompt some companies to relocate. Approximately one-third of survey respondents say they may relocate one or more sourcing offices in the next few years. Of those, 75 percent plan to shift away from China and Hong Kong.
Sourcing leaders name Singapore, Vietnam and India as the most attractive locations to establish their next offices. These locales offer secure infrastructure as well as potential tax efficiency opportunities and access to talent.
East Africa also made the office expansion list, as companies look to develop supply in markets with ample low-cost labor.
More visibility into product development
With companies developing more regions and suppliers to enhance their geographic diversification, the need for end-to-end product development visibility is increasing. Still, about 40 percent of respondents say they have limited to no visibility into third-party manufacturing, and 85 percent say they do not have full end-to-end visibility.
Supply chain leaders and sourcing executives will continue to prioritize investments in deeper visibility to enable more proactive sourcing and logistics decisions. We are seeing more investment in analytics to enhance the efficiency of sourcing teams. Meanwhile, senior leaders want real-time views into delivery forecasts coupled with the level of their exposure to supply chain risk.
Clear-eyed approach to cost-cutting
Almost all respondents—96 percent—foresee logistics costs as a continued challenge over the next two to three years, while nearly 78 percent predict higher labor costs. Executives hope to reduce costs through product engineering over the next two to three years.
Buyers and sourcing executives rely on suppliers to build their bill of materials from the bottom up. Companies taking a more proactive approach to monitoring raw material and labor cost inputs, coupled with a robust understanding of their suppliers’ capacity, can better blunt inflationary costs.
Another cost-cutting option is reducing the use of third-party agents. More than 70 percent of respondents said they predominantly source directly and limit the use of agents. Meanwhile, more than 40 percent expect to increase their use of agents. Only one in five respondents said they plan to reduce their use of agents.
While more mature companies have migrated away from the use of third-party agents, some companies are seeking to maintain a diversity of supply by investing in agents in emerging areas in order to help reduce their reliance on a single supplier or region.
Planning for future shocks
Geopolitical shocks that lead to economic ripples—and sometimes swell to tsunamis—are part of today’s business environment. Global hotspots flare and fade. Natural disasters, including pandemics, always loom. Ongoing monitoring and evaluation of your sourcing function is essential. To stay ahead of unforeseen externalities, you need a robust strategic and operational plan that is equal parts flexible and resilient.