Supply Chain Risk Remains Key Focus for Manufacturers

June 11, 2012 /

Over a third of manufacturers in Europe are continuing to focus on the risk, reliability and flexibility in their supply chain – which remains one of their biggest challenges – according to KPMG’s 2012 Global Manufacturing Outlook: Fostering Growth through Innovation.

This is particularly important at a time of increased focus on regulatory issues, as the Bribery Act and the implications of the forthcoming conflict mineral legislation come into play, all of which will have a significant impact on the manufacturing sector.

The other major challenges facing manufacturers in Europe includes uncertainty of demand (45 per cent), followed by price volatility of key cost input (37 per cent) and intense competition and pressure on prices (37 per cent).

The survey also found that the growing trend for “near shoring” manufacturing facilities closer to end markets was felt by the majority of respondents worldwide to be either an “effective” (43 per cent) or “highly effective” (18 per cent) way of improving risk management. In addition, just under half (46 per cent) believe that the trend for near shoring will increase in the manufacturing sector over the next 12-24 months.

David Higginson, Risk Consulting Director at KPMG said: “Supply chain risk management continues to be a key issue at board level for manufacturing companies and this survey confirms that many see and are already using near-shoring as a strategy to manage aspects of that risk. However, in our experience, very few companies have a fully integrated supply chain risk management process addressing all elements of supply chain risk: supplier failure; continuity of supply; counterparty risk and regulatory risk.

“Regulatory risk in the supply chain is a key focus for many organisations in the manufacturing sector: with the implementation of the UK Bribery Act companies are focusing on the importance of assessing third parties for bribery and reputational risk.

“Other aspects of regulation will require an in depth understanding of the supply chain to manage risk eg identifying potential sanctions breaches; and the forthcoming disclosure requirements for SEC registrants for conflict minerals under the Dodd Frank Act.”

Focus on innovation

The survey also points to a renewed focus on innovation. The majority (72 percent) of global manufacturers say that the next wave of game-changing innovation for the sector is underway.

Stephen Cooper, KPMG’s UK head of manufacturing comments: “After several years of focusing on cutting costs, many manufacturers realise that they have to invest in expanding their product and service offerings in order to remain competitive. Historically, periods of recession have been followed by growth but manufacturers don’t simply want to rely on that. Therefore they are taking risks and committing their resources to innovation that may be groundbreaking for the sector and rewarding in the long-term.”

Globally the survey found that manufacturers worldwide are setting their eyes on the US to drive growth, as global manufacturing leaders believe that the US will account for 43 per cent of sales growth and 41 per cent of profit growth for manufacturers over the next two years, followed by China, India, Brazil and Germany.

The survey also reveals that business confidence among global manufacturing executives is high, with 75 per cent of respondents being optimistic about their business outlook for the next 12 to 24 months.


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