The main operational priority to achieve growth objectives over the next three years is to invest in the digitization and connectivity of all functional areas.
The pandemic, climate change and geopolitics are driving global manufacturing executives to focus even more than before on a twin transformation: smart digitization and a focus on environmental, social and governance (ESG) goals, according to KPMG. The findings are based on a global survey of almost 150 CEOs in manufacturing companies in 11 countries in Europe, North America and Asia-Pacific. Three quarters are at companies with annual revenue of $1 billion or more.
CEOs at manufacturers have learned two important lessons from the pandemic: the vital importance of a resilient supply chain and the need to invest in new technologies to strengthen resilience, by both avoiding business disruptions—and taking advantage of them. If manufacturers take timely actions to ensure a healthy supply chain, it may enable manufacturers to withstand economic shocks in the future and improve competitiveness.
“The need for resilience is forcing companies to be more agile and make better decisions faster. Digitization plays a vital contribution to this,” says Grant McDonald, global sector leader, aerospace & defense at KPMG International.
The ability to manage supply chain risk gives companies a big competitive advantage. Board directors are taking a much more strategic view of supply chain risk and seeing it on a large scale. Manufacturers are adopting supply chain solutions which are AI-centered. “These enable companies to manufacture, based on demand and supply data they analyze in real-time. The technology helps them to focus on ensuring that, at any vulnerable point in the supply chain, executives develop risk management around it. AI sits on top of ERP systems to help companies gain end-to-end visibility,” says Vinod Ramachandran, Partner and National Leader, Global Head — Industry 4.0, Automobile and Industrial Manufacturing, KPMG in India.
Among the main findings of the survey:
- Supply chain risk is seen as the greatest threat to the organization’s growth. More than two thirds (68 percent) of CEOs say they aim to ensure their supply chain is resilient in the event of a major global disruption at some point in the future.
- The top way to mitigate stress on the supply chain is to extend their company’s monitoring deeper into the supply chain to anticipate changes before they have a severe impact.
- The main operational priority to achieve growth objectives over the next three years is to invest in the digitization and connectivity of all functional areas.
- The pandemic caused CEOs to ponder deeper questions: 77 percent say they feel a stronger emotional connection to the purpose of their company since the pandemic began. In addition, 67 percent say the overall objective of their organization is the long-term value for shareholders, almost five times more than the number focused on economic returns.
- ESG goals, however, are not seen primarily as a tool for growth by the CEOs surveyed. A sizeable minority (31 percent) says a focus on ESG improves financial performance, but 54 percent say it has a neutral effect. Above all, 92 percent believe that conveying a sense of purpose will have the greatest impact on customer relationships.
- Of environmental, social and governance issues, CEOs are focusing more on the second of these, in response to the pandemic. But they are not ignoring environmental goals; 71 percent do see “global challenges,” such as income equality and climate change, as the biggest threat to long-term growth.
In sum, the combination of a pandemic and climate change is accelerating digital transformation, as companies search for tools to mitigate new risks and maximize new opportunities. The survey suggests that CEOs haven’t yet had the time to fully assess the relationship between digital transformation and ESG.