Companies weaning off focus on supply chain resilience: McKinsey

Only a few executives believe their boards have a deep understanding of supply chain risks.

Supply chain disruptions continue to be a persistent issue, with 90% of respondents citing it as a challenge in 2024, according to a McKinsey survey.

This, however, becomes even more concerning as the survey found companies are easing their focus on supply chain resilience.

McKinsey noted a potential gap at the top of organisations, with few supply chain executives believing their boards have a deep understanding of supply chain risks. Only a quarter have formal processes to discuss these issues at the board level, which could leave firms vulnerable to future disruptions.

Despite this, companies are beginning to see the benefits of strategic resilience projects undertaken over the past three years. Supply chain footprints are evolving, with 73% of respondents reporting progress on dual-sourcing strategies and 60% regionalising their supply chains. 

There is also reported progress in improving supply chain intelligence, planning, and risk management, with 60% of respondents indicating they have comprehensive visibility of tier-one suppliers.

More than three-quarters of companies believe they have the internal capabilities needed to manage supply chain risks and effective decision-making structures. 

Two-thirds of respondents are progressing in implementing advanced planning and scheduling (APS) systems, which are key for modern supply chain digitisation, enabling accurate planning, faster response to disruptions, and resilience through scenario evaluation.

Many firms are also unwinding short-term measures put in place during the COVID-19 pandemic, such as relying on larger inventory buffers. However, some companies that wish to increase safety stocks are limited by cash or capacity constraints. 

Respondents are split on future inventory strategies, with 47% aiming to maintain current inventory levels whilst planning changes in assortment or location across networks. Meanwhile, 46% plan to reduce or eliminate risk buffers, with inventories reverting to or falling below pre-pandemic levels, and only 7% intend to increase network inventory.

McKinsey noted signs of waning momentum in the supply chain resilience revolution, as dual-sourcing, regionalisation, and nearshoring strategies have remained flat over the past two years. Investment in supply chain digitisation, which had been rapidly growing from 2020 to 2023, is also levelling off.

Whilst companies are investing in APS systems, only 10% have completed deployments and many remain uncertain about their value. Some respondents lack quantified business cases for APS systems, whilst 15% report that implementations have not met business objectives. 

Visibility into deeper levels of the supply chain has also declined for the second consecutive year, which McKinsey considers concerning as major disruptions often originate deep in the supply chain and typically require two weeks to plan and execute a response.

There is also rising pressure for greater transparency in deep-tier supply chains due to new regulations mandating compliance with environmental and human rights standards. However, a shortage of talent—particularly digital talent—continues to hinder supply chain transformation efforts. 

Nine in ten respondents report a lack of sufficient talent to meet digitisation goals, a figure unchanged since 2020. Respondents also express concern about limited senior management knowledge of supply chain issues and a decline in regular supply chain risk discussions at the senior-management level. 

In 2023, nearly half of respondents had a regular reporting cadence for supply chain risk; this year, that number has dropped to one-quarter, with most companies resorting to ad hoc reporting in response to emerging risks or disruptions.

To stay ahead, McKinsey suggests that companies continue efforts to build resilience whilst addressing blind spots in systems, processes, and capabilities. Data quality remains a bottleneck for many digitisation projects, and McKinsey recommends applying the 80/20 rule to proceed with implementing digital tools when most data is available, with processes in place to address data gaps later.

It also advises companies to enhance internal training and talent development to secure a sustainable skill supply. Rapid advancements in digital tools are opening new opportunities in supply chain planning, operations, and risk management, with technologies like artificial intelligence expected to play an increasingly significant role in the coming years.

McKinsey underscores the importance of proactive communication about supply chain risks, including regular board updates, integration of risk analysis into sales and operations planning, and quantitative risk indicators.

Whilst companies have made progress, vulnerabilities remain, and ongoing digitisation, talent development, and senior-level engagement on supply chain issues are critical to safeguarding against future disruptions.