5 trends set to shape the next generation of global value chains

Findings from a recent Kearney survey, in collaboration with the World Economic Forum – conducted between October and November 2023 of over 300 senior global operations executives (see Figure 1) – highlight that the rewiring of global value chains is moving less quickly than originally anticipated. Amidst a backdrop of seemingly more frequent and intense supply chain disruptions stemming from geopolitical tensions, labour shortages, inflation, and cyber risks among others, leading supply chains are embracing resilience, adaptation, and reinvention as critical capabilities. However, there is a considerable gap between what companies “say” they plan to do versus what they are delivering.

So, what is the reality versus the rhetoric? How well are companies balancing the trade-offs between delivering near-term cost performance versus mitigating longer-term risk? How quickly are companies making the changes necessary to navigate future disruptions?

The World Economic Forum’s A Global Rewiring: Redefining Global Value Chains for the Future, published in collaboration with Kearney, identified five themes shaping the next generation of value chains:

While the survey confirms these five dimensions as top priorities, organizational inertia and short-term economic focus are compromising the speed and ambition needed to make long-term structural investments (see Figure 2).

Only 28% of respondents plan for nearly full in-region-for-region operations by 2030, despite 92% of supply chain leaders viewing regionalization as a priority, across all sectors and regions. While the overall trend toward reshoring is well substantiated, including by Kearney’s 2022 Reshoring Index, the depth of reshoring is still being defined by issues such as trade conditions, infrastructure, and regulatory stability.

Dual sourcing is often mentioned as an alternative to enhancing resilience. However, only 7% of companies have full dual-sourced supply from a different region. There are multiple complexities and costs with shifting supply, particularly in an increasingly margin-pressured world, so companies naturally are still sourcing from best-cost countries and maintaining a single source. But, what must be true for companies to make the trade-offs necessary to secure of supply versus cost?

Whilst 64% perceive AI as the key to supply chain improvements, only 1% of our respondents indicate that they have been able to eliminate manual work; the scale and complexity of legacy systems combined with cultural inertia is still a challenge. To manage risk, nearly all operations executives agree on the need to have upstream visibility of their suppliers all the way up to raw materials. However, looking closely at the reality, very few have full visibility at scale. Those that are succeeding leapfrogged by harnessing the ability of AI to sift huge volumes of data and establish links with relevant supply node exposures. With the future looking murky, it is imperative for all supply chains to unlock end-to-end visibility. But how do companies overcome the challenge of legacy systems?

Despite 85% of companies stating that new technologies and broadening digital access are most likely to drive organizational transformation, only 23% of respondents have majority of the workforce equipped with the skills they’ll need by 2030. The World Economic Forum’s 2023 Future of Jobs Report highlighted that nearly 60% of the global workforce requires significant training to bridge the skills gap, a number set to grow over the next decade.

The gap is particularly prevalent in industrials, transport, and consumer goods/health, industries particularly prone to technological disruption. Alarmingly, urgency is not there as many companies seemingly are falling behind in the war for talent; only 9% of the workforce is expected to be fully equipped with the right skills in 2030, creating a stark gap between leaders and laggards. How will companies accelerate upskilling without creating a detrimental shock to the culture?

In these latest survey results, a paltry 14% of respondents are re-designing their manufacturing network to eliminate Scope 3 emissions. While sustainability is on all CEO agendas and nearly half of respondents highlight sustainability as one of the most important factors driving supply chain reconfiguration, the practical changes present trade-offs against traditional cost and service objectives. This creates a greater challenge as board-level targets are diluted at the operational level. How can companies increase accountability at the project level so that sustainability targets are implemented?

Driving value chains to perform better and be more resilient for the customer is a key driver for supply chain reconfigurations for over 60% of respondents. However, only 15% of respondents can cite tangible examples of actions that simultaneously optimize what the customer expects. This indicates a struggle to adopt new approaches to decision-making and navigating trade-offs that meet customer expectations and ensure long-term retention and growth. Fostering collaboration among customers, suppliers, private and public sector is a crucial enabler to tackle these fundamental trade-offs and help businesses prioritize actions for long-term growth.

So, what does this mean? Global value chains will continue to face considerable headwinds externally and internally. These challenges encompass geopolitical uncertainties affecting the macroeconomic environment and consumer demand, the influence of climate change and environmental pressures, as well as the intersection of technological innovation with supply chain-specific issues and workforce shortages. Now is not a moment to take the proverbial foot off the accelerator.

Considering the multitude of challenges ahead, one of the additional insights emerging from the survey is that true supply chain leaders are those that are able to capture the interconnectivity of risks successfully. There is significant interplay among crises, and to parse them out separately doesn’t capture the impact they may have on individual supply chains. Operations leaders who are winning in the current climate look at the intersection of risks, challenges, and opportunities, rather than at each individually. This adds nuance to risk assessment and makes resilience and investment decisions holistic rather than on a cost basis.

In our forthcoming publication, based on survey results and leadership interviews we will continue to deep-dive into the discrepancy between supply chain rewiring rhetoric versus reality and seek to uncover insights around the specific tradeoffs that operations leaders are making around how they are preparing their global value chains for the future.