Executive
Perspectives

The CEO’s Dilemma
Preparing Your Supply Chain for Resilience
December 2022

Recent macro events like COVID-19, the Russian
invasion of Ukraine, and soaring inflation have stressed
supply chains globally. Even when these current
challenges subside, future supply chain disruptions invarious forms are likely to continue.
To thrive relative to underprepared peers, companies
must design their supply chain structure, processes, andorganizations for resilience. It is critical to be selective in
where and how to invest to stay cost-competitive while
mitigating the most at-risk parts of supply chains withthe highest potential financial impact.

In this BCG Executive
Perspectives edition, we
address how to respondto uncertainty bybuilding supply chain
resilience

This document explains which capabilities andenablers are needed to build resilient supply chains,
and the no-regret moves that all companies shouldtake today.
2

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Introduction to this document

Executive Summary | Supply chain resilience creates better businessoutcomes and requires action today to build key capabilities and enablers
Companies that invest in supply chain resilience capabilities turn disruption into a competitive
advantage. The gross profit growth of resilience leaders outpaced that of laggards by up to 55 percentage points.
Leaders succeeded because they invested before they needed it.

Early investments in resilience can deliver immediate benefits to help fund the journey. Deploying inventory
more efficiently with better demand visibility and improving procurement with better upstream visibility forsourcing are just a few examples.
Unplanned supply chain challenges will continue. It is imperative that companies prioritize investments
now so they don’t fall behind peers. They must invest intelligently in supply resilience to avoid exacerbating costs.
Near-term, large opportunities exist to build supply chain resilience capabilities. This requires a holistic program:

Building
supply chain
resilience• Absorb: Better handle shocks through network design, sourcing strategy, planning, and product design• Recover: React faster when disruption occurs through monitoring, prediction, and crisis response
To enable these capabilities, companies need visibility into their extended supply chain; sustaining this value
may require new enablers, including digital tools, governance, talent, and change management assets.
3

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Benefits ofsupply chain
resilience

Without these capabilities, companies are exposed to inevitable supply chain disruptions. Resilient supply chains
can minimize costs and lost revenue in times of crisis and support accelerated growth in times of expansion.

Continued uncertainty about future demand and economic stability
Global growth outlook

3

GDP forecasts1 (Real GDP YoY)
USEurozone
GlobalFinancial markets

5

Equity market performance (YTD change)7

2021A

2022E

2023E

2024E

5.9%

1.8%

0.4%

1.4%

5.3%

3.2%

-0.1%

1.5%

6.0%

2.9%

2.1%

2.9%

Sep '22

Oct '22

Nov '22

S&P 500-24.8%-18.8%-14.4%

Eurostoxx 50-22.8%-15.8%-7.8%

Job openings rate4

Sep '22

Oct '22

Nov '22

Change10

US

5.52%

4.64%

4.48%

-16bpsEurozone

6.31%

6.05%

5.20%

-79bpsCommodity prices and inflation

Commodity prices2Brent oil
Natural gas
USEurozone

Sep '22

Oct '22

Nov '22

Change10

79.5

86.5

80.6

-6.9%

6.8
165.0

6.4
84.0

6.9
145.0

+9.0%
-+66.6%

Consumer price inflation (YoY) 3
Sep '22

Oct '22

Nov '22

Change10

US

8.2%

7.7%

-

-0.5ppts

Eurozone

9.9%

10.6%

10.0%

-0.6ppts

4

Q1 '21Q2 '22Q3 '22

Change11

US

7.3%

6.8%

6.5%

-0.3ppts

Eurozone

3.1%

3.2%

3.2%

0ppts

Sep '22

Oct '22

Nov '22

Change10

3.5%

3.7%

3.7%

0ppts

3.0%

3.0%

-

0ppts

7.1%

7.1%

-

0ppts

Unemployment rate5

Corporate spreads (High Yield)82

Labor market

US
Germany
France6

Monetary policy

Monetary policy rates6

Manufacturing

PMI Manufacturing (<50 = contraction)9

Sep '22

Oct '22

Nov '22

Change10

US

3.25%

3.25%124.0%+75bpsEurozone

1.25%

2.0%

2.0%

0bps

Sep '22

Oct '22

Nov '22

Change10

US

50.9

50.2

49.0

-2.4%

Eurozone

48.4

46.6

47.1

+1.5%

1. Bloomberg, data as of 12/06/2022. 2. Data presented as end of month figures. Brent oil in $/bbl; US Natural gas (Henry Hub) in $/MMbtu; Dutch Natural gas (TTF front month future) in EUR/MWh.
3. CPI monthly seasonally adjusted data from Bureau of Labor Statistics; HICP monthly data for Eurozone from Eurostat. 4. Seasonally adjusted rates; Bureau of Labor Statistics for US; Job vacancy
rate from Eurostat for Eurozone. 5. Bureau of Labor Statistics for US; Eurostat for Eurozone. 6. Federal Reserve for US; ECB for Eurozone (main refinancing rate). 7. Bloomberg. 8. Bloomberg US
Corporate High Yield Average OAS; Bloomberg Pan-European High Yield Average OAS 9. ISM manufacturing PMI for US; S&P Global Eurozone Manufacturing PMI from Markit for Eurozone. 10.
4Change Oct vs Nov. 11. Change Q2 '22 vs Q3 '22 12. As of 12/06/2022 Note: All displayed numbers are based on end of months figures. Changes based on incremental changes vs. previous months.

Copyright © 2022 by Boston Consulting Group. All rights reserved.

1

AGENDA

Benefits of supply chain resilience
Building holistic supply chain resilience

5

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BCG Executive
Perspectives

Three sources of supply chain disruptions
expected to continue in the future

Geopolitical
Increased power tensions leading to trade actions (e.g., tariffs, tech
restrictions), military actions, ESG1 (e.g., carbon border taxes), etc.
Operational
Natural disasters (e.g., hurricanes, floods), pandemics, labor strikes,
labor/material shortages, catastrophic equipment downtime, etc.

Companies must prepare now to be resilient to
all these unpredictable future disruptions
1. ESG = environmental, social, and governance6

Copyright © 2022 by Boston Consulting Group. All rights reserved.

The nature of supply
chain disruptions
may change, but
disruptions areinevitable

Macroeconomic
Volatile demand, vulnerable suppliers, capacity/inventory shrinkage
from higher interest rates, bankruptcies from higher energy prices, etc.

AUTOMOTIVE
Gross profit increasedifference between
leaders and laggards(percentage point differential)+25–45 p.p.

MEDTECH+5–20 p.p.

Source: BCG analysis; gross profit increases from public financials, for example, companies relative to industry peers during related events ranging from 2019-2022

CONSUMER+0–55 p.p.
7

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Supply chain leaders across industries show
better financial performance vs. laggards

A resilient supply chain helps absorb shocks and recover from disruption
faster – but few companies have managed to build these capabilities yet

Highmaturity

Recover

5%

10%

80%

5%

e.g., digital twin of operations to evaluate
disruption scenarios and prepare supply
chain to minimize financial impact
LowmaturityLowmaturity

AbsorbHighmaturity

Increase ability to handle supply chain shocks
e.g., tiered sourcing strategy for custom/critical components
through product redesign or alternative sourcing options% Denotes % of companies in quadrant
Source: BCG 2022 supply chain resilience capabilities survey (N=136)

8

Copyright © 2022 by Boston Consulting Group. All rights reserved.

React faster when supply
chain disruption occurs

2

Act now to build supply chain resilience andnarrow the gap to leaders who continue to invest;
prioritizing investments helps fund the journey
while building long-term capabilities

3

Read on to identify several actions to prepare
your supply chain for resilience, including how toassess risk exposure, gain real-time visibility, andabsorb and recover from the most pressing risks

9

Copyright © 2022 by Boston Consulting Group. All rights reserved.

The time to act is now tocreate a competitive
advantage with supply
chain resilience1

Supply chains can create a competitive advantage
if they become resilient to prepare for inevitabledisruptions; this creates more stable operations andpredictable financials in good times and bad

AGENDA

Benefits of supply chain resilience
Building holistic supply chain resilience

10

Copyright © 2022 by Boston Consulting Group. All rights reserved.

BCG Executive
Perspectives

Enablers

Recover

Digital tools
Predictivemodeling

CultureMonitoringand sensing

Crisisresponse
Processes and operating tools

Excellence in supply
chain resilience
requires a holistic
approach

Product andengineering
flexibility

Assessrisks

NetworkdesignSourcing
strategy

Planning
and inventory
management

Governance

TalentChange management practices

Absorb11

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Establish
visibility

Visibility and Assessment | Understand potential problems
and quantify the magnitude of potential exposure

Visibility
AssessCase example:
industrial goods company
Why was it important?
Visibility

Assessment• Create visibility across network, including
multi-tier supplier mapping, multi-echelon
inventory, production facilities, andtransportation• Establish KPIs that measure a company’slevel of resilience capabilities• Quickly view changes in performanceacross various KPIs in different parts of
the network• Prioritize risks by quantifying themagnitude and likelihood of exposure• Identify potential exposures at the part,
supplier, location, and product level• Develop capability building and a risk
mitigation roadmap to improve resilience

Client concerned about geopolitical & trade risk withlarge percentage of components sourced from China,
especially single sourced, with specialized technology

How did we help?
Built an enhanced monitoring dashboard toenable risk segmentation and quantification;
developed a mitigation roadmap to address risks

What was the impact?
Integrated dashboard into daily operations
planning; executed 5 key mitigation solutions
tied to sourcing risks for 85% of revenue

12Recover

Recover | Continuously monitor using advanced analytics
coupled with predictive algorithms
Case example:
medical device company
Why was it important?
Monitoring/sensing

Prediction

Crisis response• Real-time monitoringleveraging digital tools to
identify external events
that may impact ops• Predictive algorithm toshow how disruptions
could impact operations• Established team(s),processes, & playbook to
optimize decision making• Scenario modeling thatwill show best action
given changing conditions• Leverage real-time data to
mitigate crisis within
existing process• Proactive alerts thatsense operational
deviations & disruptions

Client anticipated shortage of semiconductors
and needed a data-driven approach to monitor
and mitigate component supply risks

How did we help?
Implemented a data room and control tower
to develop data-driven risk identification forprioritization and management of supply base

What was the impact?
Reduced potential revenue loss by 20%, prioritizing
product redesign/substitution for most profitableproducts & health criticality to minimize patient impact

13

Absorb | Prep for events through network design and inventory
planning while developing comprehensive sourcing strategy
AbsorbCase example:
consumer beverage company
Why was it important?
Network design

Sourcing strategy

Inventory & planning

Flexible products• Sourcing strategy to• Network map of all • Tiered multi• Data-driven
identify source
locations and flows
sourcing strategies
inventory targets set
across multiple tierswith recovery forwith additional safety components withroadmap to migrateof the supply chain
single-sourced items
stock for high-risk
to flexible designs
items• Scenario evaluation • Senior and crossfor single points offailure

3

4
3 2

4
2

functional engagement on supplierlocation selection• Sales forecast anddemand plan todetermine supply &production needs• Process for rapid
emergency designchange, substitution,and spec deviation

Client adversely affected by supply chain
disruptions and expected to underdeliver export
volumes due to labor & raw material shortages

How did we help?
Developed cross-functional initiatives focused
primarily on network design and sourcing/
inventory strategy to increase resilience

What was the impact?
Reduced addressable cost by 20% while
increasing volume per site by 50%, significantly
reducing planned expansion capex

1
3

4
2

1

1

14

Enablers

Enablers | Resilient companies build capabilities to strengthen
overall operations organization and processes
More details on next page

• Build ecosystem of new tools to better
anticipate risks and gain a competitive edge
• Improve real-time visibility into multiple supply
chain tiers and across network• Leverage advanced and predictive analytics toenable data-driven planning

Culture• Win hearts and minds of employees• Make talking about risk and resilience ascommonplace as cost and efficiency• Embed resilience in every function acrossorganization and decision processes

Process and operating model• Integrate resilience into supply chain, order
execution, procurement, and strategic planning• Focus on both long-term improvements andnear-term crisis response

Governance• Align metrics and incentives to resilience measures• Establish regular cadence of executive engagement• Build cross-functional risk and resilience teams withdirect line of reporting to COO or CEO

Talent• Build new strategic, tactical, analytical, and digital
capabilities required to enable resilient operations• Hire, train, and retain leaders and employees
committed to resilience across the organization

Change management• Enable sustainable change to the way work isdone and decisions are made• Ensure that change is both deep (every level)and broad (cross-functional)
15

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Data, analytics, and tools

Select examples(not exhaustive)

Recover
Digital twin to simulate
and predict impacts fromdifferent scenarios

Digital war room of >1
supplier level upstream
to identify exposure

Predictivemodeling
Monitoringand sensing

Supply chain
resilience strategy
is accelerated whenleveraging digital
and analytics tools

Establish
visibility

Supply chain resiliencediagnostic to evaluate
readiness and exposure

Network scenarios
to quantify network's
ability to recover

Crisisresponse

Product andengineering
flexibility Visualize product pipeline
and mix with productlifecycle mgmt. (PLM)

Assessrisks

NetworkdesignSourcing
strategy

Multi-tier data sharing
and collaboration across
suppliers and customers

Planning
and inventory
management

Spend analytics andsupplier collaboration
tools to identify risks

AI-driven planning for
more accurate demand
forecast and planning

Absorb
16

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Control tower to visualize
E2E operations and identify
potential disruptions

Connect with our Supply Chain, Central Resilience, and Geopolitics teams
Europe, Mid. East, S.Amer

Asia PacificCentral Resilience Team

Jeremy Kay
Managing Director & Partner

Thomas Kingombe
Managing Director & Partner

Ravi Srivastava
Managing Dir. & Sr. Partner

Tuukka Seppä
Managing Dir. & Sr. Partner

Kay.Jeremy@bcg.com

Kingombe.Thomas@bcg.com

Srivastava.Ravi@bcg.com

Seppa.Tuukka@bcg.com

ChicagoCopenhagen

New Delhi

Helsinki

Ben Aylor
Managing Dir. & Sr. Partner

Rainer Schuster
Partner & Associate Director

Kosuke Uchida
Managing Director & Partner

Ryoji KimuraManaging Director & Partner

Aylor.Ben@bcg.com

Schuster.Rainer@bcg.com

Uchida.Kosuke@bcg.com

Kimura.Ryoji@BCG.com

Washington, DC

MunichNagoyaTokyo

Justin Ahmad
Managing Director & Partner

Dragana Kovacevic
Project Leader

Koichi Hasegawa
Managing Director & Partner

Alexander RoosManaging Dir. & Sr. Partner

Ahmad.Justin@bcg.com

Kovacevic.Dragana@bcg.com

Hasegawa.Koichi@bcg.com

Roos.Alexander@bcg.com

BostonFrankfurt

Tokyo

BerlinGrace Havlin
Partner

Marco MorettiManaging Director & Partner

Wales Wei

Havlin.Grace@bcg.com

Moretti.Marco@bcg.com

Wei.Wales@bcg.com

New York

RomeHong Kong

Daniel Feldkamp
Managing Director & Partner
Feldkamp.Daniel@bcg.com
MunichDustin Burke
Managing Dir. & Sr. Partner

Wolfgang Schnellbächer
Managing Director & Partner

Burke.Dustin@bcg.com

Schnellbaecher.Wolfgang@bcg.com

ChicagoStuttgart

Email OpsResilience@bcg.com for our Resilience Benchmark & Self Assessment
Click here for insights on supply chain resilience and our latest operations publications

Managing Director & Partner

Geopolitics and Trade Impact Team
Marc Gilbert

Michael McAdoo

Managing Director & Partner

Partner & Director

Gilbert.Marc@bcg.com

McAdoo.Michael@bcg.com

Montréal

Montréal

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North America

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