What are CFOs’ top supply chain priorities for 2023?

Welcome to the February 2023 edition of the Global Value Chain Chronicle. In this issue, we’ll examine supply chain findings from the just-released 2023 BDO CFO Outlook Survey, which surveyed 625 middle market CFOs about how they are navigating market turbulence and investing in resilience.

For the second year in a row, CFOs cited supply chain disruption as their top business challenge. Through our?retail?and?manufacturing?cuts of the data, I’d like to dive deeper into CFOs’ specific strategies for evolving their supply chains this year.

Retail: Supply chain technology takes center stage

While retailers grappled in 2021 with bottlenecks and lack of access to products, they faced the opposite issue in 2022: too much inventory, a challenge that we expect to continue through 2023. Retailers plan to leverage technology to help them avoid swinging back and forth between inventory scarcity and excess.

One-third of respondents (34%) say they expect to face extensive excess inventory in 2023. As they work to address these hurdles, they must focus on both selling the products they have now and ordering appropriately for the months ahead, despite uncertainty around consumer spending. Depending on how well they forecast, if spending tapers off further, retailers may once again be left with more inventory than they planned. Unfortunately, nearly half of retailers surveyed (46%) expect their supply and demand forecasting will be inaccurate in the year ahead, which will most certainly compound the issue.

While supply chain issues are expected to lessen in 2023, retailers are still concerned: Overall, 82% of retail CFOs cite supply chain disruption as posing some or a significant risk to their business.

To address potential disruptions, the number one action retailers plan to take is to invest in supply chain technology.

Beyond investing in supply chain technology, retailers are addressing supply chain disruptions by identifying alternative or back-up suppliers, re-shoring production to the U.S., relocating sourcing to another country and reducing product variety when compared to 2022.

Over the last few years, manufacturers have considered making significant changes to their network footprints in response to global disruption. Now, they are prepared to put those plans into action and alter the shape of global supply chains. Even an economic downturn will not stop them: 75% of CFOs say their supply chain investments will stay the same or even increase if economic conditions worsen.?

The incentive for offshoring used to be lower costs, but rising labor, transportation and other input costs have eroded that advantage. It has also become clear that complex global supply chains are vulnerable to financial and operational disruption. Additionally, onshoring can reduce transportation distances and lower an organization’s carbon footprint, which helps achieve ESG goals.

To maintain service levels, companies are planning to add regional support in the U.S. and neighboring countries to their global supply chain. It’s unlikely there will be a mass exodus of production from China or any other single location; instead, manufacturers will take a hybrid approach where they shift some operations for specific products lines to different locations. Companies with more regional supply chains can reduce overall exposure to natural disasters, minimize complex tax obligations and increase insulation from transportation bottlenecks and cost fluctuations.

Every manufacturer’s hybrid model will look different depending on their product portfolio and goals. Some manufacturers will prioritize moving operations closer to key customers and markets, while others may want to keep a global network for cost, labor and material availability reasons.

To learn more about CFOs’ top supply chain risk and strategies, read the?2023 BDO CFO Outlook Survey, and join the conversation with a comment below.

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