The Modern Supply Chain: Global Challenges and Best Practices

with Bart Huthwaite
Building Resilience for the Future:
How to Secure Your
Global Supply Chain
Tuesday, November 15th, 2022
11:00am PST, 2:00pm EST, 7:00pm GMT
Principal, Management Consulting,
Operations and Supply Chain
Tara Dwyer
Webinar Coordinator,
Supply Chain Brief

Avetta provides a cloud-based supply chain risk management and
commercial marketplace platform. Our global solution is uniquely
designed to connect the world’s leading organizations with qualified
suppliers, driving sustainable growth. We build trustworthy bonds
through responsive technology and human insight. Our process is
collaborative. Our global reach is complemented by our local
expertise. Hundreds of global organizations depend on Avetta to
align their supply chains to sustainable business practices,
worldwide. Discover more at avetta.com.

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Bart Huthwaite
Principal, Management Consulting, Operations
and Supply Chain

© 2022 RSM US LLP. All Rights Reserved.
SECURING YOUR SUPPLY CHAIN FOR FUTURE
November 2022

• Insights from COVID: Understanding the supply chain operating model
• Best Practices: Steps taken by the leading organization to adapt to an
agile supply chain network
• Supplier Resilience: Challenges & Opportunities, including ESG and
Tier-N-Visibility
Learning Objectives

INSIGHTS FROM COVID :
UNDERSTANDING THE SUPPLY CHAIN OPERATING MODEL

Bank of America noted mentions of “supply chain” in Q3’2021 earnings calls by Fortune 500 companies had risen an
astonishing 412% from Q3 2020 and 123% from Q2 2021 earnings calls.
Of a survey conducted of global supply chain leaders in MAY’2022, it was clear that COVID-19 will transform supply chains.
COVID impact on Supply Chain
Encountered problems in the supplier footprint
that require changes in the future
Experienced delays in planning decisions
because of remote working
73%
48%
Faced issues in the production and distribution
footprint that require changes in the future
Struggled with insufficient digital supply
chain technologies – visibility / agility
75%
48%

The RSM US Middle Market Business Index
Index surges to 138.5 despite elevated inflation
9
PESSIMISM
OPTIMISM

RSM US Supply Chain Index
2001
Dot.com bust
2008-09
Global financial crisis
2020-21
Pandemic era
Note: An index value of zero is defined as normal level of supply chain efficiency. Positive values of the index suggest adequate levels;
negative levels suggest deficiencies. Source: Various government and private organizations, Bloomberg, and RSM US

Unexpected changes or disruptions in U.S. supply over the
last 12 months
11
Total
(n = 199)
Significant increases in price or cost for some items 78%
Delays in order fulfillment or receipt 76%
Unreliable, or inconsistent times for order fulfillment 74%
Missed deadlines for order fulfillment 74%
Receipt for partial, or incomplete orders (i.e., incomplete quantities) 66%
Source: RSM US Middle Market Business Index, Q2 2022

Supply Chain Disruptions
organizations experienced significant negative effects due to unexpected changes or
disruptions in supply from upstream suppliers
12

Unexpected changes or disruptions in supply
13

Areas where organizations are experiencing increased cost pressures
14

$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22
Shipping Price per 40ft Container Box
Shanghai to LA Shanghai to NY
15
The container index is 68% lower than last year. Shanghai to Los Angeles fell from $9,947 to $2,262
per 40-foot container while Shanghai to New York fell from $12,718 to $5,351 per 40-foot container.
Container cost

1
1.1
1.2
1.3
1.4
1.5
1.6
Ratio Inventory to Sales Ratio
Total Business Retailers Manufacturers Merchant Wholesalers
16
Source: Federal Reserve Bank
of St. Louis; RSM US
Inventory to sales ratio

17
Over the last 12 months, the producer price index increased by 12.0%, 14.6%, and 14.7% for all
commodities, truckload, and LTL (less than truckload), respectively
Producer price index

Ways Supply Chain has changed
Supply chain is now key focus for the executives and supply chain issues are being identified as the greatest threats to companies' growth.
Companies are now focusing on business continuity by building visibility, resiliency and agility.
Strategic key supplier relationships are essential for company’s growth.
Network optimization for manufacturing and distribution is the need of the hour.
Companies are re-evaluating inventory management strategies and Just-In-Time (JIT) is sometimes replaced with Just-In-Case (JIC).
Integrated supply and demand planning – IBP / S&OP are increasingly recognized as valuable processes to address supply chain issues.

BEST PRACTICES :
STEPS TAKEN BY LEADING ORGANIZATION TO ADAPT TO AGILE
SUPPLY CHAIN NETWORK

What are organizations doing?
70% 51% 36%
Found other sources of
supply in the United
States
Purchased some supplies
from competitors at a
premium
Found other sources of
supply outside the United
States
404 executives responded to RSM’s Middle Market Business Index survey conducted in APR’2022. The data sheds light on
the specific ways companies are responding to supply chain issues.

What are other companies doing?
21
THE AMBITIOUS
Changing operating models
Optimizing distribution networks
THE PRUDENT
Supply chain failure mode effects analysis
Segmenting and optimizing finished goods and raw materials inventory
Updating and maintaining system parameters
Developing and implementing a plan for every part
Revisiting strategic sourcing strategies to improve resiliency
Improving demand and supply management IBP / S&OP
Improving supplier contracts to address potential disruptions
Improving supply chain visibility and resiliency (primarily through technology)
THE OBVIOUS
Stockpiling inventory
Seeking alternative suppliers
THE
PRUDENT
THE
OBVIOUS
THE
AMBITIOUS
Novice Expert

Apple seeking alternative suppliers to reducing dependency on China
Apple is trying to reduce its dependence on China, facilities and vendors.
• The company has started producing some iPhone 14 models in India.
• Foxconn Technology Group, And Apple’s largest supplier, recently agreed to
a $300 million expansion of its production facilities in Vietnam.
22
Apples Challenge:
• Scores of local component suppliers, modern and efficient
transport, communication and electricity supplies -- make it
particularly evolved ecosystem, that Apple and other
smartphone manufacturers have relied upon.
• Bloomberg Intelligence estimates it would take about eight
years to move just 10% of Apple’s production capacity out
of China, where roughly 98% of the company’s iPhones
have been made.

GM is revisiting strategic sourcing strategies to improve resiliency
• Like many automakers, GM has had a rough go of it this year due to the chip shortage.
• Its second-half vehicle production for 2021 was down about 200,000 cars compared to the first half of the year.
23
General Motors may have a solution to its semiconductor chip
problem.
• The automaker is working with seven chip supplier partners on
new designs of chips that would be capable of handling more
than the current chips and would be made in North America
• GM and its chip suppliers are working on three new families of
microcontrollers that will lower the number of chips by 95% on
future vehicles.
• new microcontrollers will consolidate the functions that
individual chips handle now and that will cut costs, but still
deliver quality. He foresees making as many as 10 million
microcontroller units a year.

Volkswagen is revisiting their global operating model
• Volkswagen confirmed a new growth plan would aim to reduce its vulnerability to the effects of global conflicts, such as
supply chain disruption and rising prices, by increasing their focus on regional versus global strategies
• Volkswagen’s Chief Executive said the board saw boosting its China business, growing software division Cariad and
reorganizing its steering model as the most pressing issues facing the carmaker.
24
VW’s comments echo concerns among other carmakers about the ability
of their suppliers to keep making parts as energy prices surge. VW’s
team is currently trying to mitigate the impact by prioritizing below :
• Greater localization in Europe
• Relocation of Manufacturing capacity
• Technical alternatives for semiconductors
• CapEx investment for a new cell factory in Germany
• $80 million facility opened to research, develop and test EV batteries

Toyota prepared for COVID from 2011
In March 2011, after the earthquake most of Toyota’s Japanese plants were closed for nearly two months and north American production was
cut to 30% for the subsequent 6 months due to a shortage of 150 different parts.
To mitigate risks in case of future hits, Toyota started to build redundant inventory, selected multiple or even redundant suppliers and adopted
more standardized components for different vehicles.
25
Toyota action plan and 2016 unplanned testing
Toyota’s 5-year plan, that would enable a recovery from a hit within two weeks, comprised four
actions.
• Toyota adopted some components that are standardized across all Japanese automakers so
that they could be manufactured in several locations and shared among automakers if needed.
• Toyota also built a database with information about thousands of parts stored at 650,000
supplier sites, which helps bypass bottlenecks when one supplier gets knocked out of
commission.
• In addition, Toyota decided to regionalize the supply chain. Regionalization will reduce the
fragility of global supply chains containing the impact of a disruptive event to a single region.
• The last action was to force suppliers to hold as much as a few months’ worth of inventory of
specialized components.
“After the Great East Japan Earthquake, and after efforts to reduce and mitigate the impact of disasters, we are now able
to make assessments of alternative products in a speedy manner,” CFO Kenta Kon said. “And this was one of the factors
behind us being able to mitigate the impact of semiconductor supply.”

SUPPLIER RESILIENCE:
FUTURE CHALLENGES AND OPPORTUNITIES
26

ESG - Greenhouse Gas (GHG) Emissions
Key Considerations for Reducing Supply Chain GHG Emissions
27
For every 1 ton of CO2 GM emits, their supply chain emits 11 tons of CO2.
How Are Supply Chain GHG Emissions Classified?
Scope 1 emissions are produced from owned and/or
controlled sources (e.g., company owned facilities, company
owned vehicles).
Scope 2 emissions are produced from the generation of
purchased electricity, steam, heating, and cooling consumed
by the reporting company (e.g., for leased buildings).
Scope 3 emissions are produced by activities that occur
both upstream/downstream in the value chain (including
but not limited to business travel, employee commuting,
purchased products, transportation of consumed goods, etc.).

Tier-N-Visibility
Manufacturer
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
…
…
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
…
…
Tier 1
Tier 2
Tier 3
Tier 4
…
Tier N

Q&A
TARA DWYER
/in/dwyertara/
Webinar Coordinator, Supply Chain Brief
supplychainbrief.com
BART HUTHWAITE
/in/bart-huthwaite/
www.rsmus.com
Principal, Management Consulting, Operations and
Supply Chain

The Modern Supply Chain: Global Challenges and Best Practices

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