Cutting costs seems to be the priority for South African companies, rather than focusing on supply chain management risks such as the price of raw materials, strikes and currency price fluctuations.
A study by PwC and the Massachusetts Institute of Technology found that only 60% of companies around the world have paid attention to the increasing risk of supply chain disruptions, despite supply chains becoming more complicated.
“They mitigate risk by either increasing capacity or strategically positioning additional inventory,” the study said.
In South Africa, it was found that fears about supply chain management disruption have grown among chief executive officers, and a third of them expressed concerns about risk.
However, most company heads are “reluctant to abandon cost-cutting initiatives until the economy is stabilised”.
Jonathan Cawood, strategy and operations leader for PwC Southern Africa, said that businesses are looking for opportunities for innovation in their operating and business models to offer consumers more and at a lower cost.
Striving for lean and efficient operations
“Chief executive officers are striving to make their operations lean and efficient, and it does not seem that cost reduction will drop down the agenda any time soon.
“However, this needs to be balanced with the requirement for profitable growth, which has direct implications for their supply chains,” he said.
Cawood said that flexibility is crucial to a company’s ability to adapt to change.
“A greater degree of anticipation, scenario planning and agility in their businesses will allow companies to respond better to demand changes, labour strikes, changes in technology, currency volatility and fluctuations in fuel and oil prices.”
The study, which looked at 209 companies with global operations, found that only 40 could be classified as having “mature” systems that help them develop risk reduction capacities to overcome controllable risks like fluctuations and volatility in the fuel price and uncontrollable risks, such as natural disasters.
Cawood said Africa has many opportunities in terms of investment and trade, but underdeveloped logistics infrastructure and utility providers with little capacity create risk for supply chains.
Market demands co-ordination
“In order for South Africa to benefit from growth in Africa, they must beneficiate and distribute raw materials and finished products across a much broader and complex supply chain network,” he said.
The research showed that over the past three years getting a product to market requires a greater degree of co-ordination, because the sizes of the supply chain networks have increased.
This means that “dependencies between entities and between functions have shifted, the speed of change has accelerated and the level of transparency has decreased”, the report said.
The report found that risks to global supply chains differ — organisations said the top three risks are raw material prices, currency fluctuations and market changes.
The companies said their supply chain operations are most sensitive to reliance on skills and expertise, the price of commodities and energy and oil.
Cawood was worried about the lack of focus by global companies on these risks.
Supply chain management is critical
“Managing supply chain risk is critical for all parts of the business, including product, design, development, operations, people and customers.
“Healthier and safer supply chains are vital for the business community now and will pay off as a strategic competitive advantage when the economy recovers,” he said.
The findings support research released by Barloworld Logistics last year, which warned that South Africa might lose its role as the world’s gateway to Africa if it does not respond to rising competition from other African countries and to supply chain challenges.
After the release of the Supplychainforesight Report 2012, Barloworld Logistics’s marketing executive, Kate Stubbs, said South Africa must capitalise on the interest from the developed world to invest and grow businesses in Africa.
“The research highlighted that South African companies need to understand the threats and opportunities present for industry and the national supply chain in other African markets,” Stubbs said.
This research found that companies feel that cost management is a significant issue.