By Josie Ananto and Mads Lauritzen
As companies look to diversify their manufacturing hubs, it is more crucial than ever for supply chain executives to play a leading role in M&A transactions
Shifting global supply chain dynamics because of geopolitical tensions, demographic shifts, increasing attention on ESG considerations and new technology developments is well documented and discussed. This vast change is becoming the new normal for supply chain executives. Consequently, the role of a modern-day chief supply chain officer is to transform the supply chain from a classic engine room function to a differentiating growth and customer service engine that defines a true competitive edge.
Building greater resilience in the supply chain is at the top of C-suite strategic priorities. CEOs in Asia-Pacific surveyed by the EY organization on a quarterly basis, tell us very clearly that geopolitical concerns continue to loom large. According to the EY CEO Outlook Pulse – October 2023, 75% of CEOs in Asia-Pacific expect that geopolitical conflicts and trade tensions will have an impact on business performance over the next 12 months. Major changes are underway: Close to half of CEOs are reconfiguring supply chains and more than a third are relocating operational assets.
A majority (84%) of CEOs expect to actively pursue a strategic transaction in the next 12 months, with 23% looking to M&A, 38% looking to divest, and 40% looking to enter strategic alliances or joint ventures.
As deal-making picks up to facilitate these significant operational shifts, there are two interesting questions: What exactly is driving these decisions and, critically, what is the role or contribution of a Chief Supply Chain Officer in these transactions?
Operational shifts driving cross-border transactions
In Asia-Pacific, we can see some common factors driving cross-border M&A transactions: The desire to achieve more growth, benefits available in different markets, and the adoption of more consumer-centric approaches to operations.
Businesses across Asia-Pacific are looking to expand into different economies to de-risk their supply chain network and simultaneously drive growth as CEOs continue to look for opportunities through M&A transactions. One of the levers to de-risk supply chain network is through setting up alternative manufacturing hubs.
To execute this, companies use strategic M&A, such as buying companies in select locations, winding down capabilities in another or entering joint ventures or strategic alliances. M&A strategy also enables businesses access to new markets so they can unlock new growth opportunities.
Several Asia-Pacific economies also have a variety of initiatives in place to attract foreign direct investment and multinational companies. For instance, national and local governments in Southeast Asian countries have several policies that support R&D and IP protection as well as tax incentives for multinationals.
Tiger Cub economies such as Thailand, Malaysia, and Vietnam are quickly emerging as strong supply chain alternatives. Leading automotive and pharmaceutical companies have also established presence in Southeast Asia to take advantage of the capabilities and benefits of their supply chain ecosystems.
Meanwhile, as chief supply chain officers evaluate their supply chains, they often find lower-tier suppliers whose components cannot easily be replaced without time and careful consideration. In cases where companies’ manufacturing is hyper-centralized in one location, opening one or two manufacturing hubs in an alternative economy is not enough to fully de-risk their supply chain.
It will require significant “rebuilding” of supply chain ecosystem to support new manufacturing hubs. As a result, this often creates a cascading effect to multiple transactions in a new market by companies and their respective supply chain ecosystems.
Evolving role of supply chain leaders
Inbound deals, and global trade more generally, facilitate a transfer of knowledge and strengthen broader trade relations. But it’s also great news for chief supply chain officers – more so than ever – their role is a key voice when it comes to corporate transactions and cross-border strategy at a critical time for the business.
Rather than a classic engine room function, chief supply chain officers nowadays are expected to segment the supply chain and develop a manufacturing and logistics footprint that best serves various customer demands. To excel in this role, they must continuously optimize inventory to maximize customer service levels in a cost-efficient manner, and increase transparency on the availability of products while pursuing all means to drive up demand forecasting accuracy.
On a day-to-day basis, chief supply chain officers will need to maintain a complete view from upstream to downstream to prevent any potential supply disruptions through leveraging all technologies available to optimize speed and transparency of the supply chain.
With a renewed remit, chief supply chain officers are expected to take on the advisory role in M&A decisions to make sure they are aligned with the overall supply chain and footprint strategy. Not only do chief supply chain officers have invaluable knowledge in operational diligence and operations integration including procurement, planning, manufacturing, and logistics that can guide the way teams approach acquisitions or divestitures, they can also take a lead role in defining and implementing ESG strategies and execution.
Above all, chief supply chain officers will become key voices in the executive committee to weigh in on the optimal strategic locations that minimize supply chain risks. To fully realize the geographic and industrial potential of Asia-Pacific, it is of critical importance for businesses to be well-versed in how to effectively sidestep supply chain issues. As a result, the chief supply chain officer has emerged as a crucial role not just when it comes to de-risking supply chains but leveraging the supply chain as an accelerator for all strategic decisions.
The views reflected in this article are the views of the author/s and do not necessarily reflect the views of the global EY organization or its member firms.
The post The increasing role of the supply chain leader in cross-border transactions first appeared on Logistics Asia.