| As the COVID-19 pandemic hammers supply chains, the C-suite seems ready to adapt with more holistic solutions. Plus, two experts on the private-equity market in China, and reading picks from Lucy Lopez, McKinsey’s deputy general counsel. |
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| Supply chains used to feel abstract. They were global, and they (mostly) got goods where they needed to go. But the COVID-19 pandemic has revealed how fragile lengthy, complex supply chains can be—and how much society has riding on their continued smooth functioning. For that reason, CEOs and other leaders are pushing supply-chain resilience to the top of their agendas. |
| Reality hits. Since 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion. During the same period, indicators of supply-chain efficiency—inventory levels, on-time, in-full deliveries, and lead times—improved for those businesses that created lean, global networks. But just because a supply chain is efficient and cost effective doesn’t mean it will be resilient, as shown by global disruptions ranging from Japan’s 2011 earthquake to this year’s pandemic. In each of the past several years, at least one company in 20 has suffered a supply-chain disruption that cost at least $100 million. |
| The bottom line is that these costs aren’t “unforeseeable” anymore. Building flexibility and resilience into operations has become business critical, and so organizations need a new approach to managing supply-chain risk. |
| New research. McKinsey recently surveyed 60 senior supply-chain executives about the pandemic’s impact and their next steps. Nearly all of them said the crisis had revealed weaknesses—in production and distribution, with their suppliers, and from inefficient digital technologies—that they’re working to address. Their solutions include dual-sourcing raw materials, increasing inventories of critical products, and nearshoring or regionalizing overall supply chains. And they’re shifting to big data and advanced analytics in every rung of the planning process. |
| One catch is the limited visibility that big companies have into their entire supply chains. On average, an auto manufacturer has around 250 tier-one suppliers—but some 18,000 across the full value chain. The dynamic is similar for aerospace manufacturers and technology companies. To mitigate risks, companies will need a deeper view of the vulnerabilities and exposure of their suppliers’ suppliers. |
| Why haven’t more companies acted? Short-termism is one reason. Many were unwilling to bear the present-day cost of preparing for future hypotheticals. But vulnerability will continue, and global shocks will happen. Efficiency alone can’t cope with that reality. Investing in resiliency and continuity today will pay off as the next crisis inevitably emerges. |
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| OFF THE CHARTS |
| India’s turning point |
| Based on current demographics, India needs to create at least 90 million new nonfarm jobs to absorb the 60 million new workers who will enter the workforce over the coming decade. A new report from the McKinsey Global Institute identifies a reform agenda that could raise productivity and incomes for workers, small and midsize companies, and large businesses, keeping India in the ranks of the world’s outperforming emerging economies. With a sharp rise in jobs and sustained productivity, India’s GDP could expand at 8.5 percent per year. |
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| Check out our chart of the day here. |
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| MORE ON MCKINSEY.COM |
| Bias busters: Lifting your head from the sand | A cognitive bias called the “ostrich effect,” in which individuals figuratively put their heads in the sand and avoid information they believe may be unpleasant, can lead to a perception gap. Here’s how to avoid that. |
| Will quantum computing drive the automotive future? | Several OEMs and tier-one suppliers have already begun investigating QC’s ability to benefit the auto industry and resolve some existing issues, including route optimization, fuel-cell optimization, and material durability. |
| Lessons for US governors and mayors planning a second term | The most urgent task facing public officials has been to combat the public-health and economic effects of the COVID-19 pandemic. To get more time to restore and rebuild economies, planning ahead is essential. |
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| WHAT WE’RE READING |
| Lucy Lopez |
| Lucy Lopez is deputy general counsel and head of legal for the Americas for McKinsey. She is also the president of the board of Big Brothers Big Sisters of New York City, a not for profit that provides mentorship to children who need responsible adults in their lives. |
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| I love memoirs because they help me better understand the plight of others. One of my favorite books of all time is Elie Wiesel’s Night, a penetrating recounting of loss and horror at Auschwitz and Buchenwald. Wiesel’s reflections as a deeply observant Jew, and many of the passages from the book, have stayed with me since I first read Night many years ago. I make it a point to reread the book often and finally decided to peel off the many sticky notes I attached to pages of the slim volume. I realized that there was barely a page without a sticky. |
| More recently, I’ve picked up Tilar J. Mazzeo’s Irena’s Children, which tells the story of Irena Sendler, an extraordinarily courageous social worker who risked her life to save thousands of children from the Warsaw ghetto during World War II. Reading these different accounts of the Holocaust helps me understand history and humanity better. |
| In the creative realm, Tennessee Williams’s Memoirs offers a candid portrayal of the man behind so many masterpieces and his struggles with personal demons since childhood. |
| As an immigrant, I cannot help but want to understand the experiences of other immigrants. Jason DeParle’s A Good Provider Is One Who Leaves: One Family and Migration in the 21st Century tracks the lives of a Filipino family over 30 years as they migrated to different parts of the world. Truly understanding why people “leave” may help us solve a complex global issue. This close-knit family broke apart and spread out across four continents in order to escape the grueling poverty of the Manila slums. |
| My summer reading has been focused on trying to more deeply understand racism within the Latino community to help ensure that I’m part of the solution. I started with Somos for Black Lives, a commitment by civil rights organizations and individuals to stand in solidarity with Black Americans. That is leading me to other valuable resources on the history of slavery in Latin America. |
| The isolation brought on by the COVID-19 pandemic has also led me to want to reconnect with my roots. Part of me misses island life in the Caribbean, where people talk for hours over coffee, really trying to understand what is happening in someone’s life. I’ve just picked up a number of gems I plan to read in the coming weeks: Dominicana, by Angie Cruz, a novel about a young woman migrating from the Dominican Republic to New York City; Barely Missing Everything, by Matt Mendez, a novel about Mexican American teens in El Paso, Texas; and Native Country of the Heart, by Cherríe Moraga, a memoir focused on a mother–daughter relationship. As someone who has a deep bond with her mother, I am looking forward to this last book in particular. |
| Finally, when I need a break from reality, I lean on poetry. I’m keeping The Sun and Her Flowers by Rupi Kaur bedside at the moment. This caught my eye: |
i stand
on the sacrifices
of a million women before me
thinking
what can i do
to make this mountain taller
so the women after me
can see farther |
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| — Edited by Barbara Tierney |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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| Copyright © 2020 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007 |
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