Lessons in Supply Chain Optimization: Q&A with IMA23 Speaker Aidan Dunleavy
Dunleavy shared the following remarks as a preview to his session; don’t miss it! And don’t forget to register for IMA23 by April 14 to enjoy Early Bird rates.
What’s the current state of the supply chain? How long will it be before we return to pre-2020 levels?
The supply chain is certainly in a better position than it was two years ago. According to the U.S. Census Bureau, U.S. seasonally adjusted inventory-to-sales ratios within the manufacturing segment have been slowly but steadily declining since early 2021 and are now back to pre-pandemic levels, suggesting quicker inventory turns and better flow of materials through the supply chain. Generally speaking, consumers can find goods for purchase at their local retailers.
Yet, there are many challenges that are present in today’s environment. There are still specific segments where supply is falling short of demand—semiconductor production being a prime example—causing continued issues with the production of goods dependent upon these components. Additionally, labor shortages have become prominent issues for businesses in a variety of industries. Issues like these may still take another year or two to level out, but there is no question that the overall supply chain is headed in the right direction.
What are the top threats to the supply chain now and in the future?
I believe that changes related to the labor force will continue to be among the key challenges to the supply chain for the foreseeable future. According to the U.S. Bureau of Labor Statistics, there were 89% more manufacturing job openings in November 2022 compared to November 2019; however, total nonfarm job openings were only 52% higher over the same period. Wage increases can be seen as a contributing factor to this dynamic, with those in the manufacturing sector having lagged those in the general business sector for several years, but, since 2020 in particular, creating a competitive dynamic that is shifting some of the labor force away from manufacturing. This narrative can also be seen playing out through faster employment growth in the general business sector when compared to the manufacturing sector.
To address this, businesses have increasingly turned to automation to meet their production needs. The Association for Advancing Automation is forecasting record high industrial robot sales for 2022—including double digit growth year-over-year—suggesting a gradual shift in manufacturing inputs. How quickly the manufacturing sector continues to adapt to these changing environmental conditions, exercising levers such as increasing investment in automation and/or accelerating wage increases, will dictate how long the labor market will continue to be a challenge to the supply chain.
What role can management accountants play in optimizing the supply chain?
There are several ways that management accountants can serve as valued business partners to help optimize the supply chain.
First and foremost, management accountants serve as a key source of analytics about the health of supply chain operations. Through activities such as variance analysis, they can highlight inefficiencies related to both external components (e.g., purchase price variances) and internal components (e.g., manufacturing variances) that drain organizational profitability.
Second, management accountants are critical personnel to involve in new investment decisions. Their financial and analytical expertise can help discern which potential investment projects (e.g., automation or new equipment purchases) could add value to the organization and how any portfolio of favorable projects should be prioritized.
Third, management accountants can play a key role in optimizing business risks. They can identify risks to the business—both external (e.g., supplier, financial, or performance issues) and internal (e.g., forecasted capacity constraints)—that allow supply chain leaders to develop and implement risk mitigation strategies.
