Securing supplies: when relocation is a solution

French companies exposed to supplier risk

When it comes to purchasing, France imports goods worth €600 billion, including €250 billion from outside the European Union, and this figure is rising all the time. France's trade balance, which has been in deficit since 2003, coupled with the low share of industry in GDP (13.5% in France, one of the lowest ratios in Europe, compared with almost 25% in Germany), means that French companies are exposed to globalised value chains.

French companies are well aware of their exposure to risk, since 21% of them rank risk and crisis management as a strategic priority, compared with an average of 11% worldwide (Source: Digital Procurement 2022 study, PwC).

 

Securing supplies in response to a crisis

The health and geopolitical crises we have been experiencing since 2020 are upsetting established balances, as well as the realities of companies and governments in terms of securing supplies. Russia currently accounts for 1.6% of our imports, mainly hydrocarbons, which are critical and strategic purchases. However, the conflict with Ukraine raises the risk of shortages and raises the issue of dependence. Since the Covid crisis, the issues of shortages, price increases, transport costs and supplier dependency have been at the heart of purchasing departments' concerns. Supply chains are in turmoil as never before, and the purchasing function is under severe pressure to secure its foundations but also to reinvent itself.

Relocating production and supplies is not necessarily a patriotic response, but a pragmatic and sustainable solution for securing supply chains.

Changing its supplier portfolio is a direct response to risk management in a context of environmental and geopolitical constraints. As price differentials narrow, there are more opportunities to relocate. In the longer term, controlling the extended supply chain must become a priority."

Isabelle CARRADINE PINTO, Partner specialising in the transformation of the purchasing function, PwC France and Maghreb

When the question of relocation arises, its feasibility needs to be assessed. The identification of alternative suppliers is based on several criteria: does the supplier identified have sufficient production capacity to meet the company's needs? Does it have the sector expertise, approvals or even certifications required for the activity or product in question? Is the quality up to scratch? In July 2020, PwC and the Centre National des Achats (CNA) identified 58 product categories suitable for relocation. When it comes to relocation, serious alternatives can be envisaged in France in the hardware, metal parts and packaging sectors, etc. To find out more about the product categories and industrial sectors most suitable for relocation, discover the Relocation of strategic purchasing study.

 

An approach accelerated by crises, but which must be part of a continuous improvement process

Crises are catalysts for transformation, but the issue of relocating purchasing should not be considered only in times of crisis. It is also important to adopt a virtuous, ongoing approach: monitoring the health of suppliers, keeping an eye on markets and reviewing contracts. This systematic approach to reviewing suppliers and supply chains can lead to the identification of alternative products when alternative suppliers are not possible. With this in mind, the company can engage in bio sourcing, research into innovation and ultimately aim to improve its carbon footprint. One of the challenges raised by securing supplies is that of collaboration: buyers and suppliers need to work together. The challenge is to pool demand so as to engage in constructive dialogue with suppliers, and thus boost production capacity.