Overcoming the challenges will require a supply
chain reinvention as a new economic order takes shape
Supply chain challenges arising from the COVID-19 pandemic and
Russia’s invasion of Ukraine could result in a potential €920
billion cumulative loss to gross domestic product (GDP) across the
Eurozone by 2023, according to a report released today by Accenture
(NYSE: ACN). The potential loss equates to 7.7% of the Eurozone GDP
in 2023.
Published at the World Economic Forum’s Annual Meeting in Davos,
the report, “From Disruption to Reinvention – The future of supply
chains in Europe,” explores three possible scenarios for how the
war could play out over the coming year, modelling the impact of
each scenario on the Eurozone region in terms of costs and
timelines for recovery.
Supply chain disruption related to COVID-19 cost Eurozone
economies €112.7 billion in lost GDP in 2021, according to the
report. Before the war, the lack of material supplies, breakdowns
in logistics and inflationary pressures were already undermining
the economic rebound in Europe, with resurging demand and
precautionary hoarding overwhelming supply chains.
Russia’s invasion of Ukraine has aggravated the situation. For
instance, the semiconductor shortfall, which was expected to
resolve in the second half of 2022, is now anticipated to persist
into 2023. A protracted war could lead to a further loss to GDP of
up to €318 billion in 2022 and €602 billion in 2023, while
inflation could be as high as 7.8% in 2022 before declining in
2023.
“Although expert consensus is that Europe will avoid recession
this year, the combination of COVID-19 and the war in Ukraine has
the potential to significantly impact Europe’s economy, causing a
material deceleration in growth,” said Jean-Marc Ollagnier, CEO of
Accenture in Europe. “While before the war some kind of supply
chain normalization was expected in the second half of 2022, we now
don’t expect this to happen before 2023, perhaps not even until
2024, depending on how the war evolves.”
Solving supply chain issues will be critical to European
competitiveness and growth. According to the report, up to 30% of
total Eurozone value-added relies on functioning cross-border
supply chains, either as a source of input or as a destination for
production.
Reinventing supply chains in a new economic order
The report suggests that a reinvention of supply chains is
required to address a paradigm shift — supply chains were designed
mainly to optimize costs, while in today’s world, they must also be
more resilient and agile to respond to increasing supply
uncertainties, while becoming a key competitive advantage to enable
future growth. A focus on three key areas is highlighted:
- Resilience: Supply chains must be able to absorb, adapt
to and recover from disruptions whenever and wherever they occur.
Improved dynamic visibility, risk identification, and mitigation
solutions will enable companies to respond to sudden supply chain
changes. Scenario planning and risk and opportunity analyses will
help them adapt to evolving supply and demand. Network modeling and
simulation, stress tests, strategic buffer sizing, and
multi-sourcing options will allow organizations to manage
uncertainties.
- Relevance: Supply chains will need to be
customer-centric and agile so they can quickly and cost-effectively
adapt to changes in demand. Capturing new data sets, including
real-time data, from inside and outside the organization and across
the value chain will be critical. Automation and artificial
intelligence will allow organizations to identify new data patterns
rapidly to better inform decision-making. Moving from centralized,
linear models of supply to decentralized networks that use
on-demand production, and in some instances, bringing production
closer to the point of sale, can help organizations better meet
customer expectations for order fulfilment.
- Sustainability: Modern supply chains need to support, if
not accelerate, organizations’ sustainability agendas. To gain the
trust of stakeholders, organizations must make their value chains
transparent; one way to do this is through blockchain or similar
technology. A shift from linear processes to closed-loop, circular
processes that minimize waste will also be key.
“Visibility across the supply networks, including tier 2 and
tier 3 suppliers is critical,” said Kris Timmermans, who leads
Accenture's Supply Chain & Operations practice. “Companies must
move from a just-in-time to a just-in-case approach, diversifying
supply bases, planning alternative freight routes, making
distribution centers flexible and building inventory. It comes at a
price, but it is an ‘insurance policy’ against future shocks. The
key is investing in new technologies to better use data — from
digital twins and analytics to supply chain control towers — across
the Cloud Continuum, which provides vast computing power in a
cost-effective, flexible and sustainable way.”
The report also highlights two more profound and longer-term
challenges resulting from the pandemic and the war: energy
security, as European economies need to address their heavy
reliance on oil and gas supplies while accelerating their net-zero
agenda; and talent mismatches, as a result of aging populations,
evolving employee expectations, and changes in demand for
skills.
Michael Brueckner, chief strategy officer for Accenture in
Europe, said, “The war in Ukraine will have a significant impact,
increasing the amount and duration of disruptions. The severity
will depend on how the war evolves, but nothing short of
reinvention is required, as a new economic order takes shape amid
an inflationary environment, increased regionalization, the energy
transition, and a tight talent market. Improving energy efficiency
and speeding up the transition to green energy sources will be
critical to achieving security. And the ability to attract, retain,
reskill and upskill people is becoming one of the most pressing
issues this decade.”
Download the full report here: From Disruption to Reinvention –
The future of supply chains in Europe, Accenture
About the research
Accenture’s “From Disruption to Reinvention – The future of
supply chain in Europe,” report is based on research conducted in
collaboration with Oxford Economics. The analysis covers the
Eurozone, which consists of Austria, Belgium, Cyprus, Estonia,
Finland, France, Germany, Greece, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia, and Spain.
The report explores three possible scenarios for how the war
could play out over the coming year, modelling the impact of each
scenario on major European economies. In the first scenario,
sanctions against Russia do not escalate and could even be scaled
back, alleviating supply chain disruptions. Unfortunately, this
controlled impact scenario has elapsed. In the second scenario,
which is the current baseline, commodity supply remains volatile
throughout 2022, which would see commodity prices continue to rise.
In this case, people would cut back on non-essentials and
businesses would prioritize efficiency. In the third, and
worst-case, scenario, the war extends into 2023, which could see a
wider oil and gas embargo on Russia, leading to major supply chain
disruption, inflation hitting 7.8% in 2022, and low consumer
confidence.
About Accenture
Accenture is a global professional services company with leading
capabilities in digital, cloud and security. Combining unmatched
experience and specialized skills across more than 40 industries,
we offer Strategy and Consulting, Technology and Operations
services and Accenture Song—all powered by the world’s largest
network of Advanced Technology and Intelligent Operations centers.
Our 699,000 people deliver on the promise of technology and human
ingenuity every day, serving clients in more than 120 countries. We
embrace the power of change to create value and shared success for
our clients, people, shareholders, partners and communities. Visit
us at accenture.com.
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Francois Luu Accenture +33 1 53 23 68 55
francois.luu@accenture.com
Andy Rowlands Accenture +44 7952 594784
andy.rowlands@accenture.com
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