Giovanni Atti

Master in Purchasing and Supply Management, Dr. Giovanni Atti has worked for over forty years in managerial roles at

Alfaromeo, Unilever, TRW Italy, British Leyland, Siai Marchetti Airplanes and AgustaWestland Helicopters. He has been

President of ADACI for three terms, and Deputy President of the International Federation of Purchasing and Supply

Management. He has published three books: Category Management in the retail and manufacturing industry", “Contract Law

of the People's Republic of China", and “The fourth Industrial revolution: towards the digital supply chain.”

Post Covid-19 strategies to reduce the vulnerability of the Supply Chains

Giovanni Atti

Member of the Board of IFPSM

Member of ADACI Public Procurement Scientific Committee, and R&D Council,

Lecturer in various University Masters

Giovanni Atti -ADACI 1

We have to prepare a relaunch programme:

● to reduce such vulnerability

● to make them more innovative, efficient,

sustainable and competitive

In defining such plan, we have to consider – now more than in the past - the

macroeconomic factors that could impact the continuity of our supplies

Il Covid-19 has underlined the vulnerability of our supply chains


● new geopolitical environment

○ growing forms of trade restriction (new protectionism?)

○ the actual world economic system dominated by a few key players with

different interests and conflicting strategies

fragmentation of multilateral world

○ decoupling USA-China

● in next decade 85% of global growth generated outside Europe

● supply chain shocks will be more frequent and severe,

● sustainability requirements will change the configuration of our products

Macroeconomic

and external

factors that

could impact

our supplies

uncertainty, difficult forecasts and high risks

Overview of types of shocks e their frequency The new normal

total cost of shocks

in 2010: $ 450 bn

Cost of Covid-19

$ 3.6 trillion4.2% of global GDP

Human errors

(blockade of

Suez canal

Giovanni Atti -ADACI4

Post

Covid-19

possible

strategies

Adoption of reshoring /nearshoring strategies


Increase the resilience of our supply chains

Digitalisation and Robotic Process Automation

A mixture of the above options

Adoption of a new operating model

New operating model / improvement of existing one

Better knowledge of supply markets and adoption of:

● effective cross-functional and cross-company collaboration to unlock value creation

cost-reduction – improvement of products and manufacturing processes

● long-term relationship with key suppliers based on trust, visibility and not on

opportunistic negotiations,

● solid data infrastructure and data analysis capability to allow data-driven

decisions,


Resilience strategy has also entered governments’ agenda

Biden has issued an executive order on the American Supply Chains

Resilience - capacity of people:

● to resist, react and recover from a critical event that puts production continuity at

at risk, minimising its effects (bouncing back)

● to maintain a positive attitude, to learn from mistakes and to see them as

an opportunity to improve

Resilience


Increase the resilience of supply chains

Resilience: is not or not only a shock’ therapy but

● the capacity of a system to prevent shocks, minimising their effects

● is the strenghtening of the supply chain

Resilience means: a specific company organisation implying a progressive adaptation

process

a culture

The pandemic has made ‘real’ the need for resilience

positive attitude and self-discipline

control of emotional reactions, responsiveness

flexibility, adaptability to changing environment

Giovanni Atti -ADACI

8

Source: Prof. Elisa Martinelli

University of Modena

Dimensions

of supply

chain

resilience

Resourcefulness: capability to identify and apply different solutions and remedies

Robustness: capacity to cope with critical events without significant damages

Redundancy

dual source even if 2nd supplier is more expensive

safety stocks

back-up device/machine in critical areas

Responsiveness: capacity to react quickly

incremental costs =

insurance premium

Visibility and control systems to quickly detect disruptions

1. Anticipation 2. Coping 3. Adaptation

Preparation, strenghtening

Detection of critical

situations

Stay prepared

Development and

implementation of

adequate remedies

Evaluation of what

happened, its causes and

effects, and introduction

of strenghtening

improvements

Proactive measures

before the

unexpected event

Concurrent actions

during the event

Improvements after the

critical event

Prior

knowledge

base

Elisa Martinelli, adapted from S. Duchek ‘Organisational resilience: a capability-based conceptualisation’ Business Research 2019

The three-stage of the Organisational Resilience Process

Lessons

learned

Improve

the basic

knowledge

Digitalisation and Robotic Process Automation internally and along the supply chain

Enabling technologies improve company’s efficiency and productivity

Suppliers who will not adopt some of them, risk to be excluded from our supply base

Key enabling technologies:

● Advanced manufacturing solutions enabled by cyber-physical systems, robots and cobots

● Simulation enabled by the digital twins

● Additive manufacturing 3D printers

● Augmented reality and virtual reality

● Horizontal and vertical integration connectivity

● Internet of things

● Cloud computing and Cybersecurity

● Big data /data analytics

● Blockchain and AI in next decade we will see their diffusion


They will not disappear, but 51% of tasks automated1 in 10-12 years

25%-30% in countries like Italy2, where micro and small and medium-sized

enterprises (SMEs) are the vast majority of businesses

Activities involving:

● evaluations

● important decisions,

● creativity,

● empathy and

● leadership

always made by humans

Human

intelligence

Procurement tasks and activities

Automation supported by

+ Artificial Intelligence

artificial and human intelligence

complement each other

Transformation of

corporate culture

above hall

Will robotic process automation eliminate human roles in procurement?

1. McKinsey 2017

2. Polimi 2019

Reshoring and Nearshoring strategy

The shortage of medical products during the pandemic

the US-China rivalry for technological sovereignty,

the European strategic autonomy for critical materials,

Joe Biden Executive Order on american supply chains (review of the supply chain of: semiconductors, large capacity batteries,

critical minerals and materials, pharmaceuticals)

have increased attention on reshoring

But until today, except for a few categories, the continuous increase of import volumes

confirms that reshoring has a limited relevance

reshoring volumes are often compensated by additional offshoring


2010 2012 2014 2015 2016 2017 2018 2019 2020

import 245,4 250,1 256,5 295,9 298,9 322,8 342,7 363,0 383,4

export 105,1 132,2 145,1 145,6 153,4 178,8 188,0 198,2 202,6

Balance

(negative)

- 140,3 -117,9 -111.4 -150,4 -145,5 -144,0 -154,7 -164,8 - 180,8

European import of goods from China 2010-2020 in billions of € (Source: Eurostat)

Netherlands: the largest importer from China – Germany the larger exporter




trade n goods

th h na

ource Census Bureau

Possible trend of imports of Westerns Economies from ASIAN LCC

Candidates for reshoring 2019-2030

Semiconductors and critical electronics

components

Low-medium quality textiles/clothing, footware

Advanced communication systems Agriculture products and machinery

Electronic devices and instrumentation Standard mechanical, electrical and electronic

components

Medical equipment and supplies Chemicals, plastic and rubber parts

Automotive critical components Metals, raw materials, rare earth elements

Thin films for solar panels Ordinary machines, tooling and equipment

Advanced machinery and equipment Machined parts, castings and forgings

High quality tooling/machinery Small appliances

Complex machined parts and molds (castings, forgings) Smartphones

Critical raw materials and rare earths Toys and electronic games

Cosmetics and hygienic products Consumables

Goods of Permanent Import


Drivers of

offshoring and

reshoring

Cost of labour differential (wages or salaries)

Annual working hours

Productivity

Cost of materials and industrial electricity

Economies of scale

Specialisation

Economic and political country risks


Or drivers we should

consider before

establishing a

permanent

relationship abroad

Wage convergence USA-China from 1980 to 2020

“The Reshoring Initiative USA”

31 times

4 timesaverage wage

8 times

28 times

56 times

2021: 2.63 times USA/CHINA

2021: 0.612 ÷ 3.931 EU/CHINA

Average annual blue collar wages in US and China $ 2.9.2021

USA $ 35,073 working hours 1,767

San Francisco 43,625

Boston 40,898

Chicago 37,000

Philadelphia 36,940

China $ 13,341 working hours 1,792

Shanghai 17,275

Beijing 16,977

Guangzhou 16,623

Shenzhen 14,904

Average annual wage of Chinese

urban employee $ 17,852

USA production costs:

40% higher than Chinese ones

15% higher than German ones

Reshoring Initiative 2020 Data Report


Bangladesh

Philippines

Hong Kong

India

Indonesia

Korea Rep.

Malaysia

Pakistan

Singapore

Sri Lanka

Taiwan

Vietnam 2,100 h

Morocco

Tunisia

Turkey 2,100 h

Mexico 2,124 h

Belgium 1,481 h

Croatia 1,834 h

Czech R. 1,705 h

Denmark 1,346 h

Estonia 1,654 h

Finland 1,531 h

France 1,402 h

Germany 1,332 h

Greece 1,728 h

Italy 1,559 h

Netherlands 1,399h

Poland 1,766 h

Romania 1,795 h

Spain 1,577 h

UK 1,367 h

Hungary 1,660 h

3.759

0.792

1.123

3.931

0.955

3.112

2.217

2.628

1.409

2.007

2.979

0.942

0.612

1.770

2.472

0.689

0.187

0.325

1.992

0.419

0.555

1.571

0.748

0.216

1.909

0.126

1.466

0,207

0.517

0.367

0.497

0.404

$ 13,341average blue collar

annual wage

average blue collar annual wage $ 2,500

$ 4,342

$ 26,574

$ 5,587

$ 7,408

$ 20,960

$ 9,979

$ 2,888

$ 25,472

$ 1,675

$ 19,554

$ 2,758

$ 6,897

$ 4,896

$ 6,635

$ 5,390

$ 50,149

$ 10,568

$ 14,979

$ 52,442

$ 12,747

$ 41,511

$ 29,579

$ 35,058

$ 18,802

$ 26,774

$ 39,744

$ 12,569

$ 8,159

$ 23,617

$ 32,974

$ 9,187

Sources: Salary Expert,

Salary Explorer, 2021 country

data when available

1 € = $1.185235 2.9.2021

at country level:

at enterprise level:(value added per working hour)

annual revenue

annual working hoursof all personnel

Productivity in OECD countries 2020

(in constant 2010 PPP** U.S. dollars)

From $ 20.31 / working hour Mexico

to $ 102.69 / working hour Ireland

Croatia: $ 35.13/ working hour

Italy: $ 53.46/working hour

Impact of the low

efficiency of Public

Administration


Country GDP

annual working hours of working population

Productivity: added value per working hour

Other offshore

and reshore

drivers

Economies

of scale

Cost reduction of 5%÷ 18%

Specialisation at company/cluster level

high efficiency in manufacturing specific type of products

it can reduce direct production cost by 3%÷ 12%

linked to productivity (high for complex product)

External tax reduction, government subsidies, improved logistic infrastructure

Internal

Technical ec. of scale achieved via technology

Purchasing ec. of scale buying larger quantities at lower price

Financial ec. of scale more favourable borrowing rates

22

Productivity, specialisation and economies of scale are strictly connected

all together can reduce the cost of products by: 15% ÷ 35%

Other offshore

and reshore

drivers

Cost of materials basic price for most commonly used materials is defined by

London Metal Exchange

and is almost the same everywhere

Cost of Industrial electricity 2020 EU $ 0.1524/kwh

US $ 0.0665/kwh 44% of EU cost

China $ 0.0892/kwh 58% of EU cost

Country risk several indicators (global competitiveness index 4.0) – ask your bank/insurance

● economic stability and solvency of banks, level of country GDP and GNP, Debt to GDP ratio, unemployment,

● political government stability, access to information and transparency, terrorism, violence and crime,

regulatory and policy environment, government assistance to business, workforce freedom and mobility,

23

Autore: Giovanni Atti © Adaci Formanagement srl SU -Vietata la riproduzione – 1-4 DICEMBRE 2020

Variation of Chinese cost drivers from 2009 to 2020 of a machined part subcontracted in China

1,5%

22%

10%

22%

4%

16%

23%

Cost drivers

Italian price

Chinese cost

drivers in 2020

Gross margin 10%

Electrical power 3%

Impact spec. assets 5%

Overhead + structural

expenses 20%

Direct and indirectproduction manpower

Direct materials 22%

9%

10%

10%1.5%2.5%

55%of italian

price

40%

Chinese Cost

driver in 2009

77.5%

Cost of Chinese employees

and middle management:

20% lower than the Italian one

Industrial electricity price: gap of 50% almost unchanged

EU-27 $ 0.1524 / KWh 2020China $ 0.0892 / KWh 2020

Direct materials: same price (defined by London Metal exchange)

+ 3% transport costs (possible

increase for future carbon

tax)

+ 4.5% custom duty

+ 0.8% scraps / quality non

compliances

24

of italian

price

25

Spare slides if necessary


1 Vanatu 49.74 very high 86.67 very high 57.32 high 38.81 high 52.42 high 80.73 high

9 Philippines 20.96 very high 42.30 very high 49.55 high 28.97 39.32 medium 80.37 high

13 Bangladesh 16.40 very high 28.28 very high 57.98 medium 33.21 medium 54.91 very high 85.81 very high

43 Vietnam 10.30 high 22.02 very high 46.76 medium 23.88 medium 39.78 medium 76.63 medium

46 Japan 9.44 high 38.67 very high 24.93 very low 17.76 low 17.83 very low 39.20 very low

60 Albania 8.46 high 20.14 very high 42.00 low 20.03 low 30.97 low 74.99 medium

65 Netherlands 7.89 high 31.72 very high 24.87 very low 14.80 very low 17.19 very low 42.63 very low

80 Greece 7.75 high 22.89 very high 31.66 very low 17.15 low 17.04 very low 60.69 low

82 Montenegro 6.93 medium 18.12 high 32.84 low 18.71 low 25.79 low 68.42 low

89 India 6.62 medium 12.51 medium 52.94 high 32.08 high 48.60 high 78.15 high

90 Thailand 6.54 medium 14.81 high 44.13 medium 17.52 low 36.25 medium 78.63 high

100 China 5.84 medium 14.30 medium 40.85 low 20.98 medium 29.50 low 72.07 medium

113 Serbia 5.25 low 13.41 medium 39.17 low 32.01 medium 27.71 low 67.80 low

122 Italy 4.75 low 15.17 high 31.29 very low 17.25 low 17.41 very low 59.22 low

131 Croatia 4.13 low 12.11 low 34.14 low 17.06 low 22.46 very low 62.91 low

141 Slovenia 3.41 low 11.39 low 29.91 very low 14.72 very low 19.27 very low 55.73 very low

162 Germany 2.63 very low 11.52 low 22.81 very low 14.98 very low 16.08 very low 37.36 very low

Country Disaster Risk Index

Rank CountryWorld Risk

IndexExposure Vulnerability Susceptibility

Lack of copingcapacities

Lack of adaptingcapacities

181 countries classified

Giovanni Atti -ADACI27

Source: Reshoring Initiative 2020 Data Report

In 10-year reshoring

US recovered 500.000 Jobs

Global Competitiveness Index 4.0 Rankings 2019

Rank Economy score Rank Economy score Rank Economy score

1. Singapore 84.8 17. Norvegia 78.1 33. Chile 70.5

2. USA 83.7 18. Luxemburg 77.0 34. Portugal 70.4

3. Hong Kong 83.1 19. New Zealand 76.7 35. Slovenia 70.2

4. Netherlands 82,4 20. Israel 76.7 36. Saudi Arabia 70.0

5. Switzerland 82.3 21. Austria 76.6 37. Poland 68.9

6. Japan 82.3 22. Belgium 76.4 38. Malta 68.5

7. Germany 81.8 23. Spain 75.3 39. Lithuania 68.4

8. Sweden 81.2 24. Ireland 75.1 40. Thailand 68.1

9. UK 81.2 25. UAE 75.0 41. Latvia 67.0

10. Denmark 81.2 26. Iceland 74.7 42. Slovak Rep. 66.8

11. Finland 80.2 27. Malaysia 74.6 43. Russian Fed 66.7

12. Taiwan China 80.2 28. China 73.9 44. Cyprus 66.4

13. Korea Rep. 79.6 29. Qatar 72.9 45. Bahrain 65.4

14. Canada 79.6 30. Italy 71.5 46. Kuwait 65.1

15. France 78.8 31. Estonia 70.9 47. Hungary 65.1

16. Australia 78.7 32. Czech Rep. 70.9 63. Croatia 61.9

World Economic Forum

Davos Switzerland

Covering 141 economies,

it measures the national

competitiveness

a set of institutions,

policies and factors that

determine the level of

productivity

Score: from 84.8 to 35.1

Croatia: 61.9

Country productivity also

kinked with


Overview of the evolution of outsourcing practices

Industrial

Autarchy

or

Manufacturing

self-sufficiency

1966-1980

Tactical

outsourcing

mainly

domestic

1980-2010

Strategic

offshore

outsourcing

2010-2018

Beginning

of

reshoring

practices

2019-2020

Covid-19 Pandemiclockdown

shortage of essentialgoods

2021-2030

USA-China

Decoupling

Regionalisation

& National

Autonomy for

essential and

critical materials

1945-1965


Drivers of outsourcing evolution:

● microeconomic factors: price, know how, specialisation

Industrial

Autarchy

or

Manufacturing

self-sufficiency

1966-1980

Tactical

outsourcing

mainly

domestic

1980-2010

Strategic

offshore

outsourcing

2010-2018

Beginning

of

reshoring

practices

2019-2020

Covid-19 Pandemiclockdown

shortage of

essential

goods

2021-2030

USA-China

Decoupling

Trade

Regionalisation

1945-1965

● macroeconomic & geopolitical factors /events economic crisis, exogenous shocks, nationalautonomy on essential/critical goods

1995

Liberal international order favoured by Reagan & Tatcher

Renaissance of geopoliticsSlowbalisation

Several key players

with conflicting strategies

Globalisation

End of globalization? No!

But the trend of regionalisation / national production of essential or

technologically advanced goods and critical materials continues

In some industry h ‘tipping i ’ beyond which the manufacturing location becomes and invariant is very closed

from that moment companies will produce locally to reduce lead times and risks

31

World Investment Report 2020- UNCTAD

Essential and technologically

advanced goods:

pharmaceuticals, medical devices

semiconductors, solar cells

List of critical materialsinclusive of rare earths

High dependence from one-two

countries

33

Country Productivity: Gross Domestic Product (GDP) per working hour (OECD countries 2020)

(in constant 2010 PPP** U.S. dollars) Organisation for Economic Co-operation and development

Ireland 102.69 Luxembourg 94.75

Norway 84,25 Denmark 74.97

Switzerland 74.44 Belgium 72.00

US 71.78 Sweden 69.91

Austria 68.63 Netherlands 67.63

France 67.52 Germany 66.36

Icelands 64.11 Finland 61.51

UK 58.38 Australia 55.05

OECD total 54.53 Italy 53.46

Canada 52.68 Spain 52.51

Japan 46.78 Turkey 45.38

Slovenia 45.35 Slovakia 43.83

Lithuania 42.83 Israel 42.26

Czech Republic 42.02 New Zealand 41.71

Poland 41.12 Estonia 40.98

Korea 40.49 Portugal 40.07

Hungary 38.06 Latvia 37.13

Croatia 35.13 Greece 33.88

Romania 33.85 Chile 27.09

Russia 26.45 Bulgaria 26.02

Costa Rica 21.86 Mexico 20.31

South Africa 19.94

Productivity of Croatia

$ 35.13/hour


34

Average annual and weekly hours worked in 2020 (OECD.Stat July 2021)

Country h/year h/week Country h/year h/week

Australia 1683 35.7 Luxembourg 1427 37.3

Austria 1400 35.5 Mexico 2124 44.7

Belgium 1481 35.5 Netherlands 1399 29.5

Canada 1644 - New Zealand 1739 37.8

Chile 1825 42.9 Norway 1639 33.6

Colombia 2172 47.6 Poland 1766 39.6

Costa Rica 1913 43.9 Portugal 1613 39.3

Czech Republic 1705 39.3 Slovak Republic 1572 39.2

Denmark 1346 32.5 Slovenia 1515 39.3

Estonia 1654 37.9 Spain 1577 36.4

Finland 1531 36.3 Sweden 1424 36.0

France 1402 36.5 Switzerland 1495 34.6

Germany 1322 34.3 Turkey - 45.6

Greece 1728 38.7 United Kingdom 1367 36.3

Hungary 1660 39.3 United Staes 1767 38.7

Iceland 1435 39.7 OECD countries 1687 37.0

Ireland 1746 35.6

Israel 1783 40.6

Italy 1559 35.5

Japan 1598 -

Korea 1908 -

Latvia 1577 38.9

Lithuania 1595 39.0

Δ 850 h

Annual working hours

EU 1,332 ÷ 1,766 (Δ 434 h)

OECD 1,332 ÷ 2,172 (Δ 850 h)


1 € = $1.20 2 .11.2020

na

€ 0 12

ermany € 0 1 8

ta y € 0 152

rance € 0 11

enmark € 0.0 1

€ 0.1

ectr c ty r ces per k h in ustria use


Documents

Giovanni Atti