Accenture: Supply Chain Disruptions Could Cost European Economies Up to €920B in GDP by 2023
June 1, 2022
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.”
