giovanni atti
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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
Giovanni Atti -ADACI 2
● 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
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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,
Giovanni Atti -ADACI 6
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
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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
Giovanni Atti -ADACI 11
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
Giovanni Atti -ADACI 13
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
Giovanni Atti -ADACI 14
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Giovanni Atti -ADACI 16
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
Giovanni Atti -ADACI 17
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
Giovanni Atti -ADACI 18
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
Giovanni Atti -ADACI 19
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
Giovanni Atti -ADACI 21
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
Giovanni Atti -ADACI 26
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
Giovanni Atti -ADACI 29
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
Giovanni Atti -ADACI 30
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
Giovanni Atti -ADACI
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)
Giovanni Atti -ADACI
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
Giovanni Atti -ADACI 35
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