Market Updates | 28th October 2021
The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.
Supply chain shocks: What impact will they have on demand for consulting?
Increasingly, the clients we speak to as part of our on-going research see themselves as living in an age of crisis, where the future will be marked by the need to take rapid action in the face of sudden, serious threats. Nowhere has this been better illustrated than by the recent queues at UK petrol (gas) stations, when small increases in demand from jittery consumers collided with small decreases in supply in a hitherto predictable and just-in-time system that had virtually no margin for dealing with sudden change. Other examples—the number of container ships waiting to disgorge their cargo outside ports around the world, for instance—are revealing fragile supply chains and threatening economic recovery.
Research we’ve published over the last few months has consistently shown that, alongside rethinking risk, reviewing their supply chain is one of clients’ top priorities at the moment. It’s the third most important issue among clients in China and South East Asia, the second in the Nordics, and the number one issue in the Gulf region and the all-important US market—which generates more than 40% of all consulting and professional services work. Clients in different parts of the world have different priorities at the operational level: In COVID-ravaged Africa and South America, companies have been running down their inventories; continental European manufacturing clients are more concerned about how their geographic footprint may need to change in response to rising trade barriers; in the UK, well before the petrol-pump crisis, there have been concerns about supplier resilience and the need to identify a new, diverse range of partners. All of these issues come together in the US, where a robust economic recovery is encouraging clients to see these issues for what they really are—indictments of too great a reliance on just-in-time delivery.
But how will this affect the market for supply chain management consulting? The answer isn’t straightforward. Out of the US$181bn consulting market in 2020, just 2% of work was supply chain-related. But supply chain work sits inside a much bigger segment of the market—operational consulting—which is worth around US$27bn, and plays a pivotal role in creating opportunities for other, downstream work in technology, data & analytics, etc. The supply chain management consulting market grew by 14% in 2020, significantly ahead of the overall and operational consulting markets, as clients sought assistance in everything from finding new suppliers of raw materials to rapidly increasing capacity for home delivery to consumers. When a consulting market grows suddenly and rapidly, typically in response to some type of external pressure, there’s usually a period of post-crisis consolidation: Clients don’t want to keep increasing expenditure at the same, heady rate, and are keen to start deploying their own staff to do at least some of the work. And we can see this coming through in our own numbers: Recent research has indicated that the proportion of clients who expect to use less supply chain management consulting exceed those that say they’ll use more. Our forecast for this year—a much more modest 6% growth—takes this into account.
In an environment in which renewed uncertainty is combined with high spending in the recent past, there will be pressure to cut back on future use of external support. Moreover, supply chain issues and secondary impacts—for example, rising energy costs—may reduce clients’ ability to meet consumer demand and, consequently, their profits, leaving less money to invest in consulting support.
But there are four countervailing factors. As noted above, supply chain management work rarely takes place in isolation, and there’s still plenty of post-crisis restructuring client organisations need to undertake that will require changes to supply chains. A second issue is the complexity of those just-in-time systems: Understanding not only potential bottlenecks but the impact the later could have on other crucial processes requires highly specialised knowledge and analytics. Clients were short of these skills during the crisis and the subsequent worldwide labour shortage will have made it nigh-on impossible to recruit these skillsets. Third is the impact of a different set of ESG-related threats: Global supply chains have a significant environmental impact and can trigger reputational damage where suppliers are found to employ in conditions of effective slavery. Finally, there’s the urgency with which all these problems will need to be addressed: Speed, clients keep telling us, is of the essence, with delays potentially costing billions in lost revenue and customers.
On balance, then, we think that supply chain shocks, while they may give clients pause for thought before commissioning a large-scale transformation, will drive further, higher growth in supply chain management consulting over the next 1-2 years.