Reimagining industrial supply chains

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For organizations that understand the vulnerabilities in industrial supply chains, there is an opportunity to prepare for future shocks and build resilience without hurting efficiency.

In recent months, structural supply-chain fragility has been catapulted to the top of the news cycle as the ongoing repercussions of the COVID-19 pandemic echo around the world. Government-imposed orders to stay at home, international and domestic travel restrictions, and the need for physical distancing have stretched supply chains and laid bare the key bottlenecks in products’ value chains. Shortages have occurred in areas ranging from basic grocery items to electronic components.

The current pandemic is the type of event that is only likely to occur once in a lifetime. In recent years, however, supply-chain risk management has become more of a pressing issue for CEOs across industries. Vulnerabilities have been exposed by trade tensions, natural disasters, and other geo-economic disruptions.

The complexity of global industrial supply chains exponentially increases their risk. On average, an auto manufacturer has around 250 tier-one suppliers, but the number proliferates to 18,000 across the full value chain. Aerospace manufacturers have an average of 200 tier-one suppliers and 12,000 across all tiers. Finally, technology companies have an average of 125 suppliers in their tier-one group and more than 7,000 across all tiers.

Companies that cannot successfully manage those complex and, at times, opaque supply chains are at high risk, especially if they cannot mitigate the risk of increasing disruptions. Even a short disruption of 30 days or fewer can put 3 to 5 percent of EBITDA margin at stake. Recent research from the McKinsey Global Institute (MGI) has found that as much as 45 percent of one year’s EBITDA1 can be lost each decade because of disruptions.

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The complete guide to Freemium business models

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The idea of offering your product or a version of it for free has been a source of much debate.

Pricing is always tricky. Unfortunately, many entrepreneurs don’t give it enough thought. They will often copy the pricing strategy of similar products, base their decisions on pompous statements made by “experts” or rely on broken rationale (we worked hard so we should charge $X).

Free is even trickier and with so many opinions about it, we thought it would be refreshing to take a critical approach and dive deep into why some companies are very successful at employing the model while other companies fail. We’ve looked into economics academic papers, behavioral psychology books and strategies that worked for companies to come up with the key concepts below.

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