Supply chain is fastest-growing investment priority this year

Supply chain is the area of investment that has increased the most compared to last year, according to recent global research by consulting firm Capgemini. 63 per cent of CEOs say they will increase investment in supply chain in 2025, compared to 48 per cent in 2024. These investments mainly focus on the use of AI and the Internet of Things (IoT), with the aim of increasing efficiency. Investments in sustainability CEOs want to increase by 10 percentage points; innovation, customer experience and manufacturing follow with 7, 6 and 4 percentage points, respectively. Investments in training and real estate decrease by 1 and 4 percentage points, respectively.

Companies clearly face significant uncertainties in the global economy, according to Capgemini, and this is likely to continue in the year ahead. Shifts in policy, technological advances, protectionism and the green transition are both accelerating growth and hindering it.

For this annual survey, the consultancy questioned 2,500 senior executives from 17 countries across nine industries. In the current uncertain market environment, 56 per cent of companies expect to prioritise cost reduction over revenue growth in 2025. Despite the need to control costs, 50 per cent of organisations plan to increase overall investment this year to improve efficiency and long-term competitiveness.

Geopolitical factors

Capgemini advises companies to focus on building resilient and flexible supply chains. CEOs will need to build that resilience into their supply chains and optimise operations to improve competitiveness and productivity, reduce costs and increase efficiency.

Regardless of the intention to reduce risks or diversify supply chains, every executive should conduct a strategic assessment of the geopolitical factors affecting their company’s prospects. For example, it is crucial for companies to consider market access and political relations between countries, country stability and security, and trade policies and tariffs.

Previous Capgemini research has already shown that more executives recognise the impact of geopolitics on their business and acknowledge that globalisation is not the only path to growth. Bringing production and manufacturing closer to the domestic market can have benefits in terms of sustainability, cost and resilience.

A key challenge for CEOs is the need to launch reshoring, nearshoring or friendshoring initiatives while preserving existing supply chains and supporting their transformation without negatively impacting products and customers. To increase the agility of supply chains, executives need to use technologies that share real-time data and improve decision-making, with agility and scalability as key critical performance indicators (KPIs).

Risk nearshoring

Capgemini warns that nearshoring or friendshoring can disrupt supply chains. This strategy also involves complex logistics and high costs, such as for establishing new relationships with suppliers, setting up local supply chains and adjusting inventory management. CEOs should focus on collaboration across industries to share resources and solutions, including nearby suppliers.

Expanding the collaborative ecosystem includes not only domestic suppliers, but also suppliers that are close by. Partnerships provide access to key raw materials, such as batteries, semiconductors and medicines. The shift to advanced manufacturing, especially in circular business models, requires new supply chains and collaboration with regulators and governments to sustain and expand local economies.

Digital transformation

Capgemini’s research clearly shows that the technology gap between the US and Europe is widest among medium-sized organisations. European CEOs of mid-sized companies need to harness data and digital technologies, such as AI, digital twin, cloud and IoT, to drive innovation. Investing more in technology is crucial to accelerate Europe’s digital transformation and increase competitiveness, according to Capgemini, as concluded in former ECB director Mario Draghi’s recent reports for the European Commission.

According to Capgemini, companies should additionally embrace these technologies and enter into strategic partnerships with technology providers to improve domestic production or displaced manufacturing capacity. Furthermore, upskilling and hiring key skills in data analytics, digital supply chain twins, AI and Machine Learning and robotics are necessary.

Medium-sized companies in Europe should also prioritise investment in climate technology solutions that can help reduce emissions and increase the resilience of supply chains, according to the consultancy. Examples of climate technology include renewable energy, CO2 storage, biofuels, low-carbon hydrogen and engineering biology.