Turn and face the change
05 April 2021
Consultant Phil Reuben explains why a dynamic supply chain is essential in 2021.
Whether it’s Brexit, COVID, or the ensuing EU and various international trade tensions, all of these events have impacted the supply chain activities of both medium and large UK companies – and the list of challenges seems to grow as the days and weeks roll on.
Interestingly, some sectors have benefitted from this global chaos but most have benefitted more due to luck, than design. Take the example of supermarkets and takeaways, over the months of lockdown consumers demanded at-home grocery deliveries and hot food to their doors and this has been a change that has, for the majority, suited these businesses. On the other side of this sector, restaurants and pubs have struggled with forced closures and have had to vastly shift their model in order to offer takeout options and remain afloat.
With the turbulence of the past year, one message is clearer than them all – the businesses that may prosper today, may well be, for some unpredictable reason, amongst those who will suffer the greatest when the next ‘big event’ happens. This means that all businesses should be paying close attention to their supply chain strategies, adapting them if necessary, so they can be in a stronger position to respond to that next big event.
So how does one go about adapting supply chain operations and strategies to protect and even take advantage of local, national and global events? And what must businesses remember when adapting their supply chains?
Hard to prepare
The first thing to note is that it is impossible to protect against every eventuality.
For example, ocean freight has seen enormous increases in recent weeks, with the cost of bringing containers from the Far East to the UK particularly badly hit. Depending on the value of the cargo, this can have a potentially catastrophic impact on margins and right now the future is unpredictable.
Businesses may want to make supply chain changes that protect themselves from a given eventuality. But, it is important to remember that some changes made may not always benefit the future event. However, this does not mean that massive efforts should not be made to cost-effectively redesign an operation to provide the best chance of survival and prosperity.
Whilst we all hope for stability and surety, it seems that the modern world will not allow it and therefore we need to mitigate the risk and deliver a dynamic and diverse supply chain.
A recent study from the US reported that President Biden wanted to be self-sufficient as a nation and an example provided was that the US should have on-shore manufacturing capability to produce whatever PPE might be required to cope with any future pandemic.
Of course, this must also mean having on-shore availability of all constituent materials. Realistically, there are very few countries that have the scale and infrastructure to take this approach but, even for the US, one would have to ask whether enabling production capacity for a one in a hundred-year event, is really sustainable or practical.
So, for most of the world, the answer may not be self-sufficiency but diversification.
From an inbound supply chain perspective, the pre-requisite is to understand the supply chain. This can be challenging, with many companies having only limited visibility of their supply chain. All companies know exactly who supplies their products and components but relatively few understand the origin of their suppliers’ purchases and fewer still have knowledge of suppliers further back in the supply chain.
Once there is an understanding of the entire supply chain, the next step is to ensure that businesses do not rely on one, or a small number, of suppliers. Reviewing how the business relies on one particular region, country or continent must be acknowledged.
For a business to diversify its supply chain and reduce the potential impact of the next major challenge, individually shifting different parts of the chain can be money well spent in the long term. This can be approached by weighing up the potential cost of the changes with the assessed risk of the future scenario.
From an outbound supply chain perspective, the objectives are similar but almost certainly do not present the same challenges in terms of knowing the ultimate destination of products.
The key to success is to gain an understanding of the present – how does the supply chain work? The next stage is to carry out a risk analysis to identify priorities. If in-house time or capability is inadequate for this task, an expert consultancy can be brought on board to get this part of the task done. The next stage, the diversification of the supply and customer base, is far more likely to be an in-house activity for most businesses.
So, with this in mind, who does diversification apply to?
Going back to the start of this article and the reference to the suffering of restaurants and the success of takeaways, this scenario doesn’t neatly fall into the scenarios mentioned above. However, one could argue that had restaurants had their takeaway offering ready, relationships with delivery services already established and advertising ready to go – perhaps a somewhat tall order – some may have fared significantly better than they did.
It is plausible to suggest that had diversification been on the agenda beforehand, many of these businesses could have prepared their supply chains – but hindsight is a wonderful thing!
Instead, in the context of this piece, diversification relates more appropriately to manufacturers and retailers. Major challenges they have recently faced, and to a greater or lesser degree continue to face, have included:
- Covid: China’s manufacturing base recovered relatively quickly after the pandemic, but there were shortages in numerous product categories. Had China suffered in the same way we have, here in the UK, supply shortages could have been on a very much greater scale.
- Brexit: As we all know, the UK secured a Brexit deal at the end of 2020. Despite this, there have been many issues surrounding importing and exporting products across the channel and to Northern Ireland. However, whilst the issues have been undeniable, it is plausible to say that the potential consequences could have been much worse for businesses and their supply chains.
- The Uighurs in China: Pressure is now growing on manufacturers to ensure that they do not use products or materials manufactured by Uighurs in labour camps. The challenge is ascertaining whether raw materials for example cotton, which are at the very bottom of the chain in the fashion industry, come from the East of China. Further pressure may come from the UK public but in the short-term, pressures are more likely to come from leading brands.
One suspects that this is just the start with ethical, legal and environmental requirements becoming increasingly important.
These are just some of the major challenges of 2020 and many are continuing to impact 2021. Whilst we all hope for stability and surety, it seems that the modern world will not allow it and therefore, mitigating risk and delivering a dynamic and diverse supply chain, must be the priority of businesses across the globe.
So, finally, how can businesses take steps now to ensure that they are as prepared as they can be, for any future event?
Whilst diversification may require businesses to shift their supply chain strategies, this should not be done at the expense of pre-existing strong relationships with suppliers. It is essential that businesses now develop and maintain the close cooperation and strong relationships with old and new suppliers and, indeed, customers.
Furthermore, should diversification become a longer-term aspiration, on the basis that it can take considerable time to achieve, relationships with existing suppliers become more important than ever.
In addition to addressing suppliers and customers with a view to enhancing sustainability,
adverse impacts on business can also come from issues much closer to home. These issues can include transportation or routing, warehousing issues, computer system failures or availability of staff. Failure in one or more of these aspects may present a major or even existential risk to the company.
Product lead-times and inventory policy can clearly be crucial in terms of achieving flexibility of supply volumes. Too much stock can be costly and produce a potential risk of obsolescence, too little stock has the opposite risks. Therefore, warehousing policy could be crucial in terms of number, size and geography of locations.
In 2020 there was a massive shift to ecommerce requiring some warehouses to fundamentally change the way they operated. Systems failure and lack or failure of back-up are perhaps less so a risk based on technology failure but more so based on criminal behaviour by those looking for financial gain or just seeking to show how clever they are.
Therefore, businesses should now be playing close attention to their warehousing space, locations and security, to analyse these potential risks and whether changes are needed.
In summary, diversity up and down the supply chain is crucial in the uncertain world of 2021 and beyond. Attempts can and must be made to mitigate the known and unknown risks that lie ahead, but assessment of the supply chain must also incorporate issues closer to home. Assessing issues such as customer and consumer pressures, and those parts of the operation which, due to the very fact of their proximity and relative ease of control, can often, be taken for granted, should be immediate priorities.
Uncertainty and change seem to be key buzzwords which describe the world of today and tomorrow. More than ever before, it is crucial that companies react quickly in response to unforeseen events. The key however is to have the building blocks in place to be as prepared as possible to react to whatever may be thrown at us.
Phil Reuben, executive director, SCALA
For more information, visit www.scalagroup.co.uk