Member Article

Under pressure: Why flexible and resilient supply chains are more important than ever in order to meet economic challenges

Calum Lewis is Founder and Principal Consultant of OP2MA

The pandemic has forced companies to realise that globalisation needs better more resilient supply chains, which is a development that industrial insurers and risk consultants can only welcome.

The extent to which supply chains came under pressure during the pandemic is illustrated by the situation faced by the automotive sector. Due to a lack of semiconductors, many carmakers were threatened with production stoppages, delays in deliveries and measures such as short-time working. There were no short-term supply alternatives, and many manufacturers had to cut production. This was a blow to an already hard-hit industry.

Similarly, the ‘pingdemic’ which could be described as a short-term issue that is exposing a long-term problem, has taken its toll on the country. Many workers have found themselves being told to isolate, meaning they cannot enter the workplace. As a result, food supply chains are starting to fail, with many of the major supermarkets experiencing gaps on their shelves. MPs and industry leaders urged the government to ease the growing crisis by including supermarket staff, lorry drivers and other frontline workers on a list of those exempted from automatic self-isolation.

However, even before the “pingdemic”, Lorry drivers were already in short supply, with the Road Haulage Association estimating a shortfall of about 60,000, caused in part by cancelled driving tests.

Also, container haulage driver shortages are the result of a combination of shipping lines forcing hauliers to accept sky-high rates and the sale of driver services as a product you can buy off a ‘haulage supermarket’ shelf. Driver pay has been kept low through supply and demand mechanics that are beneficial to large haulage companies, the shipping lines and their customers. Part of the justification for this came from there having “always been a lot of capacity”, leading to competition on rates.

This perception has radically changed over the years, particularly with the twin shocks of Brexit and the pandemic, the latter causing heightened demand from supermarkets for drivers, leading to the “supply and demand balance altering” in truckers’ favour. There’s not one fix to driver shortages, but on the financial side, reviewing driver pay and improving conditions is a good first step.

Other factors impacting supply chain

COVID-19 has shown the vulnerability of various sectors which has increased social awareness and activism and has challenged companies to rethink the fundamental ways in which they operate. The UK is experiencing trends that are impacting supply chains. Even if parts of the economy recover to previous levels over the coming months, certain segments and sectors will struggle to get back to previous levels post pandemic.

The rise of economic nationalism and the future relationship with China has meant that perceptions have shifted on globalism and international trade. The United States may take a harder line on China and China may not cooperate with an international inquiry into COVID-19. Over the next few years we are likely to see existing reliance on China start to wane, particularly impacting companies who rely on Chinese production of their components or products.

The increasing levels of inequality in the western world will come under more scrutiny, which will be amplified by perceptions of the economic recovery from COVID-19. Supply chains that are built on cheap temporary labour, offshoring, and zero hours contracts will become targets for public and legislative scrutiny.

How are supply chains impacted by these issues?

The most effective companies have invested in digital champions that have used technology to drive performance which helps to drive performance across supply chain. Through concise mapping of goods flows, they can identify any weak links in the supply chain. Although it is difficult to predict any future trade deals, if companies want to be in a prime position to take advantage of any opportunities that may arise, they need to understand the flow of products in their supply chain and have alternatives available if something goes wrong.

In 2020, more than 50 ships per day on average passed through the 120-mile long Suez waterway, accounting for around 12% of global trade. Improving visibility across supply chain is crucial and due to these increasing levels of uncertainty, visibility is a number one requirement in order to manage goods flow effectively.

Having a clear view of the location and status of inventory, the movement of stock and a view of demand is a basic requirement. Brexit, coupled with the pandemic has meant that there have been significant changes to the way companies do business. With these significant changes companies need to look at implementing plans before significant headwinds can impact supply chain function. There is an opportunity for supply chains to be drivers of positive change in companies rather than a service function and the only way companies can respond to economic challenges is if they implement a supply chain that is flexible and responsive.

This was posted in Bdaily's Members' News section by Anna Boyce .