In our everyday operations, we speak to hundreds of business leaders about the challenges facing them both during the Coronavirus pandemic and as they begin to make plans for when we emerge from the crisis. A core theme we are hearing is that the COVID-19 outbreak will have a lasting outcome on their supply chains, with many analysing anew the risk management processes, resilience and agility of their businesses.
As a recent estimate from Bain & Co indicates, while most business closely monitor their tier 1 suppliers, up to 60% of executives have little to no grasp on the locations and relationships in their supply chain beyond the tier 1 level.
One thing is clear, when the pandemic is finally over, we still cannot expect business as usual.
Over many years, supply chain professionals have had a primary focus on reducing cost and prioritising profitability which has driven the increase in globalisation of supply chains and in particular, for many manufacturers, a significantly increased reliance on China and other low-cost territories.
With so many businesses disrupted if not crippled very quickly by restrictions and delays on international movement of raw materials and components, businesses are starting to ask questions about the cost benefits of their reliance on a global vs more local supply networks.
One very high profile example of the disruption and risk of having an “all-your-eggs-in-one-basket approach” to supply chain has been the manufacture and distribution of PPE for medical and care professionals during the crisis. I think few of us were aware that the majority of the world’s face masks were manufactured in China prior to the onset of the crisis.
What we have seen in response to this should actually be very encouraging for the future of UK manufacturing; many UK based companies have adapted their processes and operations speedily to fill the gap in the supply of critical equipment whether it is the National Composites Centre turning their hand to face shield manufacture or the High Value Catapult Ventilator Challenge.
The UK is proving that its heritage of innovation and adaptability is still going strong, perhaps giving more businesses confidence in considering a supply chain localisation strategy.
While localisation of supply chains has the potential to increase manufacturing costs and consumer prices, it does offer some wider-reaching benefits such as increasing employment opportunities and increasing tax revenues for HMRC which will be much needed as we come out of the crisis. It could also offer manufacturers tighter control of supplier standards leading to better product quality and higher levels of customer satisfaction.
It’s also easy to forget in the turbulence of the pandemic that most companies have been seeking ways to reduce their carbon footprint and localisation could be the answer to this with goods and components having far shorter distances to travel.
It is not reasonable to expect that fully localised supply chains will be able to meet all of the needs of a business, but shifting the balance away from globalisation could well provide security, environmental benefits, improve job prospects, grow skills and increase resilience in these times of global uncertainty even helping the UK economy spread away from service industries and back towards manufacturing.
Putting it into practice…
Further investment in and utilisation of automation, IOT and intelligent technologies will, to a certain extent, support a more even playing field for UK suppliers, helping to reduce the labour cost content when considering low cost country sourcing v localisation. Working with banks and OEMs to release investment funds and build partnerships will be critical as we move out of the present situation. The focus for most companies understandably is survival but a long term plan and strategy is required to release the full capability of the UK manufacturing supply chain.
The great news is that the skills required to remodel supply chains exist in the UK today. Many of the highly experienced professionals who were responsible for driving low cost sourcing and globalisation can switch those skills to look at how more local businesses, including SMEs and start-ups can supply directly to OEMs.
The first stage is getting a strategy together and with many business leaders so busy managing the current challenges, it could be the perfect time to consider taking on an interim specialist who understands the market and can really add value.
Now is a good time to make use of your networks and to seek out opportunities for collaborations with more local suppliers.
One thing is for certain, business as we know it has changed and now more than ever supply chains need to adapt to survive.
Get in touch
If you want to discuss further how Jonathan Lee can support your business through supply chain evolution, please get in contact with me.
Simon Roberts, Associate Director