Supply chains must become much more resilient

Though the dust is set­tling, and sup­ply chains have been strength­ened after the pan­demic’s ini­tial impact, busi­ness­es are still suf­fer­ing the after­shocks. With short­ages and price hikes for raw mate­ri­als hit­ting cer­tain sec­tors, busi­ness­es are rewrit­ing their sourc­ing strate­gies and chang­ing course to increase the resilience of their sup­ply chains.

Effi­cient cost man­age­ment has always been an essen­tial part of busi­ness and as com­pa­ny mar­gins con­tin­ue to be squeezed, it will be crit­i­cal. But the appeal of far-shored, inex­pen­sive sup­pli­ers has waned as a result of recent dis­rup­tions, and busi­ness­es have learnt the hard way there is more to good sup­ply chain man­age­ment than just price.

We’re see­ing an accel­er­at­ed inter­est towards source-for-resilience mod­els and away from a source-for-cost approach, as busi­ness­es rethink what true val­ue in the sup­ply chain means for them.

What makes a supply chain resilient?

So, what makes sup­ply chains resilient? A focus on sus­tain­abil­i­ty is cru­cial. This does not mean tra­di­tion­al green ini­tia­tives, although these are key condier­a­tions as con­sumers and busi­ness­es make efforts to com­bat the effects of cli­mate change. What I real­ly mean is con­duct­ing busi­ness in a more respon­si­ble, eth­i­cal man­ner, espe­cial­ly towards sup­pli­ers, by pay­ing on time or offer­ing sup­port when need­ed.

I’m glad to say there have been many pos­i­tive exam­ples in recent  months with large cor­po­ra­tions pay­ing not only prompt­ly, but pri­ori­tis­ing small and medi­um-sized enter­pris­es or help­ing them find new mar­kets for their goods.

Our sur­vey this month found that almost a third of com­pa­nies were paid more quick­ly dur­ing the pan­dem­ic, inject­ing more sta­bil­i­ty into sup­ply chains. I hope this trend gains momen­tum as there’s still a long way to go to bring equi­ty to busi­ness trans­ac­tions.

Cur­rent pro­pos­als being con­sid­ered to strength­en the government’s Prompt Pay­ment Code (designed to stamp out late pay­ments) shows eth­i­cal treat­ment of sup­pli­ers hasn’t been ful­ly accept­ed across all busi­ness­es.

Your crit­i­cal sup­pli­ers must be pro­tect­ed because if they fail, you fail. Eth­i­cal sup­ply chain man­age­ment just makes good busi­ness sense.

How diverse is your supply chain?

Anoth­er ques­tion busi­ness­es should be ask­ing them­selves is around the diver­si­ty of their sup­ply chains. Almost 30 per cent of com­pa­nies we sur­veyed had reshored some of their sup­ply chain, reduc­ing the length and com­plex­i­ty of their oper­a­tions. This won’t work for every­one, but short­er sup­ply chains can bring increased sus­tain­abil­i­ty and resilience.

Greater use of local pro­duc­er means goods trav­el short­er dis­tances, cut­ting emis­sions and reduc­ing the num­ber of dis­rup­tions. Local economies also ben­e­fit and, though each busi­ness’s cir­cum­stances are dif­fer­ent, it is an approach that can bring ben­e­fits for busi­ness and local com­mu­ni­ty alike. Add mul­ti­ple sourc­ing strate­gies to increase the capa­bil­i­ty of mov­ing between sup­pli­ers and sup­ply chains are stronger still.

We mustn’t for­get that tech plays a cru­cial part. Busi­ness­es should focus on map­ping mul­ti­ple tiers with­in their sup­ply chains, grad­ing by risk and hav­ing basic auto­mat­ed process­es in place to increase trans­paren­cy across the whole oper­a­tion. Not hav­ing this vis­i­bil­i­ty is a threat to strong sup­ply chains.

Solu­tions such as arti­fi­cial intel­li­gence can help make sourc­ing deci­sions and there are rewards to com­pa­nies from using data more effi­cient­ly.

As the UK econ­o­my crawls towards recov­ery, I believe resilience, dri­ven by sus­tain­abil­i­ty and respon­si­ble prac­tice, is a key dri­ver in recov­ery. Our research found 17 per cent of com­pa­nies had already built more resilience into their sup­ply chains, pro­pelled by the impacts of the pan­dem­ic. Add to this the threat of dis­rup­tion from Brex­it, the num­ber of busi­ness­es with resilient sup­ply chains should be a lot high­er.