Navigating supply chain disruption

Inside the walls of his home-cum-office in south west Lon­don, Alex Stew­art held his head in his hands and pre­pared for the worst. Less than a year after launch­ing his eco-friend­ly trav­el goods brand, OneNine5, the entre­pre­neur watched on in despair as glob­al trav­el shud­dered to a halt fol­low­ing the out­break of Covid-19 at the start of 2020.

Almost overnight, the brand’s dai­ly sales dropped to sin­gle dig­its as air­lines were ground­ed and mil­lions of peo­ple across the globe were ordered to stay at home for lengthy lock­downs. For much of the next 12 months, Stew­art was forced to sit tight and hope the storm would pass in time for his fledg­ling brand to sur­vive.

As lock­downs lift­ed and trav­el resumed, so too did sales, but anoth­er storm has duly fol­lowed. In August, OneNine5’s fac­to­ry in Shang­hai was forced to close because of a rise in Covid-19 cas­es. Freight costs from Chi­na to Felixs­towe then tripled from £1,200 to £3,500. Elec­tric­i­ty short­ages in Chi­na have also lim­it­ed the factory’s out­put and caused man­u­fac­tur­ing lead times to rise from 30 days to at least 50–60.

The brand now faces stock short­ages over the Christ­mas peri­od, just as orders have start­ed to roll in. It isn’t alone. Short­ages of con­struc­tion mate­ri­als, sil­i­con chips and food prod­ucts have caused mas­sive dis­rup­tion to cru­cial indus­tries. It’s why an increas­ing num­ber of com­pa­nies are imple­ment­ing busi­ness con­ti­nu­ity plans to safe­guard against unex­pect­ed future events so they can keep run­ning and make mon­ey in times of cri­sis.

Patrick Roberts, the co-own­er of Cam­bridge Risk Solu­tions, says a robust con­ti­nu­ity plan has three parts. He said: “First­ly, we car­ry out a risk assess­ment to see how your busi­ness could be impact­ed in the event of a dis­as­ter and what you can do to lessen that risk. Sec­ond­ly, you have instant response: the process you will fol­low as an event unfolds. Final­ly, you have a longer-term busi­ness recov­ery: how you’ll adapt as a com­pa­ny in the after­math of a dis­as­ter, such as Covid.”

Mit­i­ga­tion is on the agen­da of a host of com­pa­nies. Ikea is set to move much of its pro­duc­tion to Turkey to short­en its sup­ply chains and avoid increas­es in ship­ping costs. The price of an Ikea con­tain­er from east Asia to Europe jumped from $2,000 (£1,453) to $12,000 (£8,723) dur­ing the pan­dem­ic. Cloth­ing brand Benet­ton has also moved pro­duc­tion to Ser­bia, Croa­t­ia, Turkey, Tunisia and Egypt with the aim of halv­ing pro­duc­tion in east Asia.

But for small­er busi­ness­es, such as OneNine5, bring­ing their pro­duc­tion clos­er to home sim­ply isn’t an option. “We’d love to man­u­fac­ture in the UK and explored UK fac­to­ries before launch­ing in 2019, but [they] could only man­u­fac­ture using waxed cot­tons and leather,” says Stew­art. “We’re a small team with lim­it­ed resources, the effort and time tak­en to build a trust­ed rela­tion­ship with a respon­si­ble man­u­fac­tur­er is time inten­sive and would­n’t be an easy process for us.”

Sup­ply chain map­ping is an inte­gral part of the mit­i­ga­tion and cri­sis response process. While most busi­ness­es have vis­i­bil­i­ty of tier one and two sup­pli­ers, many are unaware of who their tier three sup­pli­ers are, fur­ther down the chain. These are sup­pli­ers that may pro­vide raw mate­ri­als, for exam­ple a farm that sells cot­ton to cloth­ing man­u­fac­tur­ers. In the event of a major dis­as­ter, dam­age to tier three sup­pli­ers can cause man­u­fac­tur­ing delays and stock short­ages high­er up the chain.

Roberts advis­es his clients to cre­ate a detailed map of their sup­pli­ers but says it can be a com­plex process. “Often, tier one sup­pli­ers won’t dis­cuss that with you because they see it as com­mer­cial­ly con­fi­den­tial infor­ma­tion,” he says. Cost is anoth­er poten­tial issue. He adds: “Busi­ness­es can incur a lot of cost, they have to ask them­selves, how much are they will­ing to pay for this lev­el of cer­tain­ty and vis­i­bil­i­ty?”

Com­pa­nies are increas­ing­ly will­ing to stump up cash to reduce their risk. Sup­pliview is a tool many are using to gain greater vis­i­bil­i­ty of their entire sup­ply chains so they can react at speed in a cri­sis. “It works well when you’ve got quite a large and com­plex sup­ply chain,” says Ben­jamin Punch­er, CEO of CORE, the soft­ware com­pa­ny that has devel­oped the tool. “If your ware­house burns down, you need to quick­ly deter­mine where your stock is in the sup­ply chain and how you can get your hands on it so you can keep shelves full and meet the demands of cus­tomers.”

Cre­at­ing a step-by-step process to fol­low dur­ing a cri­sis is anoth­er essen­tial com­po­nent of a busi­ness con­ti­nu­ity plan. Office-based firms across the world were forced to imple­ment IT solu­tions so that staff could work from home dur­ing the pan­dem­ic. Those that already had a con­ti­nu­ity plan in place were quick­ly able to switch to home work­ing; those that didn’t were faced with a race to get back online and ensure their work­ers could con­tin­ue to do their jobs.

But even the best plans can be undone if busi­ness­es fail to spot threats. “You have to have a pre­oc­cu­pa­tion with fail­ure,” says Roberts. “You need to con­stant­ly think ‘what is the worst-case sce­nario in this sit­u­a­tion?’” Adopt­ing that mind­set requires com­pa­nies to under­go behav­iour­al and cul­tur­al change. “We have clients who have con­ti­nu­ity plans but then haven’t used them dur­ing a cri­sis and sort of mud­dled through,” he adds. “High reli­a­bil­i­ty organ­i­sa­tions don’t do that; they cre­ate a plan and then stick to it when things go wrong.”

When the dust set­tles in the after­math of a cri­sis, con­ti­nu­ity plans ensure lessons are learnt and busi­ness­es evolve. For Stew­art, change is already under­way. Recent­ly the brand switched from sea to rail freight to reduce the risk of delays. But it could take an injec­tion of cash to ensure fur­ther prob­lems are avoid­ed. “We need to explore exter­nal invest­ment so that we can buy more stock in advance and avoid cash flow prob­lems,” he says.

Mean­while, Roberts is keen to see oth­er indus­tries adopt con­ti­nu­ity plans. “I think high­er edu­ca­tion could real­ly ben­e­fit,” he adds. “As we’ve seen dur­ing Covid, they’re not pre­pared for major dis­as­ters and it’s stu­dents who miss out.” With the cli­mate cri­sis esca­lat­ing and the pan­dem­ic set to impact economies and busi­ness­es for the fore­see­able future, com­pa­nies that fail to plan for dis­as­ter may not sur­vive the next one.

Crucial lessons to avoid supply chain disruption

1. Reduce your risk

When Covid-19 spread across Europe at the start of 2020 many brick and mor­tar busi­ness­es were ordered to close their doors with min­i­mal notice. Those com­pa­nies that didn’t have suf­fi­cient cash reserves or a dig­i­tal strat­e­gy soon became insol­vent. But a thor­ough risk assess­ment could’ve helped many com­pa­nies to sur­vive those ear­ly months.

Roberts says many busi­ness­es fail to under­stand their lev­el of risk. He says: “I did a risk assess­ment with a client many years ago and we found out that if they couldn’t ship goods and invoice for two days they would run out of cash. Com­pa­nies need to have cash in the bank to be able to pay their sup­pli­ers and staff in the event of a dis­as­ter.”

2. Map out your sup­ply chain

Com­pa­nies that don’t own their own fac­to­ries or out­source the man­u­fac­tur­ing of prod­ucts to sup­pli­ers in oth­er coun­tries often end up with long and com­plex sup­ply chains. Those chains can help to reduce man­u­fac­tur­ing costs, but they also cre­ate chains that are vul­ner­a­ble to dis­rup­tion.

Sup­ply chain map­ping can help to spot risks and avoid poten­tial pit­falls. By cre­at­ing a detailed doc­u­ment of all com­pa­nies, sup­pli­ers and indi­vid­u­als involved in a sup­ply chain, busi­ness­es can put strate­gies in place when a sup­pli­er faces a short­age or there is a surge in prod­uct demand.

3. Keep your plan up to date

High growth com­pa­nies who quick­ly restruc­ture or hire staff will need to update their con­ti­nu­ity plan on a reg­u­lar basis. “If the exec­u­tive team changes on an annu­al basis or even faster than that, then you need to revis­it your plan every few months,” says Roberts. “Con­ti­nu­ity plans are no use if they’re out of date.”

For big­ger busi­ness­es with low staff turnover and fixed process­es, annu­al train­ing exer­cis­es can pre­pare staff for what they need to do in times of cri­sis. “You need to know who is respon­si­ble for car­ry­ing out spe­cif­ic tasks when prob­lems arise,” adds Roberts.

4. Learn the right lessons

Busi­ness­es that have sur­vived the per­fect storm of Covid-19, Brex­it and the Suez Canal block­age with­out a con­ti­nu­ity plan may believe they are well equipped to deal with the next dis­as­ter that affects the west­ern world.

But Roberts says com­pla­cen­cy can be fatal. “There is a dan­ger that com­pa­nies can be opti­mistic and think they can just mud­dle through prob­lems,” he adds. “Busi­ness­es need to be con­stant­ly on the look­out for prob­lems; it’s bet­ter to over­re­act than respond too late.”