Could the Suez blockage bring greater resilience to the world’s supply chains?

When the mega­ship Ever Giv­en became wedged across the Suez Canal, it exposed the vul­ner­a­bil­i­ty of glob­al sup­ply chains. The vast ves­sel, which can car­ry 20,000 20ft con­tain­ers, was block­ing a route respon­si­ble for 12 per cent of world trade, with an esti­mat­ed $400 mil­lion in car­go pass­ing through each hour.

For six days the world, and increas­ing­ly exas­per­at­ed ship­ping com­pa­nies, watched as trade was re-rout­ed round the Cape of Good Hope, adding around ten days to the jour­ney time and lead­ing to head­lines about delays and short­ages.

A freak gust of wind is said to have sent the boat spin­ning in the first place and it was anoth­er act of nature – an excep­tion­al­ly high tide – that ulti­mate­ly helped to shift it. In the end, the effects on glob­al trade were min­i­mal, but the inci­dent did bring into focus the sus­cep­ti­bil­i­ty of glob­al sup­ply chains and the extent to which com­pa­nies are unpre­pared for “black swan” events.

Add in that glob­al trade is still recov­er­ing from the effects of the coro­n­avirus pan­dem­ic, Europe is com­ing to terms with the ram­i­fi­ca­tions of Brex­it, and oth­er parts of the world, from Arme­nia to Myan­mar, are reel­ing from war and insur­rec­tion, and it’s clear busi­ness­es need to come up with a plan B if they’re to pre­vent dis­rup­tion to their oper­a­tions.

“Com­pa­nies have devel­oped a high­er lev­el of depen­den­cy on sup­pli­ers and third par­ties from oth­er coun­tries, and that depen­den­cy is high­light­ed when a link in the sup­ply chain is impact­ed,” says Bri­an Alster, gen­er­al man­ag­er of third-par­ty risk and com­pli­ance at busi­ness ana­lysts Dun & Brad­street.

“The Suez Canal inci­dent gives us yet anoth­er rea­son for busi­ness­es to invest in data and tech­nol­o­gy to cre­ate an agile, geo­graph­i­cal­ly dis­persed sup­ply chain that can quick­ly piv­ot dur­ing unex­pect­ed events; with­out data and insights, com­pa­nies are blind.”

Phil Reuben, direc­tor at sup­ply chain and logis­tics con­sul­tan­cy SCALA, believes the last 18 months have taught com­pa­nies many lessons about how poten­tial­ly vul­ner­a­ble they are. And while most can nav­i­gate the occa­sion­al unex­pect­ed event, for longer-term secu­ri­ty, they need to do some­thing more fun­da­men­tal, he says.

Vis­i­bil­i­ty is a good start­ing point and com­pa­nies need a real under­stand­ing of where every­thing is com­ing from, because “while they know who their sup­pli­ers are, they have very lit­tle knowl­edge of their sup­pli­ers’ sup­pli­ers; who are the buy­ers buy­ing from?” Reuben asks.

Cargo checkers

Such in-depth sup­ply chain mon­i­tor­ing was once the pre­serve of engi­neer­ing com­pa­nies tasked with bring­ing togeth­er com­po­nents from mul­ti­ple sup­pli­ers, or high-tech indus­tries that need­ed to ensure the prove­nance of mate­ri­als, such as con­flict min­er­als.

But the tech­nol­o­gy is now becom­ing more wide­spread and can pro­vide com­pa­nies with accu­rate, real-time data about goods in motion, as well as flag­ging up poten­tial down­stream impacts and delays. Greater dig­i­tal­i­sa­tion, automa­tion and arti­fi­cial intel­li­gence can also be used to run what-if sce­nar­ios, which allow com­pa­nies to pre-plan the steps they need to take to get trade mov­ing again.

In the case of Suez, explains Dr John Glen, econ­o­mist at the Char­tered Insti­tute of Pro­cure­ment and Sup­ply, this lev­el of mon­i­tor­ing means large logis­tics com­pa­nies would have been able to quick­ly iden­ti­fy what ves­sels were on their way to the canal, what goods were on those ves­sels and if the car­go could be redi­rect­ed. 

“They would also pro­vide alter­na­tive sources of sup­ply for time-crit­i­cal car­goes,” he says, “and in doing so help com­pa­nies iden­ti­fy alter­na­tive sources that could replen­ish any car­go being held up in the Suez Canal and else­where.”  

The impor­tance of data is borne out by Dun & Bradstreet’s recent Resilient Sup­ply Chain report, which shows that a key pri­or­i­ty among pro­cure­ment teams in 2021 is ensur­ing tech­nol­o­gy and data sit at the heart of sup­ply chain oper­a­tions. A third of the 500 com­pa­nies sur­veyed indi­cat­ed that dig­i­tal trans­for­ma­tion was their organisation’s top pri­or­i­ty, with pro­cure­ment teams already using tech­nol­o­gy to sup­port sup­pli­er risk assess­ment and ongo­ing mon­i­tor­ing.

Boosting supply chain resilience

The events in the Suez Canal are also like­ly to have plan­ners por­ing over maps to ensure com­pa­nies are no longer reliant on sin­gle routes, while pro­cure­ment teams will be look­ing to add some geo­graph­i­cal diver­si­ty to their sup­ply chains and avoid an over-reliance on one coun­try or region.

There have even been sug­ges­tions that busi­ness­es may be about to call time on just in time, the man­u­fac­tur­ing sys­tem that sees com­po­nents deliv­ered to fac­to­ries exact­ly when they’re need­ed as a way of avoid­ing over­heads and waste. Instead, there is talk of a move to just in case, with com­pa­nies keep­ing much high­er stock lev­els to guard against short­ages, as they weigh up the mer­its of high­er ware­hous­ing costs and the risk of obso­les­cence, with the price of man­u­fac­tur­ing delays. 

Moves to greater on and near-shoring pro­duc­tion have also been moot­ed, says Glen. “Pro­cure­ment man­agers are con­sis­tent­ly look­ing at the cost of their sup­ply chain, the com­plex­i­ty of their sup­ply chain and the asso­ci­at­ed risks,” he says. If the risks become too large, then reduc­ing the length of the sup­ply chain becomes an attrac­tive propo­si­tion, although local capa­bil­i­ty, capac­i­ty and cost may be the ulti­mate dri­ving fac­tors.

The vul­ner­a­bil­i­ty of sup­ply chains is also an oppor­tu­ni­ty for pro­cure­ment pro­fes­sion­als to show their true worth, says Dun & Bradstreet’s Alster. Not long ago they were per­ceived as a nec­es­sary cost cen­tre, with com­pa­nies often not real­is­ing how crit­i­cal they were. Now, in nim­ble, for­ward-think­ing organ­i­sa­tions, which have adopt­ed data-dri­ven approach­es, they’re seen as hav­ing a pos­i­tive impact on rev­enue. “And that’s a huge tec­ton­ic shift in the way com­pa­nies think about pro­cure­ment organ­i­sa­tion,” he con­cludes.