How six different industries are improving supply chain resilience

One of the first emails Rachel Watkyn opened in 2022 was from an over­seas sup­pli­er, advis­ing her that prices were being increased by 40% — with imme­di­ate effect. 

Over the last 18 months, Watkyn’s pack­ag­ing busi­ness, Tiny Box Com­pa­ny, has seen a mas­sive increase in sup­ply chain costs. The cost of a sin­gle ship­ment of box­es from East Asia has increased from £2,500 to £18,000, while the cost of sourc­ing raw mate­ri­als in the UK has risen by more than a quar­ter. 

“Sup­ply chain costs used to account for 10% of our costs but that’s increased to 40%. It’s a huge chal­lenge and it’s not pos­si­ble for us to pass on all those costs to cus­tomers while remain­ing com­pet­i­tive,” says Watkyn. 

Pack­ag­ing is just one indus­try sec­tor that’s fac­ing huge sup­ply chain issues in 2022, says Simon Geale, exec­u­tive vice-pres­i­dent at sup­ply chain con­sul­tan­cy Prox­i­ma. “Every com­pa­ny with a sup­ply chain is grap­pling with sup­ply chain cost man­age­ment,” he says. 

Here, we round up six indus­tries fac­ing sup­ply chain chal­lenges in 2022 and exam­ine how they are build­ing resilience to mit­i­gate the impact of future dis­rup­tion. 

Automotive 

The auto­mo­tive sec­tor has expe­ri­enced sup­ply chain dis­rup­tion due to a com­bi­na­tion of the pan­dem­ic, the drought in South­west Chi­na, the war in Ukraine and a short­age of chips. “The auto­mo­tive sec­tor illus­trates how hard it is to man­age risk in sup­ply chains, because you’re deal­ing with so many dif­fer­ent fac­tors, from mate­ri­als to weath­er to polit­i­cal events,” says Geale.

Com­pa­nies like Volk­swa­gen have invest­ed heav­i­ly in new part­ner­ships that reshaped its glob­al sup­ply chain, sourc­ing new sup­pli­ers for impor­tant com­po­nents such as nick­el and bat­ter­ies, while adopt­ing a nearshoring strat­e­gy for some man­u­fac­tur­ing. “Even though the com­pa­ny sold 2 mil­lion cars less than expect­ed, they still made a strong prof­it last year, which shows how impor­tant their sup­ply chain strat­e­gy is to the company’s health,” Geale adds.

Fashion 

The world of fast fash­ion got a lot slow­er in the last three years. Gar­ment com­pa­nies in Asia have been hit by a series of lock­down orders, while glob­al freight ship­ping costs have rock­et­ed due to pent-up demand after the pan­dem­ic. Glob­al water short­ages have also impact­ed the water-inten­sive process of mak­ing new clothes.  

Fur­ther dis­rup­tion is on the hori­zon with new EU leg­is­la­tion that could hold sup­ply chain man­agers respon­si­ble for abus­es of work­ers’ rights and poor work­ing con­di­tions in over­seas fac­to­ries. “All of these things increase the cost of pro­duc­tion and increase the time tak­en to get new cloth­ing to mar­ket, so the fash­ion indus­try needs to find ways to reduce costs in oth­er parts of the sup­ply chain,” says Pro­fes­sor Richard Wild­ing, a for­mer pro­fes­sor of sup­ply chain risk at Cran­field School of Man­age­ment. 

One of the biggest moves to build resilience into fash­ion sup­ply chains can be seen in the rise of nearshoring and what’s known as late con­fig­u­ra­tion, says Wild­ing. Com­pa­nies like Benet­ton will cre­ate a skirt in Asia and ship it to Europe, where it is dyed and cus­tomised local­ly. This allows the man­u­fac­tur­er to ben­e­fit from low­er mate­r­i­al and man­u­fac­tur­ing costs in Asia, but also respond quick­ly to local demand in dif­fer­ent regions. 

“Maybe you have a skirt that could be red or green, but sud­den­ly the Duchess of Cam­bridge wears a green skirt, and demand for green skirts goes through the roof. With late con­fig­u­ra­tion, you can get those green skirts to mar­ket in a week or two, rather than wait­ing eight or 10 weeks for them to get to Europe on freight ships,” says Wild­ing. 

Retail 

The retail indus­try was hit by sup­ply chain delays through­out 2020 and 2021. These were caused by prob­lems with sourc­ing mate­ri­als and logis­tics chal­lenges get­ting prod­ucts from man­u­fac­tur­ing sites in East Asia to cus­tomers in Europe.  

With peak trad­ing sea­son just around the cor­ner, the sec­tor has already tak­en steps to reduce the risk of short­ages this Christ­mas. “What we’ve seen is the retail sec­tor short­en plan­ning cycles dra­mat­i­cal­ly and look to build much more agile sup­ply chains,” says Geale. “Many retail­ers of small­er items in sec­tors like home goods or toys moved their buy­ing cycles ear­li­er and are build­ing up inven­to­ry to min­imise the risk of short­ages dur­ing that peak trad­ing peri­od. It isn’t unusu­al to see retail­ers that have tripled their ware­house space in the last year.” 

The flip side of this approach is that many retail­ers have huge amounts of work­ing cap­i­tal tied up in inven­to­ry; if there is a slow­down in con­sumer spend­ing at Christ­mas, Geale says we will like­ly see steep dis­count­ing as retail­ers look to clear that stock in 2023.

Agriculture 

The glob­al agri­cul­ture sec­tor is fac­ing unprece­dent­ed pres­sure from cli­mate change, geopo­lit­i­cal insta­bil­i­ty, and the after-effects of the pan­dem­ic. Any one of these chal­lenges has seri­ous impli­ca­tions for agri­cul­ture, says Simon Davis, agri­cul­tur­al prac­tice lead with sus­tain­abil­i­ty con­sul­tan­cy Anthe­sis. “We’re in unchart­ed ter­ri­to­ry,” says Davis. “Because it’s such a just-in-time indus­try, it’s very easy to tip into food inse­cu­ri­ty when sup­ply chains fail.”  

The lat­est chal­lenge to farm­ers has been a rapid rise in ener­gy costs. This has had a knock-on effect on the price of fer­tilis­er, which rose by 80% in 2021 and by a fur­ther 30% in 2022. Add to that a glob­al heat­wave lead­ing to water short­ages for crops and live­stock and it’s a per­fect storm. 

In response, the farm­ing indus­try is like­ly to see con­sol­i­da­tion as small­er farm­ers exit the sec­tor. Those that remain may adapt the crops they grow, says Davis, focus­ing on increas­ing the num­ber of hardy crops grown, increas­ing yields dur­ing hot­ter, dri­er sea­sons. “In the mid-term, I expect to see farm­ers adopt­ing more regen­er­a­tive prac­tices that improve soil qual­i­ty and yields, along­side crop diver­si­fi­ca­tion, with inno­va­tion fund­ed in part by retail­ers who want to secure their own sup­plies,” Davis says.  

Food 

The food indus­try has been hit by all the chal­lenges that have affect­ed farm­ing and agri­cul­ture. As a result, many food busi­ness­es are start­ing to see stress on their sup­plies, which could eas­i­ly get worse, says Geale. 

“We have just seen a drought in Chi­na just before har­vest sea­son starts, in a coun­try that relies heav­i­ly on hydro-elec­tric pow­er,” he notes. “The result could be that there is less food avail­able to export from Chi­na, but also that Chi­na will need to import food that pre­vi­ous­ly would have been bought by oth­er coun­tries in Europe or Africa.” 

The first impact is like­ly to be prod­uct ratio­nal­i­sa­tion, where food man­u­fac­tur­ers reduce the num­ber of prod­uct lines avail­able to cut man­u­fac­tur­ing costs. Geale also expects to see food com­pa­nies pay­ing more to secure sup­plies or switch­ing to nearshore or onshore alter­na­tives, which may cost more. 

To off­set these price increas­es, Geale says the food indus­try is already invest­ing heav­i­ly in inno­va­tion and struc­tur­al changes to reduce sup­ply chain and oper­at­ing costs. “I think they are going to have to be pret­ty bold, and we’ll see big struc­tur­al changes, increased automa­tion and smarter sup­ply chains as they strug­gle to main­tain what are already quite fine mar­gins.” 

Airlines 

This sum­mer, bud­get air­line Ryanair flew 15% more pas­sen­gers than it did in the sum­mer of 2019. Few in the air­line indus­try expect­ed demand for air trav­el to bounce back so quick­ly after the pan­dem­ic. 

The most vis­i­ble chal­lenge for the air­line indus­try has been a staff short­age. Staff who were fur­loughed dur­ing the pan­dem­ic haven’t returned to their jobs, espe­cial­ly where many are fac­ing less attrac­tive work­ing con­di­tions imposed by air­lines look­ing to recoup costs. 

A less vis­i­ble issue is a huge short­age of mate­ri­als and spare parts to build new planes and keep exist­ing planes run­ning.  When the pan­dem­ic hit and the air­line indus­try shut down, a lot of the sites that pro­duced fiber­glass and car­bon fibre for planes sim­ply ceased oper­a­tions. “The fur­naces all closed down, and air­lines were stor­ing new planes in the desert because they didn’t know what to do with them,” Wild­ing says. “When demand for all those mate­ri­als bounced back, the fur­naces had been destroyed and need­ed to be com­plete­ly rebuilt. That’s going to take some time.” 

Build­ing resilience into air­lines will need a shift in sup­ply chain strat­e­gy. Wild­ing expects to see a move towards “buy­ing for resilience” over “buy­ing for cost”. There will be a “mas­sive increase in sce­nario plan­ning, because the air­lines that had done bet­ter sce­nario plan­ning were much bet­ter able to respond to the last two years than those that focused on ‘respond and recov­er’ as a strat­e­gy”, he says.  

At Tiny Box Co, Watkyn is build­ing resilience into her own sup­ply chain in var­i­ous ways. Tiny Box Co is cur­rent­ly nego­ti­at­ing to cre­ate a joint ven­ture man­u­fac­tur­ing site in Europe. The firm has also moved 20% of its pro­duc­tion to a pre­vi­ous­ly dis­used fac­to­ry in Corn­wall, which has off­set the increased price of sourc­ing mate­ri­als over­seas.

“We’re real­ly focus­ing on build­ing more effi­cien­cy and invest­ing in tech­nol­o­gy to dri­ve inter­nal effi­cien­cy,” says Watkyn. “There’s only so much cost we can pass on to our cus­tomers, so we have to think smarter when it comes to sup­ply chain strat­e­gy.” 

---