Global supply chain are coming under unprecedented pressure. From post-pandemic rebounds in demand and rising inflation, to armed conflict and geopolitical instability – all have combined to produce a perfect storm which is placing global industry under significant strain.
But companies are not powerless in the face of these headwinds. Being able to establish more local supply chains, while also maintaining existing equipment effectively – reducing the need for replacement machinery and parts – are just some of the methods firms can use to chart a course through the storm.
Lee Windsor, Director at RJW, thinks that it is time for a change: “The last few years have had a huge impact on how businesses think about supply chains. The almost never-ending availability of cheap components was sometimes taken for granted. But a number of factors point to that now being a thing of the past. Building resilience into your supply chain, and being able to maintain what you have – rather than simply buying new by default, is going to be more and more important in the coming years.”
Supply chains under strain
Even before the impact of Covid, the seeds of supply chain problems were being sown in the east. China had become a manufacturing powerhouse, producing components cheaply and in large quantities.
Trade tariffs imposed by the last US administration coupled with labour and power shortages had begun to have an impact on China’s ability to produce and export components at its previous rates and prices. According to a survey of 260 global supply chain leaders by Gartner in 2020, 33% had moved sourcing and manufacturing activities out of China or planned to do so in the next two to three years. Even back then, there was a feeling that for countries which depended on cheap and reliable goods coming from the east – the good times were over.
Post Covid demand
The pandemic had a dual impact on supply chains. The first was the disruption to manufacturing caused by lockdowns and other covid mitigation measures. Last August for example, the Chinese Port of Ningbo – the world’s third busiest – was shut down due to just one case of COVID-19 among the workforce.
The second impact of Covid was a drop in consumer demand which then rebounded swiftly. As economies were shuttered, they quite simply needed less. But as they reopened industries the world over suddenly needed things again – pretty much all at the same time and in mass quantities. The suppliers and logistics chains which served them simply could not cope and to an extent, still can’t.
The UK has had the additional uncertainty caused by the end of the Brexit transition period. Additional tariffs coupled with delays at the port of Dover have led to disruption in the supply of goods coming into the country from mainland Europe. According to the Office for National Statistics (ONS), 5% of UK businesses had made changes to their supply chains because of the end of the EU transition period.
Conflict in Ukraine
The conflict in Ukraine has added even more disruption to an already uncertain picture. A report by Dun & Bradstreet revealed more than 600,000 global businesses rely on Russian and Ukrainian suppliers.
The rise of ESG
One often overlooked issue with supply chain resilience is ESG. Unlike some of the more transient factors currently grappled with, this is a long term shift which is here to stay and must be factored into how companies rebuild their supply chains post-pandemic.
Environmental Social Governance (ESG) is something which is becoming increasingly important to companies and consumers. Firms now want to do business with other companies that can prove they are mitigating their impact on the environment.
It will become increasingly important to source materials in a way that keeps a company’s carbon footprint to a minimum.
Similar to this is the growth of the ‘right to repair’, legislation which is being enacted in the UK, USA and Europe which means companies must create products which can be fixed, rather than simply replaced. The significance of this is that the idea of fixing and maintaining things will no longer be seen as something born from necessity, but an environmental imperative.
Solutions to supply chain concerns
Despite the uncertainty currently being caused to global supply chains, there are measures companies can take to ease the impact.
Diversification of supply chains is one of those measures. Building a supply chain which has both offshore and near-shore suppliers for each component or product builds redundancy into the process and increases resilience. With this in mind, firms should establish regional as well as global supply chains and be able to switch between them at short notice should any disruption be encountered.
For many companies, bringing in new machinery and components will no longer be as affordable and straightforward as it once was. Reducing the reliance on the ‘new’ and maintaining what is already present will become more important.
In order to achieve this, firms should have maintenance routines in place that ensure their existing equipment is kept in top condition, reducing the demand for new replacement components and machinery. Condition monitoring, site visits and smart sensors all have a role to play to ensure a firm’s existing devices and components are kept in prime working order.
A new world view
As energy prices and inflation rise increasing pressure on household budgets, much has been made of a return to the traditional way of doing things. The concept of ‘make do and mend’, fix things as you go rather than replace with new. While that may not always be possible, for consumers or for industry, there is certainly a sea change on the horizon in terms of how we will have to focus more on maintaining what we have, rather than always look to replace with brand new. This will be equally important in order to reduce carbon footprint, which is becoming vital for ESG.
With disruption in China, post-Covid demand bottlenecks and geopolitical instability, there will also be greater impetus towards shortening supply chains and making them more resilient and agile. Key to this will be having more local suppliers in order to build regional as well as global supply chains.
To find out more about how RJW can help reduce the risks in supply chains through near-shore manufacturing, stock holding and responsive engineering support, contact one of our account managers on 0151 207 2074 or email firstname.lastname@example.org