Dan Gill, Chief Customer Officer, Ligentia, looks at how supply chain disruptions can be navigated by forecasting, planning and being connected.
There’s been lots of talk recently about Just In Time (JIT) being broken. I don’t subscribe to that. While there’s some evidence of companies adopting Just in Case arrangements and shifts in sourcing strategies, a survey by Make UK, the engineering employers’ federation, found that three quarters of manufacturers have increased their number of British suppliers, with half saying they would do so in the future, it would be wrong to suggest choosing one over the other.
We believe that how businesses can best prepare for supply chains disruptions is through forecasting, planning and being digitally connected. Forecasting demand is difficult and is one of the weakest areas for lots of businesses. But it can be done by investing into better predicting consumer demand and buying behaviour, then planning for that demand and, more importantly, the ‘what if’ breakages in supply chains.
The last few years have been turbulent, and we’re not yet in a position where we have free flowing goods – manufacturers are holding more inventory - but there are reasons to be optimistic. The bottleneck of capacity on shipping lines and container equipment shortage has eased. There are clear signs that the investment in capacity by the shipping lines is going to comfortably cope with growth, and there’s been a great deal of investment in UK port infrastructure which has largely removed another bottleneck. And despite Brexit, the UK has managed to retain its links with Europe and its trade lanes.
Today, however, we’ve got a cost-of-living crisis, rising mortgage rates and inflation. Together with a war in Europe that has severed one, albeit small, trade lane from China and the East into Europe, labour issues, and increasing legislative pressure on use of carbon fuels, this means ongoing challenges for supply chains.
Outside of war and de-globalisation and the breaking down of trade groups, the biggest long-term challenge impacting global supply chains will be climate change and potential regulation on the use of carbon. Given what’s happening in Europe right now, governments are unlikely to add expensive legislation on top of an already challenging picture. Extreme weather events are impacting vital supply routes and major sourcing areas such as Bangladesh, Northern China and some parts of India which are very susceptible to floods. And while the mega-ships designed by ocean carriers may provide economies of scale and be more fuel efficient and sustainable in their footprint, these large ships are slow steaming with lead times significantly increasing from 20-23 days on smaller less sustainable vessels, to those journeys being done in 33 days. That’s a big impact with knock-on consequences.
Closer to home, we have three major bottlenecks to focus on:
- Labour. The spread of inflation across all developed nations means labour strikes are a real possibility. We’ve recently had port strikes in the UK and avoided a major strike in the US.
- Rail links. Severing of the China to Europe freight railway route which is a vital link in the global supply chain and incredibly important to the automotive industry
- Warehousing. We probably haven’t built enough warehousing in the UK and if we see a huge increase in demand for storage, combined with labour shortages in warehouses, that could be a significant issue.
While we’ve seen some companies changing the way they source, we’re not seeing the major de-globalisation and reshoring predicted. Professor Peter Williamson of Cambridge Judge Business School, in a recent article* outlined several reasons why deglobalisation and reshoring is likely to be limited including:
- Reshoring and localised production will not significantly improve supply chain robustness, because capacity designed for local markets will be smaller scale with far less ability to rapidly boost production to respond to any future crises.
- Companies will not sacrifice their comparative advantage in areas such as cost and quality in order to increase their perceived control by relocalising supply.
- Innovation in many industries, especially those dealing with complex products and services requiring know-how from multiple sources, would suffer through deglobalisation.
- Multinationals will be reluctant to sacrifice sales growth potential in growing markets like China – already the largest global market for products ranging from cars to pork to luxury goods – through deglobalisation and relocalising.
Many organisations we encounter, some with fairly complex supply chains, have a need for real-time visibility at a SKU/Item level with orders, connecting multiple interfaces up and down the supply chain. Connecting factories, warehouses, road, sea, rail and air carriers, and customers. Pulling this much needed data together from disparate sources is complicated and it’s where technology together with supply chain expertise proves so valuable in facilitating a single, end-to-end view of their supply chain with dashboards and reporting tailored for the customer.
I also think there could be more collaboration. We see a lot of waste in assets between consumer product manufacturers and retailers because there’s this intense competition and no real desire to collaborate. I think partnerships and collaboration are a really good way to be more cost effective and to build a more agile supply chain.
There’s always lessons to be learned by looking back, but to be more resilient and position themselves for the future, companies need to anticipate what’s ahead and make supply chain decisions informed by real-time data, insights and scenario planning.