Supply chains have come under relentless pressure over the last 3 years. From Brexit transition to COVID emergency, from lorry driver, commodity and production capacity shortages to war in Ukraine and a revolving door at 10 Downing Street, supply chains are creaking. The relative stability between 2009 and 2019 seems like a lifetime ago with rapid change becoming the norm. As a result, supply chain resilience has been severely tested against a backdrop of geo-political and economic disruption. Read on as we discuss supply chain resilience.
Supply chain resilience
Supply chain resilience refers to the adaptability and flexibility of a supply chain to unexpected change and disruption and the capacity to recover quickly for continuing operations. In short, it is whether your supply chain is resistant to disruption and rapid to recover. A little like an employee going through a challenge, the supply chain needs to come out of the other side quickly and continue to perform at the same level.
If a supply chain is not resilient, events and shocks halt manufacturing processes, disrupt supplies and empty storerooms. A weak supply chain will find it hard to recover from a sudden shock, such as a shortage of lorry drivers, not having the redundancy or contingency plans necessary to carry on at the same level.
Globalisation and just-in-time tested
With an era of stability and peace came rapid globalisation. Post-WW2, the world became smaller. Better transport, communication and trade links supplied the world’s insatiable thirst for goods and economic growth. Rapid supply chains became the norm with the ability to place instant orders and have them transported quickly and efficiently by road, sea or air. The whole Just-in-Time (JiT) manufacturing process depends upon having ready access to raw materials, parts and people. Post-pandemic, shortages in some commodities and parts saw the shutdown of production lines. In others, a shortage of people saw ports and storage facilities full of goods with nobody to drive them to warehouses or delivery depots.
Before the pandemic, the world had seemingly forgotten how quickly things can change. Many boards traded long-term redundancy for short-term gain, not planning for contingencies and regularly assessing risks. Just-in-Time became ‘Nothing-to-Transport’.
Snakes and ladders
Like the board game, snakes and ladders, many companies don’t know when things will ‘go south’ or win big. With so much change and disruption, heavily exacerbated by the Russian invasion, it feels like the next roll of the dice could be good or bad. For example, some firms chuckled at the shortage of lorry drivers because they were okay. Now, those companies are crippled by soaring energy prices. Similarly, some made a fortune out of the pandemic, easily converting production capacity to PPE, test kits and sanitiser and others benefitted from the stay-at-home lockdowns. Now those companies either have too much capacity or a customer base deserting them due to the cost of living.
Geo-political instability
With the aggressive moves of Russia, attention has heightened to China and their ambitions in many critical technologies. As the state drives heavy investment in AI, microprocessors, cloud, pharmaceuticals, large consumer aircraft, electric car batteries and space technology, China is challenging the global order. Furthermore, the ongoing sabre-rattling around the independence of Taiwan has caused seismic changes in global semiconductor manufacturing with TSMC setting up factories in Japan and California in the USA and Intel investing in fabrication plants in Germany. Additionally, the bifurcation in support for Russia’s invasion in Ukraine has seen some surprising politically self-serving allegiances, such as India failing to ban and then purchasing discounted Russian oil in bulk.
The instability runs much deeper than this. Closer to home, we have seen three UK Prime Ministers in 2022, setting records for the shortest serving Prime Minister not to die of natural causes whilst in the job. We have also seen the shortest serving Chancellor of the Exchequer. The USA is not fairing much better with a complete breakdown in bipartisan politics. The Democrats are calling every democratic vote an existential fight for democracy. The Republicans, meanwhile, are suggesting that their opponents are destroying what makes America great. Collaboration on the big issues seems impossible with such polarised opinions and voices.
Industrial shifts
In the context of such change, it is easy to think that industries are only affected by external factors beyond their control. However, shifting consumer attitudes and technologies are transforming many industries. The rise in awareness of the impacts of climate change are causing Governments to push for clean-air and net zero emissions by 2050. With near-term consequences for energy production projects (renewable and nuclear), the automotive industry (bans on new petrol and diesel sales from 2030) and single-use plastics (fees levied or disappearing demand), these are sizeable industry shifts.
Furthermore, breakthroughs in quantum computing, artificial intelligence, battery and solar panel technology, nuclear fusion, synthetic fuels and plastic recycling are causing rapid change. This rapidly shifting landscape brings into question annual budgeting cycles and 5-year strategic planning horizons. Are management teams repeatedly being caught out? Do you have the information that you need to make better decisions? Is your approach to risk management sufficient and budgeted?
Planning for resilience
We could write an entire book about the global instability causing headaches for businesses and organisations of all sizes. With democratic Governments willing to distort the free-market (interventionism) and autocratic Governments seeking greater global control, the future of globalisation looks uncertain. However, with COP27 again drawing attention to unsustainable rises in global temperature and many countries kicking the can down the road on CO2 reductions, this could be another rift in global alliances. A resilient supply chain needs to take account of the political, economic, social and technological risks. It also needs to have redundancy and contingency plans laid out and regularly reviewed to quickly adapt to and recover from the crystallisation of material risk.
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Finally, why not check out this article looking back at COP26 and CO2 emissions.