Supply Chains: Building Resilience and Meeting Challenges

James Burman (JB): Having reached the point of relative “normality” in terms of government guidelines, what is the current state of affairs regarding the impact of the pandemic on supply chains?

Richard Wilding (RW): You have to think about it in terms of the local and the global. Locally, we can see the industry getting back to normal, but the biggest challenge we have is with the global supply chain. What we have seen in recent months are continuous lockdowns, in China for example, which prove that supply chains are still disrupted. It doesn’t matter where you operate, whether you’re in the UK, the US or elsewhere, we all have global supply chains now, and that’s where the disruption is.

Even though we may feel in our part of the world that things are getting back to normal, the fact is that things are not getting back to normal globally, and that’s something that I think we’re going to have to live for quite a long time yet. However, some things have been accelerated. In 2019, as an industry, we were looking at various supply chain 4.0 technologies: digitization and robotics, for example. I predicted that we would see these technologies come into play in the next five years or so…but when the pandemic hit, we found that companies were starting to implement these things within five months, sometimes even five weeks!

One of the great things that happened, especially when you think about something like retail, is that as soon as the pandemic hit it had a huge impact on the shift to retail in line. In the retail environment, we tried to serve a new market, but with the old supply chain. The big challenge with this is the “cost to serve”. As a result, consumers no longer go to stores to buy products, and we have to deliver them to their homes. Many large supermarkets are making announcements that sales have gone up, but when you look at profitability and margins, they are falling. Why? Because yes, they have these old supply chains trying to do new things.

What we then have to start doing is changing our processes, changing the infrastructure networks, changing the information systems, but also the skills of the people. Not only is this a very difficult time for businesses, but it is also tricky for individuals, as it means jobs have to change. When we do things right, we will begin to discover that we can handle things better. But at the moment things are very difficult.

JB: This month marks 18 months since the UK’s full separation from the European Union on December 31, 2020. Since then, logisticians will have primarily felt the effects at UK borders and ports. How do you think the situation has evolved? Does this still have an impact on the flow of goods or are things stable?

RW: Of course, there have been multiple challenges with Brexit – no doubt about it, but I would actually say that the pandemic has had a much bigger impact on the way supply chains are structured. Some aspects are very difficult; take Northern Ireland for example. Another is the shortage of truck drivers. If we look at the roots of this problem, people literally went home outside the UK because there was no work, and now the work is coming back. Effectively, what we have seen is that the tide has gone out, in terms of demand on our supply chains. Not just because of Brexit, but also because of all the different lockdowns throughout the pandemic.

What happened next in 2021, did the tsunami happen. And with this tsunami, what did we see? We’ve seen gas prices go up, energy prices go up, because everybody wants to get back to normal. All of these things have happened, so really Brexit is just the icing on a very nasty cake that all supply chain professionals have to deal with right now.

JB: As probably the most recent crisis to impact global supply chains, how is the war in Ukraine causing supply chain challenges?

RW: When we look at Ukraine, I think one of the main things we have to recognize is the extent of the impact of the war on some key resources; not only oil and gas, but we should also think about food. Watch this space for further food inflation, as Ukraine is the breadbasket of Europe. More than about 30% of cereal crops in Europe come from this region. We also cannot forget that crops are seasonal, so even if the situation does not affect the supply now, it could affect us later. Finally, to peg it to gas prices, gas is used to make ammonia, and ammonia is used for fertilizer, further crippling crop supplies.Brexit continues to affect supply chains

Worse still, potash, which is a salt used as fertilizer, comes mainly from Russia and Ukraine. What does a change in the supply of all these materials mean? Even before the war in Ukraine, I was worried about the coming year, because of the resulting increase in fertilizer prices. Just to give you an example, if you think about the current shortage of microchips; it is a process in which silicon wafers are produced using a lot of pure water. In Korea, there was a drought, which created real challenges for these manufacturing companies. What we’re starting to see here is an example of climate change not just having a general impact, but very specific industries and sectors.

That said, climate change mitigates some other supply chain challenges caused by Brexit and some of the issues I mentioned earlier. Take the wine supply chain, for example. Now, if you look at the English sparkling wine sector, it’s really progressing. Due to climate change, we are seeing more and more English equivalents of sparkling wines and champagnes. Vines grow better in the UK than in Champagne. All kinds of things are changing due to climate change.

JB: Considering the past two years, it’s clear that resilient supply chains are key to mitigating future challenges. What do you think are the most outstanding components that make up a resilient supply chain?

RW: One of the concepts that I have been advising companies to adopt for many years is a structure that I call “the Temple of Supply Chain Resilience”. There are a number of key elements, which I will describe.

We must have an effective supply chain strategy foundation. Supply chain strategy is really about understanding what our customers value, and that has changed dramatically. Essentially, if we think about the retail supply chain, the shift to selling online basically means that what customers value has changed. If we think about the traditional retail environment, we design supply chains to make it enjoyable, easy, and even a little fun for consumers. People could park outside a supermarket and walk around, and you were very much in control. All of a sudden, with social distancing, the requirement to wear masks, the one-way systems in supermarkets, it became, well, less fun. It certainly wasn’t that easy, I don’t think a lot of people really felt in control, and no, it didn’t feel safe at times, hence this quick switch to online shopping. Of course, customers appreciated this change. Naturally however, processes within supply chains had to be modified to account for these differences; the infrastructure, the equipment used, the information systems, but also the organization and training of the people needed to carry it out.Supply chains require agility to deal with unforeseen challenges

Understanding the customer is absolutely essential if you want to create a resilient supply chain. On top of that, you need product design and service design, which take the supply chain into account, because you lock a lot of the risk into a product or service at the design. If you need to use a particular raw material that can only come from a particular region of the world, that’s going to lock in a lot of the risk. But, if you’re able to design things that use, say, multiple resources (multi-shoring), that’s even better.

Once you have these aspects in place correctly, you then have a number of key pillars to address. You have to think about agility; ensuring you have good agile and responsive supply chains. You also need to think about collaboration – relationships have been shown to be the absolute essential, especially how you manage your relationships with your customers and how you manage your relationships with your suppliers. Adopt a culture of supply chain risk management, and what I mean by that is that when people make a decision in the business, they have to ask themselves, “how will this affect the risk profile of the supply chain?

Then comes – and these are really essential factors – transparency and visibility. You need to have transparency within the supply chain. It is very important to know where your supply chain is going and where it is coming from. Finally, you can layer this with continuous monitoring and intelligence. We’ve seen a massive movement in terms of the amount of data we can get these days. It helps to have various feeds that allow us to see exactly what is happening in the operation and in the global supply chain.

So if we can put all of these things in place: understand your supply chain strategy; be sure to design the products for the supply chain and think about the risk of being locked in at this design stage; get agility; obtain cooperation; make culture part of your business; make sure you have some transparency; and ensure you have ongoing monitoring and intelligence. If you can put all this in place, you can be resilient in the future.

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