Economic shocks force manufacturers to re-think supply chains

As volatility becomes the norm more UK companies are turning to suppliers closer to home. Industry calls for task force to stress test supply chain resilience and draw up an action plan to cope with future shocks.

Key findings from the report ‘Operating without Borders – Building Global Resilient Supply Chains’ show:

Pandemic (93%) and Brexit (87%) have caused disruption to supply chains

80% of companies say increased energy costs have caused disruption to supply chains
Increased raw material costs (79%), transport costs (74%) and transport availability (54%) major supply chain challenges
Almost a quarter of companies have between 51 and 100 suppliers, 14% more than 200
Over a third of companies have increased the total number of suppliers in the last two years, almost half of companies increasing their UK suppliers
In the next two years almost half of companies intend to increase UK suppliers, a quarter to increase suppliers from Western Europe including Turkey

The findings indicate strategies manufacturers have long adopted of off-shoring in response to globalisation, operating a ‘just in time’ process with virtually guaranteed transport links and low-cost production, have been turned upside down with disruption and increased volatility fast becoming normal.

In particular, this has led to companies significantly increasing the number of suppliers so they have more options in the event of disruption, with these suppliers increasingly sourced back in the UK or Western Europe. Looking forward the report shows these trends accelerating in the next two years, a trend to which the invasion of Ukraine and continuing disruption in China is likely to have given further impetus.

In response Britain’s manufacturers are calling for a cross-industry and Government taskforce to assess the UK’s current and future supply chain resilience and capabilities, as well as establishing an action plan for the economy from any future significant disruptive events.

Commenting, Verity Davidge, Director of Policy at Make UK, said:

“For decades manufacturers have used increased globalisation and supply chains to drive efficiency and create lean manufacturing processes which have helped them grow and remain competitive. However, the economic shocks of the last few years have created a perfect storm which has turned these models upside down and forced companies to re-evaluate their business strategies and seek suppliers much closer to home.

“As a result, we may now be seeing the era of globalisation passing its peak, with disruption and volatility for global trade fast becoming normal. For many companies this will mean leaving ‘just in time’ behind and embracing ‘just in case’.”

Andrew Kinder, SVP International Strategy & Sales Support, Infor added:

“Following a succession of shockwaves – Brexit, Covid and instabilities in Europe – supply chain strategists are examining the vulnerabilities of their supply chains. Long held beliefs in lean, Just-in-Time and off-shoring are being questioned, as volatility and uncertainty replaces predictability and reliability. The rules of supply chain are being re-drawn. Resilience trumps efficiency with winners being those who have been able to rapidly adjust their supply chain strategies to accommodate the succession of shocks.

“Digital technologies play a part in building resilient supply chains and this survey by Make UK provides much needed insights from manufacturers on their response to this new norm and their use of digital to navigate the storm. As a sponsor of this research, we support the recommendation that ‘Supply chain software management should be included in the UK’s Help to Grow: Digital scheme.”

According to the survey, the biggest disruptor in the last two years was the pandemic with 93% of companies saying it had caused some form of disruption (for 47% the impact was catastrophic or major) followed by the impact of exiting the EU for 87% (for 32% it was catastrophic or major). More than half of companies also said the Suez Canal incident had caused significant disruption even though it was blocked for just a week.

In response to these impacts, almost two fifths of companies (38%) said they have increased the number of suppliers in the last two years. Over two fifths of companies (42%) have increased their UK supply base (for almost a fifth it is a significant re-routing) with over a quarter increasing supply from Western Europe, including Turkey. As a result, 58% of companies have their supply chain based in the UK.

This trend is set to accelerate with over two fifths of companies (43%) saying they expect to increase UK suppliers in the next two years, with a quarter predicting an increase in suppliers from Western Europe and Turkey. By contrast, over the same period 12% of companies say they intend to reduce suppliers from the Far East.

As well as changing the location of their supply base, manufacturers have also increased the number. Almost a quarter of manufacturers (22%) have between 51 and 100 suppliers, a further 15% between 101 and 200 and 14% having more than 200. This highlights the complexity of supply chains, but also the need to ensure supply chain strategies are put in place along with technologies to monitor them.

Whilst an encouraging number (72%) describe their supply chain strategy as intermediate or advanced, those describing their strategy as basic tend to be SMEs with a clear link between the more advanced strategy companies operate and the number of suppliers. Furthermore, when it comes to implementing digital supply chain solutions manufacturers for the most part only have a limited or basic focus (28% for both).

However, at the other end of the scale, a fifth of companies say they have an advanced digital strategy and a quarter (24%) intermediate with two thirds of larger firms (64%) at the advanced stage. On a positive note companies are planning to significantly increase their spend on digital supply chain technologies with over two fifths of companies (42%) planning to increase their investment by more than 10% in the next two years.

For those companies who do increase their investment in supply chain technologies, the benefits are clear in terms of faster response times (34%), lower inventory costs (28%), greater operational efficiency (28%) and greater cash flow (21%).

In response to the major shocks to the economy and the likelihood of increased volatility for trading networks being normal in the future, Make UK has made the following recommendations to Government to help ensure the UK economy is in a much stronger position to respond to any future disruptive events. In particular, a focus on digital supply chain infrastructure would give companies better visibility of and, more confidence in, their supply chains.

Government should establish a cross-industry and government resilience taskforce. Its role taskforce would be to assess further risks of supply chain disruptions and establish an action plan for any future disruptive event. This includes supply chain mapping to understand the UK’s domestic capabilities and developing an evidence base on opportunities and challenges associated with current and future supply chains

Supply chain software management should be included in the Help to Grow: Digital scheme. Manufacturers have highlighted its limitations in its current version which covers CRM and accounting software from a few accredited vendors. The scheme should be expanded to include supply chain software management to make it more useful and accessible to manufacturers.
Develop and publish public data that reports on lead times of raw materials to help businesses plan ahead. Government should work with industry on developing and publishing data to understand lead times and allow manufacturers to plan ahead.
Work with industry to explore how larger firms can provide greater visibility of supply chains at higher tiers to share information with SMEs with limited scope. Make UK research demonstrates a lack of visibility particularly among SMEs. Exploring how larger firms and OEMs can provide greater visibility to share more broadly will improve overall end to end visibility.
Introduce capital allowances or a form of tax break for businesses that adopt certain digital solutions (such as blockchain). Highlight the conglomeration affect if business did this across a supply-chain resulting in greater end-to-end performance.
Develop regional institutions and establish long-term initiatives to deliver supply chain support: Manufacturers would welcome an organisation such as MAS (Manufacturing Advisory Service) which acted as a strong support service to companies. There is a strong case for a regional approach, but it must work alongside the existing regional network e.g., LEPs.

The survey of 132 companies was conducted between 3 and 24 February.