Last reviewed 21 January 2022
For many businesses, 2021 will be remembered for the breakdown in global supply chains. Post-pandemic, what will global supply chains look like for small businesses, and can they mitigate any future crisis? Dave Howell reports.
In March 2021, the Ever Green container ship blocked the Suez Canal for six days. Five days after the ship grounded, over 300 ships were waiting to pass through the canal. The knock-on effect of this event on global shipping was immense and illustrated how fragile this essential component of international trade could be to disruption.
No discussion of supply chains or logistics is complete without considering the impact Covid-19 has had. Last Christmas, there was a real risk that retail shelves would be empty as shipping moved at glacial speed with massive bottlenecks at ports with ships queuing to offload their containers. The issue was exacerbated by a lack of HGV drivers, which compounded the supply challenges large and small businesses faced.
And with many goods being manufactured in China, calls for a “China plus one” (where at least one other supplier is available) is a clear shift to mitigate supply efficiency breakdowns. Many of the factories in China were running at 50% capacity as the pandemic deepened.
Deloitte Insights highlights some important questions to ask about your business:
Does our supply chain involve multiple suppliers across various local, regional, and global locations to support operations?
What do we know about the supplier bases of our suppliers? Are our systems connected to those of our suppliers and customers (ie would a disruption at a first- or second-tier supplier trigger an alert to our planning systems)?
Are we able to automatically and dynamically reallocate volumes across our suppliers based on anticipated delivery risk, quality, timeliness, and cost metrics?
Do we understand the profitability impact of doing so?
Are we able to proactively monitor and assess the health and resilience of our suppliers and incorporate those results into contracting decisions?
Can we adequately assess cost-to-serve/profitability versus risk/resiliency tolerance of given supplier network configurations?
For smaller enterprises that are more vulnerable to supply chain disruption, more near-shoring and on-shoring is a clear strategy to investigate. In addition, more transparency, intelligence and real-time monitoring of consignments must improve.
Croner-i: Business Inform contacted Louisa Hosegood, a digital and strategy director at the supply chain and logistics consulting firm Bis Henderson Consulting and began by asking post-pandemic, what will global supply chains look like? Is there a “new normal” for supply chains businesses must now manage?
Louisa responded: “During the pandemic crisis, retail warehousing operations performed heroically, and we saw companies develop quick, imaginative, and sometimes daring solutions to the difficulties raised by Covid-19. The industry's reaction to Covid sparked some critical ideas for the supply chain in the next normal, one of which is the necessity for substantially higher levels of good automation.
“That is an easy statement to make, but ‘automation’ can refer to anything from a simple conveyor system to cutting-edge Artificial Intelligence. As a result, retailers who have survived and will thrive have supply, fulfilment, and return networks that are flexible, agile, and responsive — capable of quickly responding to changing business environments and consumer lives, thinking and needs.
“The change to E-Commerce is making warehouse operations more difficult and time-critical, yet ‘bricks and mortar’ retailing must still be supported and revitalised — all of this with an eye toward long-term sustainability, resilience, and future-proofing in an increasingly volatile environment.
“Automation of both physical operations and underlying business processes must be part of the solution. Some businesses are already well on their way to automation. Others are rapidly re-evaluating their demands and accelerating their investments. Yet, for many, the prospect of automation is frightening — inflexible, high-risk, disruptive, and unaffordable — and completely outside their comfort zone.”
As smaller businesses are highly susceptible to even the slightest change in their supply chains, are there any practical changes they can make to mitigate any future breakdown?
“Diversify your supply base. Diversifying the supply chain is critical to assuring the widest possible variety of goods and services. The most apparent benefits are reduced costs and increased efficiency, but it also boils down to sustainability and, ultimately, reputation. Therefore, supplier chain leaders must begin to prepare forward, specifically diversifying their supply base to weather the challenges posed by shortages and supply interruptions.”
Are we going to see a switch to more local sourcing for finished goods and even raw materials to mitigate the extended shipping times and unpredictable delivery?
“The media, governments, businesses and the public are now discussing ‘local for local’ supply chains. There are no surprises here due in part to transportation issues, which have eroded the benefits of exporting products from low-cost manufacturing half a world away.
“Also, as the Christmas buying spree approached in 2021, we saw supply networks all but collapse under the weight of demand and lingering pandemic impacts. Customers became dissatisfied across most industries, emphasising the growing need for more diversified and resilient supply chains in the face of disruptions.”
For the UK, how has Brexit factored into the changes we will see to supply chains through 2022?
“In the aftermath of the UK's vote to exit the European Union, Barclays carried out a survey which revealed that nearly a third of UK retailers explored switching suppliers after Brexit, with another 28% considering sourcing from new nations. The results of this study demonstrate the apparent aim of UK retailers to assess the possibility for change in their supply chains and expand local supply chain activity rather than transfer any Brexit-induced cost increases onto consumers.”
Do smaller enterprises have an advantage when re-defining their supply chains as they can be more agile?
“Yes. Small businesses are more agile than giant corporations and are better equipped to adjust to changing market conditions. A small firm is better positioned to hear comments and detect shifting preferences since it is closer to its clients. A lean company may shift gears more quickly than a large one, especially if it hasn't spent much money on old infrastructure.
“Personnel at a small business are more likely to be cross-trained; small companies frequently lack the means or the need to hire dedicated employees for every business function. This versatility comes in handy when it comes time to rethink your business model, and it allows you to retain top employees and draw on their understanding of your industry.
“In reality, when trying new strategies and ideas, significant corporations often disguise themselves as smaller enterprises (Starbucks built an eco-friendly shop in Seattle under the name 15th Avenue Coffee and Tea). When attempting a hazardous idea, the relative obscurity of a lesser-known brand is advantageous, in part because it reduces the likelihood of unfavourable exposure if the initiative fails.”
For many industry watchers, the issues that continue with global supply chains laid bare by the pandemic were already in place; but had not made their influence felt across the business landscape. The reliance on distant suppliers and a “just in time” attitude to stock management may have to change forever as the pandemic has reshaped logistics globally.
Lee Thompson, managing director of fulfilmentcrowd, says: "Driver shortages, competitive and costly international freight and border delays have really put the value of time and resource into perspective. As a result, we're working with many E-Commerce retailers to really scrutinise the profitability of each item of stock — a trend that will gather pace in January and February after the Christmas peak is over.”
Lee continued: "Retailers will utilise quieter periods of demand to pour through the supply chain and stock inventory management data to find efficiencies, ways of minimising margin dilution and methods of achieving optimal retail selling prices. This will lead to rationalising and streamlining of stock, with low return items stripped out of sales and supply chain strategies to improve resilience and returns in 2022.
“The review of stock performance will also drive trends of premiumisation and personalisation. E-Commerce retailers will trade up to stocking more premium, higher margin products, which offer higher returns on valuable transportation space. They will also utilise sales and stock inventory data to develop more bespoke, personalised marketing and services for shoppers. By better understanding what is selling and who is buying it, they can quickly and cost-effectively up and cross sell across ranges.”
Improving the resilience of supply chains, particularly in the small business sector, means being more agile and flexible. Yossi Sheffi, the author of The New (AB)normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19, concluded: “Although Covid-19 may have exposed the fragile links lurking in the global economy, it also accelerated the adoption of a great many technologies and practices that will make the global economy more robust over time.”
Indeed, looking closer to home for supplies is now high on many businesses' agendas. One of the significant areas of the supply chain highlighted by the pandemic is the lack of visibility of consignments and their supply routes. More closely tracking consignments is paramount. Technologies such as IoT and better use of data and analytics will enable your business to take tighter control of supply chains your company relies upon.