Learning From The Supply Chain Crisis

Supply Chain & Procurement
Written By Guest User

Cars, fridges, coffee, coal, and milkshakes – what do these have in common? This seemingly random list is growing: all these items have been associated with the supply chain crisis of the last two years.

‘Crisis’ in this context looks more like a period of sustained disruption than a short-term shock. Almost no sector has been untouched and no step of the supply chain unaffected, from manufacturers to retailers to consumers. It has manifested in periods of acute chaos, such as the UK’s nationwide scramble for fuel in September, against a backdrop of lower-level but ongoing shortages and delays. So what is going on?

Reasons

Commentators have linked the crisis to several short-term factors since problems began at the start of 2020. Disruption to the production of electrical goods was attributed to a shortage of semiconductor chips. Distributors cited the scarcity of HGV drivers as the reason behind stock-outs. At the root lies the COVID-19 pandemic, with supply-demand imbalance wreaking chaos across the supply chain as shifting consumption habits battled labour shortages and factory closures. 

However, it is not simply a coincidental ‘perfect storm’ of these individual factors that caused the current crisis. While exacerbated by COVID and market forces, these incidents are all symptomatic of larger, pre-existing structural inefficiencies within the global supply network [1]. To understand the crisis and mitigate against those in the future, we must evaluate the current infrastructure and management of our supply chains on a fundamental level.

As a first step, this requires acknowledgement of the link between emergent challenges and the shortcomings in current supply chain strategies. Despite this, some commentators have deflected blame for the crisis onto consumers, with one outlet attributing America’s shortages to a "cycle of thoughtless buying" perpetuated by the population during lockdown [2].

This reasoning is both unhelpful and inaccurate. To survive in today's ultra-competitive markets, business strategy demands agility in the face of disruption. Global markets and the supply chains that support them have always had to absorb the impact of fluxes, caused by changes in consumption or otherwise. Shipping has always experienced boom and bust cycles: experts advise that companies should reasonably anticipate significant supply chain disruptions every four years at a minimum [3].

One key problem today is that many executives have become complacent in their reliance on ‘just-in-time’ manufacturing and continued international cooperation. As explored in another Deecon-struct article, the just-in-time model is vulnerable to disruption as it prioritises speed over contingency planning. Meanwhile, the interdependence of global economies often gives rise to an undesirable butterfly effect when an issue occurs somewhere along the chain. Our supply chains have grown to become astoundingly intricate, with one study finding the end-to-end supply chain for one item involves 30 businesses and up to 200 unique interactions on average [4].

Source: Deloitte, 2021

The trade disruptions of 2020 were partly created by underutilisation in logistics networks. Many multinational shipping companies transported empty containers back to China instead of filling them with American goods needed in Asia for manufacturing. Countless production loops of this kind (and often involving many more players) are operational at any given time, lying vulnerable to trade sanctions or geopolitical tensions. Simply put, there is a truly global scale to problems once they arise. 

In light of these considerations, decision-makers should look to strengthen supply chain structures through a commitment to three key principles.

Key Principles of a Successful Supply Chain

Sustainability

As with any commercial solution, the most robust supply chain will be one that brings mutual long-term benefits to all partners. Sourcing or shipping processes that rely on exploitation or generate large volumes of waste now seem untenable in the face of increased demand for quality and agility. Investors, regulators and consumers all expect more from their suppliers, amidst heightened awareness of the impact of current manufacturing practices on our planet. The emphasis now lies on the promotion of circular value chains and the reduction of unnecessary consumption – both of which offer tangible cost-saving benefits. There has been a profound shift, both upstream and downstream, in the perception of what successful supply chain management looks like [5].

Transparency

A survey conducted in April 2020 revealed that experts perceive end-to-end visibility as the most important factor in creating a strong supply chain [6]. When stakeholders at every stage are able to view progress in real-time, there is more scope for scenario-planning to mitigate disruption when it occurs. During the grounding of the container ship Ever Given and the consequent 6-day blockage of the Suez Canal in March, those companies with the ability to immediately locate their cargo were able to reroute deliveries before competitors and minimise further delays.

Source: EY, 2021

In addition to enhanced risk mitigation, transparency brings other benefits. It has been linked directly to profit, with experts predicting divergent performance curves for companies who embrace traceability and those that do not [7]. It also supports sustainability goals, as greater visibility of sourcing processes can increase corporate accountability. Major players are increasingly being pushed towards responsible sourcing practices in-line with shifting consumer demands, including environmental and CSR targets. A promising example is multinational retailer Marks & Spencer, who have recently invested in an interactive global map that locates and details of all their supply chain partners to aid ethical procurement [8]. With transformative digital innovations such as blockchain and digital twins [9] making these solutions increasingly accessible, those who do not fully embrace transparency will quickly fall behind the leaders. 

Collaboration

Collaboration is also a key principle to bring efficiency to the network [10]. Strategic investments to this end are becoming a priority for a growing number of organisations. ‘Smart port platforms’ – digital feeds which allow stakeholders at every supply chain stage to input progress updates – were once the preserve of Rotterdam and Hamburg but are now appearing in Los Angeles’ ports [11]. Cross-tier collaboration is an important facet: larger organisations should seek to empower Tier 2 suppliers through partnership, thereby raising the standard of industry communication vertically as well as horizontally [12].

Of course, universal adoption of these innovative principles is not guaranteed. Transparency and collaboration require a mutual commitment to data and resource sharing. In an era of growing economic protectionism in some corners, this approach could be viewed as a threat to competitive advantage. Companies should therefore diversify their supply chains to mitigate against a single point of failure should one region alter their trade policies [13]. Another obstacle is the configuration and maintenance of systems that provide visibility (such as smart port platforms) which can be expensive in the short term. However, stakeholders would do well to remember the long-term cost savings generated by the prevention of multiple risks in future.

Conclusion

So, what can be learnt from the current crisis? That the supply chains spanning our seas and skies are never going to be infallible. Freak incidents, such as the eye-wateringly expensive Suez Canal blockage, will always be a risk. However, by embracing sustainability, transparency and collaboration in supply chain strategy, stakeholders can affect both how they respond to and mitigate against these incidents. There is a revolution brewing within our supply chains right now, and those who don’t embrace it risk being left behind [14].

Guest User
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Sustainable Sourcing: The Role of Procurement in CSR