Though the dust is settling, and supply chains have been strengthened after the pandemic’s initial impact, businesses are still suffering the aftershocks. With shortages and price hikes for raw materials hitting certain sectors, businesses are rewriting their sourcing strategies and changing course to increase the resilience of their supply chains.
Efficient cost management has always been an essential part of business and as company margins continue to be squeezed, it will be critical. But the appeal of far-shored, inexpensive suppliers has waned as a result of recent disruptions, and businesses have learnt the hard way there is more to good supply chain management than just price.
We’re seeing an accelerated interest towards source-for-resilience models and away from a source for-cost approach, as businesses rethink what true value in the supply chain means for them. So, what makes supply chains resilient? A focus on sustainability is crucial. This does not mean traditional green initiatives, although these are key considerations as consumers and businesses make efforts to combat the effects of climate change. What I really mean is conducting business in a more responsible, ethical manner, especially towards suppliers, by paying on time or offering support when needed.
I’m glad to say there have been many positive examples in recent months with large corporations paying not only promptly, but prioritising small and medium-sized enterprises or helping them find new markets for their goods. Our survey this month found that almost a third of companies were paid more quickly during the pandemic, injecting more stability into supply chains. I hope this trend gains momentum as there’s still a long way to go to bring equity to business transactions. Current proposals being considered to strengthen the government’s Prompt Payment Code (designed to stamp out late payments) shows ethical treatment of suppliers hasn’t been fully accepted across all businesses.
Your critical suppliers must be protected because if they fail, you fail. Ethical supply chain management just makes good business sense. Another question businesses should be asking themselves is around the diversity of their supply chains. Almost 30 per cent of companies we surveyed had reshored some of their supply chain, reducing the length and complexity of their operations. This won’t work for everyone, but shorter supply chains can bring increased sustainability and resilience.
Greater use of local producer means goods travel shorter distances, cutting emissions and reducing the number of disruptions. Local economies also benefit and, though each business’s circumstances are different, it is an approach that can bring benefits for business and local community alike. Add multiple sourcing strategies to increase the capability of moving between suppliers and supply chains are stronger still.
We mustn’t forget that tech plays a crucial part. Businesses should focus on mapping multiple tiers within their supply chains, grading by risk and having basic automated processes in place to increase transparency across the whole operation. Not having this visibility is a threat to strong supply chains. Solutions such as artificial intelligence can help make sourcing decisions and there are rewards to companies from using data more efficiently.
As the UK economy crawls towards recovery, I believe resilience, driven by sustainability and responsible practice, is a key driver in recovery. Our research found 17 per cent of companies had already built more resilience into their supply chains, propelled by the impacts of the pandemic. Add to this the threat of disruption from Brexit, the number of businesses with resilient supply chains should be a lot higher.
Author: Malcolm Harrison, Chief executive, Chartered Institute of Procurement and Supply.
Excerpt from Raconteur Business Growth & Recovery special report published in The TIMES.