Supply Chain

We have all become used to the benefits of a highly integrated and global supply chain, but the combined effects of a global pandemic and the unintended consequences of Brexit have both contributed to huge disruption throughout the supply chain, from manufacturers through to delivery drivers. 

In addition to geopolitical disruption, increasing and volatile energy prices and a skilled labour shortage are putting further strain on supply chains. Those suppliers who are unable to absorb increasing costs will have no choice but to pass them on whenever they can. As those extra costs are passed on to the end user, the ripple effect of these inflationary pressures should not be underestimated. Higher costs will hit household budgets and potentially dent consumer confidence, derailing a recovery largely driven by the rebound in consumer spending.

While certain problem areas will ease in 2022, many will linger and other unforeseen disruptions are likely to emerge, so weaknesses and fragility identified in the past year will need to be fixed.

The natural first priority is to manage the immediate crises. The inability to get essential components, ingredients and final product where you and your customers need them to be affects the core of the business. Creative thinking may be necessary to deal effectively with problems that affect you and your competitors alike as the usual methods fail. Pre-Christmas, some companies went as far as chartering their own ships to circumvent the backlog at ports; others are looking at multi-sourcing to mitigate against failure of key suppliers. Across the board, there are extra costs that are being incurred and at some point (if not already) these costs will be passed on to end customers

Failure to deal with crises can affect the bottom line – but increasingly also have reputational and regulatory consequences.

Disputes: As the pressure to deliver mounts, relationships can become fractious. Communication with suppliers and customers often and early is always recommended. Disputes over preferential supply and a trend towards suppliers seeking additional payments over increased energy costs started to emerge at the end of 2021 and need careful management to ensure the longevity of good relationships.

Insolvency: Many businesses were over-leveraged and stressed prior to the pandemic. The moratorium on enforcement and myriad of government support measures (loans, HMRC forbearance, furlough) have masked much of that but, as those measures wind down and additional costs are reintroduced into monthly cash flows we expect to see an increase in distress across the supply chain, especially in those less able to absorb unprecedented increases in costs.

IT resilience: Concentration risk is always present, but will need even closely scrutiny in 2022 and won't affect solely physical goods. As digitalisation continues to evolve, cloud / data centre failures brought this into sharp relief as they are having a more noticeable impact on sectors. The AWS outage at the end of 2021 affected corporates globally, as websites, apps and cloud solutions faltered – from payment apps to airline reservations; e-commerce solutions; and entertainment streaming services. IT vendor agreements need to be carefully monitored and managed. The Walkers crisps supply disruption of October 2021 was caused by a failed IT system upgrade, and 2022 will be a year that many businesses examine their own IT business continuity plans and look for ways to build in redundancy. IT failures can be damaging to reputation as well as disruptive to the business.

Contracts: Contractual leverage can give the ability to resist price hikes, press for supply upstream and address issues downstream – via existing and new arrangements.

Scrutiny: The increased expectations on supply chain transparency and due diligence cannot be ignored. Germany's recent Supply Chain Due Diligence Act can be seen as a bellwether for what's to come, with expectations being set out up and down the supply chain – for both suppliers and customers.

Consumer expectations: Not only will retailers need to cope with disruption, consumer expectations and supply chain trends in general demand greater speed, agility and security. With the likes of Amazon and Asos still setting an example in the ecommerce space, consumers expectations, further accelerated by the pandemic, are such that slow and unreliable delivery of products and services won’t cut it. The pressure is on retailer infrastructure and tech partnerships to deliver.

In the long term, new strategies will emerge that integrate resilience. Digital acceleration and supply chain visibility can be embraced to equip retailers with the ability to weather storms such as the pandemic, Brexit or the blockage of the Suez canal. Advances in supply chain tech can create connected networks fuelled by data, speeding up first-mile automation and reducing last mile overheads.

And innovation doesn't just mean technology. If driver and shipping shortages can't be fully mitigated, smart ways to warehouse such as micro-fulfilment sites and near-shoring can help meet soaring demand from consumers.

Employee development to nurture in-house expertise, multi-sourcing and unexpected partnerships are all fertile ground for supply chain innovation.