Manufacturing Supply Chain – How to create resiliency against future risks

Manufacturing supply chains are becoming an increasingly challenging space. How can organisations reduce volatility and execute supply chain strategies with confidence.

Manufacturing supply chains are becoming an increasingly challenging space. Chip shortages have forced car manufacturers to cut or slow production, while in the Suez Canal, the plight of the Ever Given resulted in shipping delays and undoubtedly increased costs. Together with the changing political nature of global trade, supply chain concerns remain front of mind. 

The desire for some manufacturers to re-shore back to the UK in order to spread the risk is growing. A survey by Make UK, the Manufacturers Association, found that over a third of manufacturers said that they intended to increase their use of UK-based suppliers in the next two years[i] with many exploring options to use local suppliers.

As the world embraces smart technology, however, vital components like semiconductors will not be easy to re-shore. The scale, sophistication, labour, and production costs mean that reshoring such components is just not feasible. The semiconductor shortage that began last year as the pandemic hit continues to rumble on. Furthermore, finding suitable suppliers that meet acceptable standards — particularly with regards to human rights — is even more poignant given the issue of Environmental and Corporate Governance.

Building a resilient supply chain is critical to respond and recover quickly from disruptions, while evolving the approach through lessons learned.

Building Supply Chain Resiliency

The shortage of computer chips highlights the issue of relying on “just in time” production; this issue was also felt after the 2011 Fukushima tsunami. Fukushima acted as a catalyst for increased investment in supply chain resilience in the automotive industry – unfortunately, until the Pandemic, many other industries were still blind to the risks. 

While existing supply chain approaches are often adequate at the point of implementation, organisations need to ask themselves if those processes are resilient enough against future risks relating to climate change, political instability, and economic change. Risk analysis, controls, and resilience planning combined with insurance management will allow organisations to reduce volatility and execute supply chain strategies with confidence.

Simple steps are needed to build a basic level of supply chain resilience. Outlined below are some of the most important components of a resilient supply chain:

Relationship Management

A good dialogue is needed with critical suppliers to understand what to expect when things go wrong. These basic first steps are relatively inexpensive and could go a long way towards managing supply chain risks. 

Supplier Interruption Quantification

Both damage and non-damage business interruption are major risks that can result from supply chain disruptions or regulatory change; the UK's new trading relationship with the EU is a good example of this. The financial and business implications of not being able to provide goods and services are potentially seismic for an organisation. Having a good understanding of your exposure profile can help make informed decisions on your risk appetite and ultimately any insurance requirements.

Product Recall Planning

Despite best efforts, sometimes unsafe products, or those that do not meet legislative requirements, circumvent quality management controls and make their way into the marketplace. When an unsafe product has left the control of the manufacturer/distributor, it must be removed from the market. Recalls present a real threat to many organisations through loss of sales, diminished customer confidence, and affected supply contracts. However, a well-handled recall can reduce the negative impacts of an incident and could even improve the reputation of your organisation by demonstrating honesty and integrity.

Environmental and Social Governance

Sustainable and responsible supply chains are becoming increasingly important as part of net zero emissions strategies, increased public awareness, and enhanced regulation. For example, some countries are asking producers of microchips and other products to cut water usage dramatically due to shortages. While water rationing is an immediate response to shortages, the management of water through changes to regulations and water pricing will become increasingly common and will impact every supply chains. Organisations need to understand how they will manage and survive the transition to a changed climate and low carbon economy.

Is the answer to hold more inventory at the expense of working capital, have a wider panel of potential suppliers available should one fail, or does technology like 3D printing provide some of the solution?

Simple steps are needed to build a basic understanding of supply chains and a dialogue is needed with critical suppliers to understand what to expect when things go wrong.  These basic first steps are relatively inexpensive and could go a long way towards managing supply chain risks. 

 Eventually, big decisions will be needed, but at least when the need for solutions becomes critical, through these steps the organisation will have the data, falls backs, and supporting business cases to take affirmative action.

[i] https://www.makeuk.org/insights/blogs/what-is-the-future-of-manufacturing-supply-chains

Meet the authors

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Hugh Waggett

Senior Managing Consultant, Risk Consulting UK & Ireland

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James Crask

Consulting Director & Resilience Advisory Lead, UK & Ireland