As British manufacturers struggle to revive supply chains disrupted by the pandemic, they are being urged to conduct a long-term review of those supply chains to make sure their businesses are more resilient in future crises.

The UK government has launched the Project Defend programme to reduce the heavy UK reliance on China for medical supplies and other strategic imports exposed by the pandemic.

But while the government has cast supply chain reform as a national security issue, industry experts warn that companies also need to avoid a return to business as usual if they are to protect their own financial futures.

Instead, businesses should be building more resilience and flexibility into their sourcing networks to help them cope with future challenges, from trade wars and Brexit disruption to other natural disasters.

“The immediate challenge is to repair supply chains as quickly as possible, and the difficulty of that varies from sector to sector and company to company,” says Dr Carlos López-Gómez, head of Policy Links, an innovation consultancy unit at the University of Cambridge’s Institute for Manufacturing.

Electronics, aerospace and automobile manufacturers are among those worst hit, as their supply chains are longer, more complex and more international, he adds. On the other hand, many food manufacturers and their suppliers were able to keep operating during the lockdown, while pharmaceutical firms were protected to some extent by holding large buffers of input materials compared with other sectors.

“It takes time when you turn off a factory to get it back into operation, because you have to do test runs and quality control, and some of your niche suppliers may have gone broke or your specialist service providers may be unable to travel to your site,” he adds.

Cash-flow questions

The loss of specialist suppliers can be so crippling that while many manufacturers have chosen to shore up their own cash reserves by delaying payments to suppliers, some are making early payments to help vulnerable suppliers stay afloat.

Nicolas Jouan, an aerospace and defence analyst for the data and analytics firm GlobalData, says that in the defence sector alone, Lockheed Martin, BAE Systems and General Dynamics have made hundreds of millions of pounds in advanced payments since the beginning of the crisis to help the cashflow of critical suppliers who are often handicapped by low margins and a lack of alternative buyers.

Often there is an information failure because you have not explored your options. It is about finding the best practice for your type of business and mapping your supply options with better visibility of the whole supply chain

Dr Carlos López-Gómez
Head, Policy Links

The long-term decisions around supply chains involve tough choices, for instance between the cost-cutting instinct to survive a recession by slashing inventories and further consolidating supply chains, and the conflicting desires to provide back-up options in future crises by building up stocks and diversifying suppliers.

The efficiencies that have traditionally made “just-in-time” lean manufacturing and low inventory levels highly productive can now look like an almost irresponsible degree of risk. Similarly, some firms will feel more pressure than ever to find the cheapest suppliers, wherever they are in the world, while others say the priority should be on reshoring to domestic sources, especially amid fears of trade wars and Brexit tensions.

Roger Vance, the managing director of the precision engineering firm Ad-Vance Engineering in Lisburn, Northern Ireland, says the supply challenges posed by the virus have “heightened the need to think local on a long-term basis, and reduce over-reliance on overseas sourcing”.

“With over 50% of UK tool manufacturing currently being sourced from China, the impact on our entire manufacturing sector and wider economy could be disastrous,” he says. “While it is disappointing that it has taken a global threat such as coronavirus to highlight the benefits of reshoring, I would urge the manufacturing sector to seize this opportunity to reconsider its supply base.”

Different horses for different courses

López-Gómez says no single approach such as reshoring will suit every sector or firm: managers who are now busy redesigning factories for social distancing and planning for potential new outbreaks of the virus should also be devoting time to a cost-benefit analysis of their longer-term options. And that analysis must put greater priority than ever on assessing and mitigating the risks of supply chain vulnerability.

“Think about the next emergency, which could be climate-related or a nuclear accident or a second round of pandemic,” he adds. “You might find a potential supplier just up the road that is more expensive than your foreign supplier, but you need to balance that higher cost with increased resilience, lower vulnerability to trade tensions and currency fluctuations… and things like the ecological benefits of buying more locally.

“Often there is an information failure because you have not explored your options. It is about finding the best practice for your type of business and mapping your supply options with better visibility of the whole supply chain.”

Dr Sam Roscoe, a researcher and lecturer in operations and supply chain management at the University of Sussex, says that adjustments to supply chains should not be driven by a knee-jerk drive for nationalism or self-reliance.

“The aim is resilience, not national self-reliance. If you move all your supply sources to the UK you are not just looking at the probability of higher costs, you are also putting your eggs in one basket and making yourself vulnerable to UK-specific risks,” he explains.

A wiser approach for many businesses, according to Roscoe, would be to set up parallel and independent supply chains, so that 20% to 30% of production might be based in the UK and the rest overseas.

“That way you can ramp up one supply chain when a crisis happens elsewhere,” he says. “Yes, there are higher costs with duplication, but you are buying resilience and risk mitigation. You are not as susceptible to the whims of any one government, nor to problems that occur in one location or one distribution system.”

Roscoe says the cost-cutting strategy of pursuing economies of scale by centralising all manufacturing in huge facilities – often in China – had already been losing popularity among procurement executives and corporate risk officers even before the pandemic.

“That model is cheap but it has a lot of issues, because if that one centre stops, your whole company stops,” Roscoe says. “That is why we were already seeing a dispersion of supply chains, moving away from having one big centre to having regional hubs, say Mexico to serve the US, Poland to serve Europe and somewhere in Asia for that region.

“Now is a very good time for even small and medium-sized companies to think about who their suppliers are, where they are located and do they have dual suppliers, because the low-cost centralised model is just too risky.”

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