Highly skilled procurement and supply professionals – along with accurate data and intelligence – will prove vital as we continue to navigate our way out of Covid-19 and through the choppy waters of Brexit
The delays at the Suez Canal in March this year once again highlighted the fragility of long supply chains. Fortunately, the Ever Given was freed after six days. However, the disruption cost an estimated $15bn per day. And the knock-on effect meant carriers missed their slots in subsequent ports and businesses had to pause production and/or let customers down on their expected orders. The global cost of these delays will be many times that, with 12% of global trade passing through the canal each year carrying over one million barrels of oil, food and goods.
This is overlaid on supply chains still reeling from the effects of the coronavirus pandemic and Brexit. Sea freight prices are still averaging around three to four times what they were before Covid; and since the UK left the European Union earlier this year there has been a lack of empty containers in Asia as organisations rushed to build up stock levels, creating the perfect storm for global freight.
Shortages and empty shelves have already been an issue due to Covid and Brexit, and this will inevitably lead to higher costs and restricted choice for consumers. While larger organisations are more able to weather this storm, for smaller businesses this could be make or break in what has already been a tough trading year. Particularly for those companies who have yet to invest in procurement professionals. Buyers must be more vigilant than ever, monitoring the critical small firms in their supply chains to ensure that they continue to trade and deliver.
How do we plan for such incidences? Professor Richard Wilding from Cranfield School of Management says there are two types of predictions, lucky ones and wrong ones. It’s perhaps impossible to predict events such as the blockage of the Suez Canal, but we can, and should mitigate against threats such as trade wars and future pandemics by spreading risk through multi-source supply chains. These aren’t changes that are easy to make overnight. Supply chains are complex, buyers may be tied into lengthy contracts and indeed for some goods and services is there indeed any other option? Apple, for instance, has over 80% of its supply chain in East Asia. Developing new sources and capabilities will be a major challenge.
The BBC reported that China was the only major economy to avoid a contraction last year and many economists have been surprised with the speed of its recovery, especially as it navigated tense relations with the US. China’s continued economic growth combined with protectionist strategies have caused tension and the threat of trade wars is a constant concern. We expect to see more local investment and diversification in supply chains. Although we hear the constant drumbeat of organisations looking to implement more multi-channel sourcing solutions, the reality is that these plans may not be realised for some time.
But what a time for our profession! Yes, things are uncertain; yes, there’s complexity, but these issues are at the core of organisational strategy. Having highly skilled procurement and supply professionals in your team is critical, as well as accurate data and intelligence. These things – along with open supplier relationships – will put you in the best position to navigate through these times.