Global supply chains have huge benefits for companies in different industries due to the lower labour and operating costs, wider product ranges, and better reach to new markets. However, the Covid-19 pandemic exposed many of their vulnerabilities.
Customers are now expecting faster and faster deliveries. To ensure a one-day delivery on your purchase, you only need to pay £7.99 per month for Amazon Prime. However, when it comes to global supply chains, it normally takes weeks and even months to ship goods from overseas owing to port congestion, raw material shortages, transportation bottlenecks and so on.
In the past year, the combination of national and local lockdowns, raw material shortages, and economic and political instability has made global supply chains even more fragile, highlighting three main concerns:
1. Lead times
The global Covid-19 crisis has exacerbated the challenges of managing extended supply chains. The Institute of Supply Management (ISM) surveyed 559 respondents and reported that since the pandemic, average lead times for inputs are at least twice what is normal. For China lead times increased by 222%, Europe by 201% and the US by 200%.
Manufacturers who need electronic components are also faced with another challenge – material shortages. The ISM’s June 2021 Manufacturing report points out that electronic components are facing the biggest supply chain constraints, with lead times increasing from 16 weeks to over 52 weeks. Consequently, manufacturers now face a greater risk of running out of inventory. The lower speed to market because of longer lead times also means that competitors may occupy more market share by releasing new products earlier.
Brexit poses even more challenges for UK manufacturers. The EU is the UK’s largest trade partner, with 52% of all UK imports and 43% of exports in 2019. Brexit causes border delays and additional administrative burdens, significantly extending the lead times. As a consequence, end customers will not only need to pay for increased import tariffs for components, but also for extra costs throughout the supply chain, such as additional inventory holding costs and transportation costs.
2. Lack of diversification
To cut costs, companies tend to outsource production. However, Covid has highlighted the danger of putting too many eggs in one basket. Excessive reliance on one specific location or supplier may put businesses at greater risk.
For instance, if the supplier’s operations in tier one are interrupted, crucial supplies might not be able to travel to the next nodes, causing a domino effect that will result in expensive downtime for manufacturers down the line.
In addition, if a single source base experiences an unpredictable and catastrophic event, or it is purchased by a competitor or encounters financial problems, companies that depend on it will be put in a very unfavourable position.
3. Lack of visibility
During the pandemic companies have witnessed a radical shift in customer demand and disruptions to their supply network. Research company Capgemini published a report on rethinking supply chain resilience for a post-pandemic world, which highlights that in the past year, at least 72% of companies faced huge challenges in monitoring their end-to-end supply chain. The main challenges reported by business owners were keeping track of the location and status of their inventory, forecasting customer demand, and precisely tracking the share of transport capacity.
In cases of geopolitical unrest, the lack of end-to-end visibility in global supply chains can expose companies to higher risk of disruption. Companies that don’t have transparent supply chains may suffer huge financial losses, because they don’t have enough information to identify disruptions and act accordingly.
With accelerating globalisation our life necessities, from mobile phones to vehicles, are produced by components sourced across the world. Manufacturers relying on global supply chains will face increasing challenges, but sourcing crucial industrial automation parts shouldn’t be one of them.
☛ Neil Ballinger is head of EMEA at automation parts supplier EU Automation