Time for change

Are your supply chains fit for the future?

Supply chains are having to adapt to new demands and new business models. It will not be a complete upheaval so much as accelerating changes already in the pipeline – if change really is going to come. Ruari McCallion reports.

After Fukushima, earthquakes, financial system collapse and now Covid-19, you can be forgiven for wondering how many ‘once in a lifetime’ events will have to occur before global supply chains truly embrace change. Or have concerns been overstated? Shane Brennan, Chief Executive of Cold Chain Federation, thinks that the systems held up quite well in the face of an unprecedented convergence of factors.

“The UK remained well stocked throughout the pandemic. The only shortages we saw were in the fulfilment stage during a period of unpredictable and unmeetable consumer ‘panic buying’,” he said.

Manufacturing: the shape of things to come

While many parts of the supply chain did, ultimately, hold up under the immediate strain, not everyone is as sanguine about the longer-term shape of globalisation. The manufacturing sector now seems to be recovering strongly, in the UK in particular, after being faced with an unprecedented challenge.

“Steep decline in demand and a forced pause in production placed huge pressures on cash reserves,” said Archie McPherson, former CEO of High Value Manufacturing Catapult (HVMC) at Warwick Manufacturing Group (WMG). “These challenges have come while companies are wrestling with transition to a different economy, a low carbon economy, along with the digitisation of manufacturing and society.”

These are manifested also in renewed, critical analysis of the carbon footprint and the sustainability of products, rather than just the piece price. This is a subject that companies like Coca-Cola Amatil in Australia are actively addressing with changes in the make-up of plastic packaging, to improve recyclability, and development of novel solutions to store carbonated soft drinks (CSD) at ambient temperatures, which can exceed 40o C in the Outback.

Long, global supply chains are vulnerable to disruption but ‘reshoring’ or ‘nearshoring’ – bringing manufacturing back from low-cost countries and closer to the marketplaces – carries the risk of cost increases, in labour especially. Maintaining competitiveness requires automation but even that is not a panacea.

Automation: cut variation first

“Before you automate, you have to sort out the methodology. Reduce variation; then automate,” Archie McPherson said. “Doing so should take cost out of the business and generate some savings. My question would be: if you don’t automate, where will you be in five years’ time?”

As Shane Brennan said, the supply chain was, at the beginning of the Covid-19 emergency faced with ‘unpredictable and unmeetable’ consumer ‘panic buying’ – although that term itself is a loaded phrase: when someone else does it, it’s panic buying; when I do it, it’s strategic purchasing and a perfectly rational response to the threat of shortage.

The B2C sector had to pivot and readjust very quickly. Home deliveries have seen dramatic growth but not all retailers have got it absolutely right and there have been some surprises. UK grocery chain Tesco, which was for years the leading internet grocery retailer in Europe, says that its delivery costs have risen by over £900 million (1 bn Euro).

“Retail margins are tight; the higher costs are unsustainable in the longer term,” said Richard Wilding OBE, Professor of Supply Chain Strategy, Cranfield University. Strategic rethinking is necessary; fortunately, it appears to be under way.

A great leap forward?

“You have to go back a year and look at what was going on amongst those supply chains,” Richard Wilding said. The Covid-19 crisis has accelerated the pace of what he describes as Supply Chain 4.0: the deployment of automation and improved connectivity. “What organisations were starting to do was to look at the possibility of using high levels of automation to effectively create a situation where it’s cost neutral to manufacture locally. We were starting to see increases in ‘nearshoring’; the current crisis has created the ultimate ‘burning platform’ and we have seen, in some organisations, the equivalent of five years of implementation within a three-month period.” He sees a move from ‘procure for cost’ to ‘procure for resilience’.

“Yes, I can buy very cheaply on the other side of the world but how resilient is that decision is going to be? Cost and value will be factored in but resilience is now becoming a major part,” he said.

The sun sets on globalisation

Clive Hickman spent many years in the auto industry and was Head of Engineering for Tata Motors in India, before becoming Chief Executive of England’s Manufacturing Technology Centre. In his view, it makes more sense to manufacture locally, in ‘factories in a box’ – smaller but more numerous facilities.

“I think that we have a big challenge to bring more automation into the food and drink sector, particularly,” he said. “If we can take a factory in a box to the farm and automate crop picking and processing, you can go straight from the farm to the supermarket shelves. All of a sudden, you have a longer shelf life. I think that food and drink is going to be one of the winners in that area.”

Internet shopping: the new normal

Consumers have got used to using the internet to browse and order, and to receiving deliveries at home. With the collapse into administration of one of Europe’s biggest shopping centre operators, and the exposure of the debt-financed chain model, in hospitality and fast food as well as the high street, the ‘big box’ retail model has never looked more vulnerable. If consumers permanently embrace the model of shopping at home and switch away from travelling to central shopping areas, the materials handling industry will be affected but perhaps not as much retail. The future could look more like the Amazon model, which will see the inward supply chain largely maintained; it is the other end that will be most affected. Savings can be made on dispensing with expensive urban locations but they will be more than offset by the costs of delivery, if they are not carefully managed.

“For warehouses the new normal will look a lot like the old normal: well-built, reliable equipment that responds to a business’ specific needs is key,” said Shane Brennan. “The biggest challenge in automation is about software and software integration – robots work well with seamless data transfer; when the data is imperfect, they start to function less well. The expectation is that in the medium term the labour market will be tight and competition for good logistics operatives will be intense.”