Managing supply and demand in a high-risk world
As long as businesses continue to wait for supply chains to “return to normal,” port congestion, freight delays, and surging demand could make it difficult for the UK to bounce back after the pandemic. According to Andrew Black, a supply chain expert and Principal at Efficio, companies need to be proactive in adapting to a more complex normal, if they are to overcome future adversities.
Multiple reports suggest that record shortages of stock and supply bottlenecks are choking the UK’s economic recovery. Even large, multi-billion-dollar food outlets have been hit hard, with McDonald’s facing supply chain issues affecting the availability of shakes and bottled drinks and Nando’s forced to close outlets after running out of chicken amid growing labour shortages.
In fact, earlier this month, the UK faced an escalating energy and fuel crisis, leading to rapid price hikes, gridlocked petrol stations and many pumps running dry. If left unaddressed, retail bosses have warned of the disruptive impact this will have on Christmas, as peak season approaches.
Since the height of Covid – which saw everything slow down (including shipping) – the world has rebounded faster than anyone thought. The pent-up demand experienced over the last 18 months is now resulting in huge spikes in spending, and this is having a knock-on effect when it comes to global shipping capacity and availability of commodities. As a result, the cost of materials and shipping is extremely volatile – and this won’t slow down any time soon.
While inflation was inevitable, this is all happening against a backdrop of increasing labour shortages, with HGV drivers placed at the forefront of this. According to a recent Road Haulage Association (RHA) survey, there is now a shortage of more than 100,000 qualified drivers in the UK. While some argue it has been a result of the lingering impact of the pandemic, others suggest that it is a cliff-edge caused by Brexit that has created an employment gap – particularly across the haulage industry and warehousing sectors.
Nevertheless, whether it is a labour shortage or the ongoing impacts of Covid lockdowns, businesses are now living in an increasingly volatile world where disaster proofing has become the norm. While each of these so-called “black swan” events may vary in specifics, the consequences are much the same, begging the question: does the concept of the ‘black swan’ event actually exist anymore?
Preparing for a more complex norm
Rather than seeing these events or circumstances as a “one off,” organisations must adapt their business models to ensure resilience across the entire supply chain. This, for many, will require a change in mindset.
While a business model based on pursuing revenue and squeezing costs may have worked in a low-risk world, this approach no longer makes sense. Instead, organisations must focus on building in resilience where they can. This may require sourcing multiple contracts and diversifying suppliers or onshoring manufacturing operations to ensure production takes place closer to the customer. While this may be less cost-effective initially, these considerations can limit disruption if more of these events arise. Rather than pursuing revenue for its own sake, businesses would be wise to pursue good margins that factor in these additional costs and make way for a more resilient supply chain.
Along with this change in mindset, there also needs to be an infrastructure investment to keep pace with growth and a rebounding economy. Until now there has been a lag, and investment is needed urgently in order to catch up.
As the world moves towards a more complex supply chain situation, companies need to get smarter at understanding changes to demand, and this requires smarter data and analytics. Previously, where port operators were geared around big seasonal trends, demand has become much more complicated, and there is now the demand for peak-like volumes all year round. Unfortunately, traditional forecasting models are not as predictable in this new normal – so, to keep up, global supply chains need to adapt.
No going back
There will be those that argue that after the pandemic passes, normality will return; however, this perspective underestimates both the scale of the Covid-19 impact and the extent to which it is acting as an accelerant of pre-existing trends. Companies need to accept that the ‘one-size-fits-all’ supply chain model is no longer valid.
In order to come out the other side of both current and future adversity, businesses need to understand that rather than a blip, a more permanent shift has taken place. Organisations must act now to review their existing supply chain model and determine whether it is fit for purpose in this new higher-risk world. Those that arm themselves with the tools and infrastructure needed for agility will be those that succeed.
