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A three-step approach from fragility to agility in the supply chain

09 November, 2021

Mark Anderson

Partner, IMS Forensics Leader and Supply Chain and Third Party Risk & Resilience Leader, PwC United Kingdom

+44 (0)7770 921256

Email

Paul Sloman

Engineering & Construction sector leader and Energy, Utilities and Resources consulting leader, PwC United Kingdom

+44 (0)7725 633353

Email

When supply chain disruption becomes front page news, few should be surprised that it becomes a subject that increasingly occupies the minds of those responsible for fixing it. From the Ever Given’s adventures in the Suez Canal, to domestic fuel shortages, and container ships stuck at ports unable to unload, the apparent fragility of supply chains has been animated by a series of high-profile and tangible use cases.

For 73% of UK manufacturers, the supply chain fragility is now the number one challenge they face in the coming 1-2 year period.

That’s according to our latest UK Manufacturing Operations Pulse Survey: November 2021. And while we shouldn’t be surprised that it is a leading concern, an apparent oddity of the PwC survey results is that the UK is one of only two countries to identify supply chain as its first-order priority (the other is Japan). This is odd given the global nature of the disruption. Indeed, three of the key contributors to supply chain fragility are the COVID-19 pandemic; meeting environmental, social and governance (ESG) imperatives; and addressing geopolitical tensions. All are very obviously international issues.

So why is the UK more preoccupied than elsewhere? In addition to the impact of COVID-19, the supply chain upheaval in the UK has been exacerbated by the impact of the UK's exit from the EU. This risk has been on the horizon since the UK voted to leave the EU in June 2016, but UK firms were not able to plan until the terms of the future trading relationship were agreed with the EU, and even now many uncertainties exist.

The sense of concern manifests itself in other results from the survey. Asked to identify priorities specific to the supply chain, the top four responses are transparency, carbon footprint, sourcing reliability, and vertical integration. As the results make clear, this isn’t just a management and logistics issue. It is a skills issue, too. The supply of labour is an enormous challenge, especially for specialised and high-skilled jobs – not just HGV drivers, but crane controllers, medical professionals and tech engineers among others. Often a lack of skills has a much more profound impact on operations than the supply of product.

In terms of mitigation, the solution fragility is invariably articulated in the catch-all phrase, ‘supply chain agility’. What does this mean in practice? Different things to different organisations but some commonalities present themselves. Agility is about having the capacity and the information to make short- and long-term decisions with relative ease. It’s about having a plan B (and C and D) on hand when disruption strikes again. That might mean dual sourcing, shortening supply chain links, untangling unnecessary complexity, or the vertical integration of tasks that currently are under disparate control.

Agility might, to borrow a term coined by the Chairman of shipping company Maersk, mean moving from “just-in-time” to “just-in-case” inventory management. The latter is likely to prove more expensive in the short-term but if it avoids operational breakdown in the event of future disruption, it will provide long-term savings and avoid reputational damage. The objective of agility: greater control, visibility, and efficiency.

We recommend a three-step approach:

1. Ensure full supply chain transparency

End-to-end mapping of the supply chain is essential to understand criticality and provenance of supply. Tools and technologies now exist to bring visibility to Tier 2 and Tier 3 as well as Tier 1 suppliers.

2. Understand supplier risk and resilience

Use data – operational, financial, ESG, political, and regulatory – to recognise relative supplier risk and resilience over time. Connect performance data with risk data, and consider creating a data lake so you can draw on indicators of risk – internal indicators but also external signals such as credit scores and social media sentiment.

3. Make coordinated decisions

Greater digitalisation and vertical integration is likely to improve decision making, when crafting strategic choices around inventory, demand forecasting, and performance management.

Cutting across all three steps is the impact of ESG – the environmental, social and governance imperatives that are likely to influence sourcing decisions and the geographic spread of the supply chain. Take transparency and visibility, for example. It is impossible to report on Scope 3 emissions if you don’t understand your supply chain end-to-end.

While manufacturing leaders identified the supply chain as a 1-2 year imperative, disruption and upheaval is likely to be a decade-long issue for most organisations. There’s little doubt that those who prosper will need to lean on deep subject matter, mapping, risk assessment, and resilience management expertise.

Mark Anderson

Partner, IMS Forensics Leader and Supply Chain and Third Party Risk & Resilience Leader, PwC United Kingdom

+44 (0)7770 921256

Email

Paul Sloman

Engineering & Construction sector leader and Energy, Utilities and Resources consulting leader, PwC United Kingdom

+44 (0)7725 633353

Email

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