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What are the key challenges for supply chains in 2020?

As an economy we face significant challenges. Brexit negotiations are likely to be taken to the wire while COVID-19 has shown the vulnerability of companies, sectors and institutions. Increasing social awareness and activism is challenging companies to rethink the fundamental ways in which they operate. No area of society will be untouched by these issues - and supply chains are no different.

What are the key macroeconomic factors?

We are seeing four macro trends that are impacting supply chains in the United Kingdom:

  • COVID-19 and the overall economic impact. Even if parts of the economy will recover to previous levels over the coming months (the “V-Shaped recovery”), certain segments and sectors will struggle to get back to previous levels, particularly given the surge in cases seen in September 2020.
  • The rise of economic nationalism and the future relationships with China. Perceptions have shifted on globalism and international trade. The United States will take a harder line on China regardless of who wins the 2020 presidential election. China may not cooperate with an international inquiry into COVID-19. Over the next few years we are likely to see existing reliance on China start to wane, particularly impacting companies who rely on Chinese production of their components or products. 
  • Brexit and the prospects for a trade deal. The prospects of an “adversarial no deal” are increasing by the day. A breakdown in relations between the UK and the EU27 will reduce any incentive for collaboration in short term future relations. This will lead to a number of supply chain issues, such as transit of goods at Calais.
  • The increasing importance of inequality. The increasing levels of inequality in the western world will come under more scrutiny, which will be amplified by perceptions of the economic recovery from COVID-19. Supply chains that are built on cheap temporary labour, offshoring, and zero hours contracts will become targets for public and legislative scrutiny.

How are supply chains being impacted by these factors?

These macro factors are impacting all facets of business, with supply chains not being exempt. We recently conducted a global digital operations survey of over 1,600 C-suite and operations executives to understand how they’re managing their supply chains. We found that the most effective companies - "digital champions" - have invested in technology and are using it to drive performance across a connected supply chain.

Given the results of our survey and the wider context we are seeing, our view is that organisations need to prioritise the following: 

  • Map goods flows and identify the fragility in your supply chains. It is difficult to predict the precise form that any future trade deals will take. If companies want to be in a position to take advantage of new opportunities, they need to have a very clear understanding of the flow of products in their supply chain, and have alternate options in place.
  • Work to improve visibility across the supply chain. Given the increasing levels of uncertainty in the supply chain, visibility will become the number one requirement for effective management. Having a clear understanding of the location and status of inventory, the movement of stock, and an accurate view of customer demand will become a basic requirement.
  • Implement contingency plans for Brexit. Whatever the outcome of the ongoing Brexit negotiations, it’s clear there will be significant changes to ways of doing business. The time for companies to implement their plans is now, not when a potential crisis is already upon them. 

The world is becoming increasingly changeable. There are significant headwinds impacting businesses across all sectors. The opportunity for supply chains in general and supply chain functions in particular is to become drivers of positive change in organisations, rather than be seen as an underinvested service function. No company will be able to respond to the economic challenges in the world without a supply chain that is responsive and flexible.

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