Why greater visibility holds the key to manufacturing supply chain resilience

Insufficient supply chain capacity, access to domestic labour and skills and cyber security threats are among the biggest risks for manufacturers in the year ahead, according to the Make UK Executive Survey 2022 in association with PwC. And our 2022 Global Risk Survey shows that, for a small minority, the impact of these risks could be as severe as negatively impacting revenue growth.

Even with such significant short-term disruption and volatility, the sector can’t afford to neglect the longer-term supply chain challenges around digital transformation, responsible sourcing and decarbonisation of the value chain.

Greater visibility is one of the key factors needed to address these immediate and longer-term challenges. And yet because things are changing so quickly it’s difficult for organisations to get financial insight balanced with changes in customer demand, making aspects of scenario planning a challenge.

Building on the valuable lessons of resilience, collaboration and agility learned from the pandemic will help manufacturers to tackle these fast-moving challenges. And taking a forward-looking and more transparent approach to risk can provide the supply chain visibility and resilience to proactively mitigate these often unpredictable obstacles and take on new opportunities with confidence - without having to put the brakes on growth.

Global instability adds to supply chain uncertainty

Spiralling energy costs and security of supply, exacerbated by the conflict in Ukraine, have become critical for energy-intensive parts of the sector. Industry leaders across the UK’s steel, glass, ceramics and paper manufacturers have warned that high energy prices could cause shutdowns.

These shutdowns can cause sudden and unexpected bottlenecks when a key single source of supply is threatened. For example, when energy costs hit production at the UK’s main supplier of carbon dioxide to the food and drink industry, it had a significant knock-on effect on the packaging of meat and other goods, disrupting food supply.

Global events have also highlighted the need for organisations to remain alert to the continued and changing impact of sanctions on complex supply chains and the need for transparency about the direct and knock-on impacts.

How technology, data and human insight can improve visibility

Deeper analysis of supply chains, beyond the tier-one suppliers is vital to understand the dependencies and where the weaknesses are. This analysis can help manufacturers quickly adapt to obstacles - and gain first-mover advantage over competitors - as they increasingly transition from pre-pandemic just-in-time delivery to just-in-case capacity.

Achieving this visibility requires greater use of technology and data, and just over a quarter of manufacturers in the Make UK 2022 survey say adopting technology and cloud-based solutions is now a high-priority strategy for mitigating supply chain risk. Harnessing experience and insight with the power of technology such as artificial intelligence (AI) can help manufacturers speed up this process of gathering, cleansing and analysing data to proactively identify these hidden areas of risk down through the supply chain.

Technology now also makes it much easier for organisations to move to event-based planning across the entire supply chain, enabling real-time granular data and alerts when different events occur. Transport and logistics data can inform deployment plans and make a difference to last-mile delivery, while automation technology is now starting to take over some of the micro-planning decisions and giving organisations the room to get the big macro decisions right.

Organisations can also quickly begin to assess multi-tier supplier risk and then feed that across the supply chain network to reorganise and look at different resilience strategies, such as onshoring or moving to second-tier production facilities.

Digital transformation brings benefits but also cyber risk

Manufacturers continue to ramp up digital transformation efforts to improve efficiency, productivity and visibility. Just short of half of all businesses surveyed (44.7%) in the Make UK 2022 survey have made concrete plans to invest in automation, AI, additive manufacturing or other forms of digital technologies over the next year - and a further 19.7% plan to do so within the next two years.

But this digital transformation and cloud adoption brings increasing technology and cyber risk as organisations become more extended and open to potential cyber attacks. Just over three-quarters (77%) of industrial manufacturing respondents to our 2022 Global Risk Survey say keeping up with the speed of digital and other transformations will be a ‘significant’ or ‘very significant’ challenge in managing risk in their organisation this year.

And more than a third (36%) of UK manufacturers say protecting against cyber attacks is one of their top three priorities for mitigating risk. This cyber risk is evident in the increase in ransomware attacks causing disruption to supplies of everything from gas and oil to food production and distribution, such as the attack on JBS, the world’s largest meat processing company, which paid a £7.8 million ransom after it hit operations in Australia, Canada and the US.

Addressing cyber transformation alongside technology enables organisations to reduce risk even as their attack surface grows. From expanding the network and number of digital connection points with the supply chain and customers to ensuring the data configuration of cloud adoption is set up correctly, getting it right will not just reduce risk and improve confidence, but also help manage cost and increase operational resilience.

ESG - from regulatory burden to value creation opportunity

Responsible, ethical sourcing and sustainability isn’t just about regulatory compliance. By doing the right thing - and being seen to do the right thing - manufacturers can send a clear signal of commitment to purpose and values that will help build trust and brand reputation. In our UK CEO Survey, for example, 63% of respondents believe customers at least occasionally choose their products because of the company’s values.

Two-thirds of manufacturers say they will focus more on net zero in 2022, according to the Make UK 2022 Executive Survey. Key to achieving this will be decarbonising the supply chain, particularly for indirect scope three greenhouse gas emissions from a company’s suppliers.

But the real prize here goes much further than regulatory compliance. On an industry level, it creates a powerful platform for change - moving markets towards rewarding those who embrace decarbonising as the start of ambitious transformation. And individually allows manufacturers to identify where they can carve out competitive advantage on their ESG journey to take advantage of investment.

Access to finance, and accuracy and transparency in reporting across complex supply and manufacturing chains, sends a clear message to markets, consumers and investors. But those stakeholders increasingly want to see organisations walk the talk and deliver on those ESG intentions. This will require a consistent approach to data, measurement and reporting to create meaningful metrics and demonstrate progress on these issues.

Supply chains must also become more ethical and sustainable, and regulation is increasing in this area. The EU is proposing a Directive on mandatory human rights, environmental and good governance due diligence throughout a company’s full supply chain. The Directive on Corporate Sustainability Due Diligence legislation, if passed, will apply to EU companies with more than 500 employees and a turnover of €150 million doing business in the European market, which would also cover non-European suppliers.

Technology, data and analytics play a key role in helping to create the transparency necessary to understand these ESG-related supply chain resilience issues. And it’s vital to have robust agreements in place with supply chain partners and that terms of supply are understood.

Building the resilience to adapt and emerge stronger from disruption

There are big challenges ahead but manufacturers don’t need to bite this all off in one go. Instead, organisations must have a clear roadmap and steps to transformation to build the maturity, visibility and resilience needed to scenario plan and adapt to what will be a volatile few years.

“The need for integrated, proactive management of risk across the supply chain has never been greater,” says Mark Anderson, Partner and Supply Chain and Third Party Risk & Resilience Leader at PwC UK. “Complex and extended supply chains contain both hidden risks and value. A clear, transparent view across your third-party supply ecosystem - powered by technology, data and human insight - is essential for organisations looking to build resilience, protect value and mitigate risk.”

Find out how to rethink risk with our 10-point Agenda for Action and to discuss any of the issues raised in this article, please get in touch.

Find out how to rethink risk with our 10-point Agenda for Action and to discuss any of the issues raised in this article, please get in touch.