With a continuing coronavirus pandemic, ongoing semiconductor shortage and a global shipping crisis, supply chain disruptions have never been more pronounced. So how can manufacturers insulate themselves from this unprecedented chaos as 2022 unfolds? Lee Collinson, National Head of Manufacturing, Transport and Logistics at Barclays, provides some insights…
Manufacturing supply chains aren’t glamorous and they’re certainly not regular features of front-page news. But when consumers experience delays with their online orders or they don’t show up at all, then supply chain issues suddenly become more mainstream. As a result, we’ve seen significantly more press coverage of global supply chain disruptions in recent times.
The frustrating reality for manufacturers is that order books are healthy, yet stock adequacy (or inadequacy, as is the case) continues to hamstring them.
Indeed, according to the Confederation for British Industry’s latest Monthly Industrial Trends Survey, UK manufacturing total order books improved to their strongest on record (since 1977) in November. Moreover, export order books were at their strongest since March 2019.
However, the same CBI report shows stock adequacy for finished goods worsened to its weakest on record. In the face of such challenges, many manufacturers have no choice but to pass on significant cost increases to customers. The CBI forecasts that price rises are all but inevitable, with manufacturers’ expectations for output price growth at their strongest since May 1977.
Exports will be pivotal in 2022
Nevertheless, sentiment among manufacturers remains relatively optimistic, particularly when it comes to exports. Barclays’ own research, which is outlined in our new report, The Export Dividend, shows that despite grappling with supply chain disruption and other challenges, manufacturers have, on the whole, enjoyed a successful 2021, with 26% achieving higher growth than in a “normal”, pre-pandemic year.
Our research also shows that it is exporters who were more likely to achieve significant growth than non-exporters (29% vs. 18%).
Tellingly, even though 71% of manufacturers have experienced pandemic-related disruption – particularly around supply chains – confidence for 2022 is high, with 88% of exporting businesses and 71% of non-exporters upbeat about growth.
Of manufacturers not currently exporting, 63% indicated they are making plans to do so over the coming year. If firms follow through on their export ambitions, their efforts could boost the economy by an extra £14bn by 2030.
But there is no quick fix for global supply chain disruption
If manufacturers are going to realise their export ambitions, supply chains need to be shored up to keep disruption to a minimum. But unfortunately, there is no quick fix to make this happen overnight.
All manufacturers can do is take a step-by-step approach, which focuses on several critical areas, to boost their supply chain resilience.
Delve deep to improve supply chain visibility
Any manufacturer that isn’t sure how resilient it would be in the face of different types of disruption, almost certainly does not have enough visibility into its supply chain.
While it can be difficult to create a comprehensive map that traces a supply chain the entire way, manufacturers need to generate as much visibility as they can. Otherwise, planning for “what if” scenarios is virtually impossible.
Reduce reliance on single suppliers
Most manufacturers utilise suppliers that narrowly focus on just one area. In turn, these specialists often rely on many other similar suppliers. While such arrangements can afford benefits, one breakdown in the chain and supply risks being disrupted.
Manufacturers need to carefully analyse each of their suppliers to determine the risk posed by their operations. For example, if a supplier of critical components only produces said components in just one facility or country, then the risk of disruption increases.
Localise where possible
Even though it was no secret, manufacturers’ reliance on Far East suppliers – particularly those in China – became very apparent when the COVID-19 outbreak struck. However, removing Chinese suppliers from supply chains completely is not the answer.
With its established supplier networks, flexible and able labour, and its large and efficient transportation infrastructure, China will remain a considerable force for years to come.
A more sensible approach going forward could be for manufacturers to adopt a “China plus one” strategy, which sees supply spread between China and another Southeast Asian country. While diversifying from a China-only model isn’t new, it has taken on a renewed vigour given the events of the past two years.
Hold more safety stock
Being as lean as possible has become one of the main goals for manufacturers over the years. But while they drive efficiency, just-in-time stock policies aren’t exactly the most intuitive for mitigating potential supply chain disruption.
Manufacturers need to weigh up the cost of holding more safety stock. This is especially important for stocks that only come from a single source. While such a policy can see more cash tied up, does this outweigh the potential revenue loss of not being able to make and ship products?
Remember: it’s easier and quicker to build inventories than it is to build factories.
Source: The Manufacturer