How to succeed in the face of supply chain volatility

Andrew Black, supply chain expert and Principal at Efficio writes about the best practices for tackling the current issues with the supply chain.

It should be the golden quarter for retail, but this year the shelves are set to be less than plentiful. Now, online shoppers, so used to 24-hour delivery, are finding themselves facing weeks before their orders arrive.

Ongoing supply chain issues caused by a perfect storm of port congestion, freight delays and staff shortages are continuing to hamper economic growth. At a recent Commons Transport Select Committee hearing, MPs were warned that a lack of HGV drivers has strained supply chains to the point that retailers are being forced to cut their ranges to ensure they can deliver core products, while Asda has announced that it’s chartering a dedicated cargo ship to ensure their Christmas stock is in store.

The news isn’t ‘new’ – it’s been on the worldwide agenda for months – and was felt most keenly by consumers during October’s fuel crisis.

The pent-up demand as a result of the pandemic is now generating huge spikes in spending, and this is having a knock-on effect when it comes to shipping capacity and the availability of goods. As a result, the cost of materials and shipping is extremely volatile – and this isn’t forecast to change any time soon.

How did we get here?

Whilst inflation was inevitable, this is happening against a backdrop of increasing labour shortages, with HGV drivers placed at the forefront.

It’s a long-running problem that’s been getting progressively worse over the last two years and, 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 direct result 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, or a combination of the two, we are now living in an increasingly volatile world where disaster proofing has become the norm.

While each of these ‘black swan’ events may vary in specifics, the consequences are much the same, begging the question: does the concept of the unforeseen extreme event actually exist anymore?

Preparing for the unpredictable

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.

Whilst 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 we move towards a more complex supply chain, 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 we are seeing 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.

The new normal

The impact of the pandemic and the extent to which it is amplifying trends means that companies need to accept that the ‘one-size-fits-all’ supply chain model is no longer valid.

In order to successfully weather the issues affecting the global supply chain, businesses need to understand that a shift has taken place. Supply chain managers and procurement teams must work together and act now to review their models and determine whether they are still fit for purpose in this rapidly changing world. Those that arm themselves with the tools and agility required to mitigate the various risks, will be those that succeed.