Supply chain disruption is now the norm for UK businesses, with consumers at the receiving end of delays and shortages. Can businesses and the UK government smooth out the bumps?
A report by digital supply chain experts project44 predicts ongoing problems into 2022. Logistics industry leaders view Brexit and reliance on China as two main issues, though they’re far from the only problems.
How much of this is down to Brexit and China?
There’s a broad consensus across supply chain experts and industry leaders that Brexit’s impact is real, but the extent of the impact varies. James Hookham is the director of international shipping trade body the Global Shippers Forum. He says Brexit reduced the number of lorry drivers in the UK from 2020 and caused bureaucracy-related delays, especially when full UK border controls came into force at the end of January 2022. More controls on food and animal products are still to come, trade between the EU and Britain has dropped dramatically, and Covid has frustrated new trade agreements, he adds.
Before the pandemic, China’s global supply chain role was logical and convenient. But Beijing’s zero-Covid strategy and trade disputes with the US created knock-on effects for moving goods. Trade disputes caused manufacturers to stockpile components ahead of embargos, says Laurence Dellicot, director of supply chain services at logistics technology firm Avnet Silica. Shortages of electrical components, such as semiconductors and circuit boards, have been exacerbated by delays from the country.
Digital tools can bring scalability, versatility and cost reduction if deployed correctly
“Draconian measures” to prevent Covid-19 spreading have squeezed exports to the UK, according to Kent Business School’s Professor Thanos Papadopoulos, such as restrictive lockdowns in the ports of Dalian, Shanghai, Ningbo, Tianjin and Shenzhen.
Consumer demand is rising, Papadopoulos adds, which pressures manufacturers to produce and transport more raw materials to meet increased orders. But for many companies, especially electronic manufacturers, this pressure is at odds with component shortages, leading to supply chain snarls and increased costs.
“Components were scarce because of suppliers in the Far East, shipping containers became scarce, finished products piled up in storage and transportation costs skyrocketed,” he says.
Brexit and China aren’t the only challenges. Local issues are also affecting supply chains, whether or not a business relies on international routes. These include inflation, higher-than-anticipated post-pandemic demand, and the knock-on effects of rising energy costs, such as increased prices for raw materials, transportation and finished products.
Hookham says the fundamental problem is “too many boxes chasing too few ships, with ports and inland distribution networks becoming congested”, leading to shipping rates that are three to five times higher than 2019 costs.
Sustainable solutions
How can suppliers overcome these challenges? Some companies have absorbed the costs rather than increase prices for their customers. Some have moved from just-in-time to just-in-case supply chain strategies: for example, stockpiling and over-ordering goods or components.
Lay-Z-Spa UK, for example, manufactures its products in China, but has largely absorbed the increased freight costs rather than passing these costs on to customers. Similarly, trade supplies company TIMCO has a buffer of five to seven months of stock and £34m of orders from the Far East. Clothing manufacturer Hawtho has bulk-purchased cotton ahead of time to meet customer demand.
But these aren’t practical solutions for all businesses. Companies should “avoid overselling and overpromising to customers”, according to Dellicot. Diversifying supply chains alone will not solve all problems. He advises businesses to perform robustness and agility tests on their supply chain and use the data, especially real-time data, to improve the flow of products.
Len Pannett, managing partner at Visagio, encourages digital transformation to improve supply chain visibility. He also points to identifying alternative sources of materials from local suppliers or using innovative techniques like 3D printing to “alleviate long lead times and save costs of spare and tooling parts”. Empowering lower-level decision-makers to respond quickly to problems, and obtaining demand data from suppliers and customers to plan accordingly will make it easier to move goods on a day-to-day basis, he adds.
Long-term shipping contracts are another solution. However, Hookham cautions that while such deals might buy delivery certainty, businesses could “pay over the odds” if the spot market collapses later in the year and container demand drops.
What can the UK government do?
The UK government has been urged to increase investment to ease supply chain delays, including more money for port and rail infrastructure to improve connections within the country, as well as technology and research capabilities. However, investment in supply chain innovation can be a shared responsibility between the public and private sector.
“Digital tools can bring scalability, versatility and cost reduction if deployed correctly,” says Pannett. “Solutions such as robotic process automation are proven to have fast returns on investment and can give supply chains speed, accuracy and economy.”
At a legislative level, the lorry driver shortage, which has been exacerbated by EU drivers returning home post-Brexit, could be eased through new laws to make it easier to recruit foreign workers. But in the long-term, UK facilities for lorry drivers, pay, benefits and training opportunities need to improve to make the job more appealing. Somerset-based Bradfords Building Supplies supports its apprentices to get their HGV driver licences, but Jon Rendall, the company’s supply chain manager, says more needs to be done to ensure there is a large pool of qualified drivers available for British businesses.
Communication between British businesses and government – and between businesses and their suppliers – will help smooth some supply chain issues, particularly within the UK. However, other factors, including Brexit-related obstacles, remain harder to overcome.
Pannett agrees that communication between government and business is important, while advocating for a better Brexit deal, ideally with Customs Union and Single Market access. However, he outlines the challenge of realigning UK-EU relations: “Rejoining the Customs Union and the Single Market … would be helpful, [but] bring further political implications.”
But without the appetite in Westminster for such bold moves, British businesses will have to look closer to home to smooth out supply chains.
