A risky business: Supply chain issues must be addressed

Posted on 13 Jul 2012 by The Manufacturer

Responding to TM’s recent article Top of the food chain, Tim Astley, regional practice leader for European risk engineering at insurance firm, Zurich, investigates how the points this article raised tally with recent research from his organisation.

According to our recent report, The Weakest Link: UK Plc’s Supply Chain, 88% of medium-sized UK manufacturers consider their supply chains to be either very important or critical to their business.

But the recent TM debate on supply chain management teased out two major challenges when it comes to adapting supply chains to support competitive manufacturing: complications around capacity development and uncertainty about skills and technological advancement.

Developing Capacity

To remain competitive, UK manufacturing companies need to push for innovation and growth. Supply chains must be modified at the same time, developing their capacity to keep up with the needs of the business. But this is a multi-layered process, as Cummins’ Mark Smith noted when he said that it not only involved identifying suppliers with capacity, but also with shared values.

Our report indicated that many businesses do not share the same values as their suppliers, particularly when it comes to working together to achieve mutual development and success: only a third of manufacturing organisations believe they are in a strong negotiating position with suppliers.

Supply chain reviews could help to improve this situation, but only 39% have done this in the past six months. Even more concerning is that only 13% of manufacturers have checked that their top suppliers have continuity plans in place, as well as implementing plans for their own business.

Manufacturers need to feel more certain that they can rely on suppliers to take them through periods of both difficulty and growth. As noted by NSK’s Tony Doran, supply chain visibility is a crucial part of this process: his organisation has begun to put together a comprehensive record of supplier data in response to the challenges posed by last year’s Japanese tsunami.

In carrying out such reviews, companies should identify all critical suppliers (not just direct suppliers) and focus on the relationship and management of these suppliers. They should aim to achieve visibility of key products for the entire supply chain, from raw materials to end users, and analyse the impact of failure on profits and output. Overall, a holistic approach should be taken, as threats to supplies of key raw materials and components can come from both physical and non physical causes.

Investing in skills and technology

The need to remain competitive also means investing in the skills of those who are responsible for managing the supply chain. According to Zurich’s research, 41% of manufacturing organisations feel highly exposed to risk because of employment and skills issues.

It was also unanimously agreed that a push to encourage investment in enabling technologies is essential. As noted by Siemens’ Brian Holliday, to keep up with the likes of China, the UK has to act quickly to incorporate more technology into supply chains.

But there is a fine balance between making proper use of technology and the highly-skilled people who can operate it, and over-reliance on them.

Over 32% of manufacturers reported that an IT outage has been a cause of supply chain disruption. Careless incorporation of IT just to be seen as competitive could lead to unnecessary risk, particularly as far-sourcing opportunities arise. In our latest study, 50% of manufacturers expressed an interest in far-sourcing, but it should be remembered that safeguarding global supply chains through technology is more unpredictable than at home.

With the vast majority of companies saying that the supply chain lies at the heart of their business, supply chain management should also be dealt with at board level – not simply left to the teams of skilled employees who manage it on a day-to-day basis.

Looking to the Future

We were pleased to see in our research that 72% of manufacturers will take an interest in reviewing supply chain risks over the next 12 months. Businesses need to map out their key suppliers and plan for the worst case scenario, or suffer significant disruptions and associated financial impacts.

What TM’s debate also establishes is that these reviews need to take account of longer term business developments and risks in the supply chain, ensuring that the UK retains its competitive edge.

Do you have faith in the resilience of your supply chain?

Enter TM’s Supply Chain Excellence Category at The Manufacturer of the Year Awards 2012 and benchmark your perfomrance against peers.

Entries close on July 31.