“Ticking timebomb” under manufacturing supply chains

Posted on 23 Aug 2011 by The Manufacturer

A new report from PricewaterhouseCoopers suggests manufacturing supply chain strategy will soon be dominated by supplier financial security concerns as confidence is shaken by a year of disruption.

PricewaterhouseCoopers have waned manufacturers to protect against a “ticking timebomb” of financial instability which is threatening supply chain security.

The global accountancy firm has issued a statement urging manufacturers to act now to protect their supply base. The message comes after the release of a new report today.

Entitled, Achieving excellence in production and supply, the report identifies five priority action areas for manufacturers in the immediate future. These are: skills and talent, addressing lifecycle opportunities, linking demand planning with the rest of the supply chain, identifying and acting on supply chain risks, and stronger collaboration between suppliers and customers.

The urgency of supply chain issues have been brought to the fore this year as the disruption caused by the Japanese earthquake as well as the political turmoil of the Arab Spring take their toll on predictability in supply.

Early insight into a report to be released this autumn by law firm Pinsent Masons show that other professional institutions echo PwC’s concerns over supply chain security. Of those surveyed for the Pinsent Masons report 32%of were compelled to delay deliveries in response to supply chain disruptions this year. Thirty six per cent experienced shortages in the supply of products and 11% were forced to change supplier at short notice.

Highlighting the fragility which had come to characterise certain supply chains before the Japanese earthquake, PwC points to the case of sourcing Xirallic colourant. This popular pearlescent pigment was manufactured at just one factory in the world, the Onahama plant near the Fukushima-Daiichi nuclear power station in Japan.

When the plant was forced to close in the wake of the March disaster many automotive manufacturers around the world found they had to halt or reduce production. Most are now well on the road to recovering their production targets for the year but PwC says the incident has shaken confidence and suggests a re-think of global supply chain strategy is needed.

Barry Misthal, who heads up PwC’s global Industrial Manufacturing group, said: “Supply chains and the manufacturing industry have been on a rollercoaster ride, hit by skyrocketing prices of oil and commodities, high levels of debt, weak demand and tight credit.

Linking to his organisation’s new publication Mr Misthal continued: “This report asks manufacturers if they have the right tools in place to adapt and prepare for potential future risks. The reality is many do not know who their high risk suppliers are or where the cracks and loose chinks are in their supply chains.”

PwC indentify the financial stability of suppliers as a critical concern for the manufacturing industry going forward and one which will dominate the way supply chain relationships develop. The accountancy firm say that if, for instance, interest rates rise, businesses will have a diminished ability to service loans.

PwC say this situations calls for innovative collaboration and a greater attention to detail when researching risk areas. The firm advises that risk can be mitigated through appropriate strategies for skill shortages as well as lifecycle and demand planning.