Why supply chains are critical to economic growth, now and in the future

Posted on 6 Sep 2012 by Tim Brown

The manufacturers’ organisation, EEF, recently published data suggesting that businesses are increasingly looking to reshore their supply chains in the UK in direct response to the risk of disruption to global supply chains. David Noble, CIPS’ Chief Executive takes a look at the issue of near-shoring.

This has come to the fore in light of recent major natural disasters such as the tsunami in Japan and floods in Thailand. The consequence of these events, though local, are felt internationally and through lost orders , reputation and revenue, undermine economic growth at home here in the UK.

Though offshoring, on the face of it, brings great advantages such as creativity and innovation, enhanced use of technology and sometimes more accurate forecasting, when these are balanced with the consequences of major disruption, these advantages are often diminished.

EEF’s survey underlines the importance of supply chains to economic growth. Yet supply chains have long been ignored by boardrooms. CIPS research (Time to take Stock) undertaken in 2011 suggested that in comparison to other issues such as sustainability or CSR, FTSE 100 firms place hardly any emphasis on procurement and supply management, something that will no doubt change as investors start to wake up to the issue. Recent disruptions are encouraging change as one third of companies see supply chain management as a business critical issue worthy of board level attention. And it certainly needs to be.

The key to ensuring that unpredictable natural disasters do not influence UK businesses and our economy negatively is to ensure supply chains are built to be able to cope with these types of shocks. This means ensuring supply chains are both robust and flexible and able to adapt in such circumstances. Companies that can do this effectively will be successful in the long run. Those that do not will struggle to survive. This is becoming a major factor in these recessionary times.

The short-term signs, however, are worrying. On 21st August, the CBI published their latest monthly industrial trends survey which indicated a deterioration in manufacturers’ export order books in August, while expectations for output growth have flattened. This chimes with the latest Markit/CIPS manufacturing PMI survey, which found that the level of new export business declined for the fourth month running and at the fastest pace since February 2009.

UKTI have recognised that in order to secure future growth the UK needs to tap into overseas growth markets. To do this, the UK’s MSBs (Medium Sized Businesses) need to have a robust and resilient supply chain in place or at least the skills to build one to allow them to take advantage of opportunities that abound.

At the moment there is a skills deficit in this critical area and as a result there is a need for fresh young talent in procurement. CIPS 80:20 vision report identifies what supply chains in the future will look like and indeed the skills this ‘Generation Y’ will need to develop to build them.

The most prominent challenge the manufacturing sector faces over the next 20 years is the emergence of powerful new economies in the East. China is already the world’s largest manufacturer and will soon become the biggest economy. This eventuality will require businesses to be better informed of the wider environment they operate in, meaning they will have to secure into as well as from countries, using local knowledge to build sales.

Technology and social media too are revolutionising the way we do business. This will inevitably make our supply chains more efficient, but it will also replace human elements of our supply chains, leading to a requirement for a more strategic consideration of supply. To do this effectively, the profession must attract top graduates over and above accountancy, banking and law to ensure that, in this new environment, the UK’s manufacturers can export and enable expansion overseas.

Procurement will require individuals who understand the strategic implications in the medium and long, as well as the short term.

The prospect of reshoring is a short-term boon to our economy. However what will really enable UK plc to grow in the future is a supply chain that gives access to the growth markets of the future. In the meantime that means developing the tools to enable us to be able to do so.