Supplying new answers: overcoming international turmoil
Tom Legard, Partner, Industrial Practice at Odgers Interim, says that problems with international supply chains are leading some UK companies to look for solutions closer to home.
“Shanghai lockdown stokes global supply chains anxiety” ran a recent headline in the FT, succinctly summing up the story. Given that China accounts for almost 30% of the world’s manufacturing, the impact of COVID-related restrictions there reverberates across the globe and has direct and potentially damaging consequences for many businesses in the UK.
The problems in Shanghai are just the latest in a series of global supply chain challenges that companies have had to contend with in the past few years. Some driven by COVID, others by a variety of different factors.
Remember when colossal container vessel the Ever Given got stuck in the Suez Canal for six days last year? Of course you do, the story was everywhere.
Memes aplenty floated around online far more freely than the ship, but while some observers found amusement in the situation, for others it caused a monstrous headache. Blockage of this vital trade artery held up £7 billion of goods per day.
Needless to say, Brexit-related issues have impacted supply chains too alongside labour shortages in some major ports/distribution hubs globally. For example, the Bay Area of California has been hit by “epic cargo backlogs”. While in the maritime equivalent of our own backyard, there has been disruption to P&O Ferries’ services. And then there is the impact of the war in Ukraine.
Put all of this together and what you have is a picture of international supply chain uncertainty. This understandably causes a sense of unease among UK companies reliant on the supply of finished goods, components, ingredients and so forth from overseas.
It should come as no surprise that unease with respect to resilience is also felt in the upper reaches of government. As reported by the Chartered Institute of Procurement and Supply, under a programme known as Project Defend the Government has assessed 65 critical global supply chains to the UK in a huge amount of detail in an effort to mitigate risk.
Many companies are also looking to reduce risk by considering whether to reshore and/or “friendshore” – i.e. work with other nations and trusted supply sources. Deloitte observes that several factors have spurred the drive toward improved supply chain resilience, namely vulnerabilities caused by the interdependence of global supply chains; concerns that lean supply chains are increasingly subject to external shocks due to the pandemic, tight labour markets, or even shortages of shipping containers; and geopolitical upheavals that can reduce or cut off the flows of needed supplies.
Added to this, there’s a sense that the UK should be manufacturing more. A survey conducted in 2018 for the UK manufacturers’ organisation, Make, found that two thirds of the public think the UK should aim to be in the top five manufacturing nations in the world.
My feeling is that if the survey were repeated today that score would be even higher. There has certainly been widespread exasperation at the extent to which Chinese healthcare companies have profited from the rapid growth of the COVID home testing kit & PPE market. Why couldn’t the UK have a bigger piece of the pie, many have mused.
I recently met with a former FTSE CEO, an erstwhile client and now a top candidate with experience of relocating businesses out of China and nearer to home. He told me the trend of moving manufacturing out of China to neighbouring Asian countries begun in 2019 with President Trump pressuring US companies to ditch China has gathered momentum. He is aware of several companies currently reappraising their supply chains and completely on-shoring their manufacturing back to the US, as well as specialist consultancies in this space that were previously enthusiastic about locating manufacturing in China performing an about-face to champion exiting China.
Clearly, there are some strong arguments for improving supply chain resilience by reshoring or friendshoring at this time. However, many companies likely lack the bandwidth or expertise to address this internally, so we may see a rise in demand for interim talent with the knowhow to weigh up options strategically with a view to finding less risky supply alternatives in the UK.
Interim talent of this calibre is available – but the talent pool is finite. With demand for people with the right capabilities almost certainly set to grow, businesses should not shy away from assessing their resilience given the prevalence of international risks.
It is, in several senses, a matter of supply.
For more information, please contact Tom Legard.