Supply chain disruption can come in many forms. Brexit, trade disputes, natural disasters – the number of potential scenarios is vast, and the risk of negative impact on a company’s stability is high. In 2011, the Tohoku earthquake and tsunami resulted in a crisis that affected supply chains around the world. It cost Japan’s economy $360bn – the costliest natural disaster in recorded history, with far-reaching consequences for businesses and economies across the globe. As 22 Japanese car parts manufacturers shut down, General Motors and Toyota were also forced to temporarily suspend production in the US. Considering the impact of events like these raises two questions: what other disruption is on the horizon, and how can businesses prepare to manage it?
The 2011 earthquake highlighted how a disruption in one country can affect the supply chain of a company on the other side of the planet. In 2019, as globalisation continues to advance, businesses are at risk not just from natural disasters, but significant market shocks as well.
Take the US-China trade war. For months, the US and China have imposed tariffs on billions of dollars-worth of each other’s consumer and manufacturing goods. The IMF last week predicted that tariffs from US-China trade will cut global growth by 0.8 percentage points next year, with the outputs of both countries heavily impacted. Closer to home, Brexit has led to even more supply chain disruption and uncertainty.
Over a third of UK businesses report feeling anxious about the impact Brexit will have on their suppliers and customers. Manufacturing firms have expressed concern about the impact on existing supply chains of tariffs, warehousing and border issues, while pharmaceutical and some food and beverage companies have been stockpiling goods for months. In addition to border disruption, there’s the added complexity of environmental, safety and quality regulations to consider. None of these potential changes are likely to be quick, and will involve lengthy negotiations and more uncertainty for businesses.
In a joint letter to the government, bodies in the aerospace, automotive, chemicals, food and beverage, and pharmaceutical sectors have expressed major concerns over the post-Brexit plan for the UK. The impact of the plan, say the letter’s signees, ‘would be disruptive to our complex international supply chains and has the potential to risk consumer and food safety and confidence, access to overseas markets for UK exporters and vital future investment in innovation in this country.’
From natural disasters, to trade wars and Brexit, to terrorism, military war, cyberattacks and economic volatility: there are multiple scenarios that can impact a business’s ability to plan ahead and manage complex international supply chains. In addition to immediate hits to a business’s bottom line, uncertainty can also have effects on longer-term plans and growth. Over half of respondents in a recent study on the Future of the Supply Chain cited either political or market uncertainty as a key factor holding them back from expanding into new markets, with 50 per cent of UK companies saying their supply chains had been negatively affected by Brexit uncertainty.
A constantly changing natural, economic and political landscape has forced businesses to consider their supply chains much more carefully, explore where efficiencies can be found and where competitive advantage can be gained. This is to say that, although global geopolitical issues have disrupted the world of business, disruption can also bring with it opportunities to be an early innovator.
Looking to the future
To succeed in such an unpredictable business environment, companies need complete visibility of every aspect of their supply chain, in real time, to enable them to anticipate challenges and put themselves in a position where they can react accordingly. This requires a digital-first mindset and the adoption of an Enterprise Resource Planning (ERP) system that uses new innovations in Artificial Intelligence, Automation and the Internet of Things. These advances can provide real-time, actionable insights from a huge range of data sources, to enable companies to model multiple scenarios and react accordingly, not only to mitigate problems, but to take advantage of opportunities, before their competitors spot them.
ERP technology, for example, can be used to manage risk ahead of any Brexit outcome. Software gives full insight into supply chains, customers and the global workforce, enabling companies to able to quickly make informed decisions, whether these relate to order backlog, consultant skill level, location, right to work or customer project location. Brexit or no Brexit, all organisations must be in a position to flex and transform their workforce at short notice, and this proactive, data-first approach enables that agility.
IFS works with Farrow & Ball, for example, to do just that. Through utilising digital tools, business leaders there have been able to make decisions on future costs in post-Brexit Britain versus other parts of Europe and the rest of the world. Based on this analysis, the company identified potential supply chain issues in serving the rest of Europe and made a proactive decision to open a distribution hub in Germany. The team at F&B also highlighted that moving to Germany ‘was an easy decision to make’ as they knew they could get their technology up and running quickly. As a result, the German site was set up in less than three months, enabling F&B to hold £1.2 million of working capital in a safer economic environment.
Beyond Brexit, ERP technology is proving instrumental in helping businesses ensure regulatory compliance. GDPR dominated headlines when it came into force, but despite the threat of huge fines, research suggests that over 50 per cent of businesses are still not compliant, leaving them open to severe penalties. As a company grows and its supply chain gets more complicated, the risk of non-compliance grows. ERP technology enables customers and global workforces to be “GDPR categorised,” providing a compliance benchmark to set, receive and store data, making it easy for companies to adhere to the regulation.
2019 may have seen significant supply chain disruption, but businesses are not without the digital means to overcome these challenges. In highlighting the need for total transparency, visibility of data and effective asset management, the events of this year will encourage investment in the right technologies. This will pave the way for years of effective and transparent supply chain management.
Darren Roos, CEO, IFS