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Supply chains: building resilience and facing challenges

Editor James Burman sits down with supply chain expert, Richard Wilding, to discuss the multitude of challenges faced by our industry over the past couple of years, many of which remain present and persistent today.

James Burman (JB): Having reached the point of relative ‘normality’ in terms of government guidance, what is the current state-of-play regarding the pandemic’s impact on supply chains?

Richard Wilding (RW): You have to think of it in terms of local and global. Locally, we may find that the industry is getting back to normal, but the biggest challenge we have is with the global supply chain. What we’ve been seeing in recent months is rolling lockdowns, in China for example, which are evidence that supply chains are still being disrupted. It doesn’t matter where you’re operating, whether you’re in the UK, the US, or elsewhere, we all have global supply chains now, and that is where the disruptions are.Shortage of staff has affect supply chains across the UK

Even if we might feel in our part of the world that things are getting back to normal, the point is, things are not getting back to normal globally, and that is something that I think we’re going to have to live with for quite a long time yet. There are certain things that have been accelerated, though. Back in 2019, as an industry we were looking at various supply chain 4.0 technologies: digitisation and robotics, for example. I predicted we would see these technologies come into play within the next five years or so… but when the pandemic hit, we found that companies were starting to implement these things within five months, sometimes even five weeks!

One of the big things that has occurred, particularly when you’re thinking about something like retail, is as soon as the pandemic struck, it had a huge impact on the move to online. In the retail environment, we’ve tried to serve a new market, but with the old supply chain. The big challenge with that is ‘cost-to-serve’. All of a sudden, consumers are no longer going into stores to get products, and we’ve got to deliver them to their homes. Many of the big supermarkets make announcements saying sales have gone up – but then when you look at profitability and margins, they’re plummeting. Why? Because effectively, they’ve got these old supply chains trying to do new things.

What we then must start doing is changing our processes, changing the infrastructure networks, changing the information systems, but also the skill sets of the people. Not only is it a really pressured time for businesses, but it’s also tricky for individuals as well, because it means that jobs are having to change. When we get things right, we’re going to start to find that we can manage things in a better way. But at the moment, things are very challenging.

JB: This month marks 18 months since the UK’s complete separation from the European Union on 31st December 2020. Since then, logisticians will mostly have felt the effects on the borders and ports of the UK. How do you think the situation has developed? Is it still impacting the flow of goods or are things stable?

RW: Of course, there have been multiple challenges with Brexit – there’s no doubt about that, but I would actually argue the pandemic has had a far bigger impact on the way that supply chains are structured. There are certain aspects which are very challenging; take Northern Ireland for example. Another is the lorry driver shortage. If we look at the roots of that problem, people literally went home outside of the UK as there was no work, and now the work is returning. Effectively, what we saw was that the tide went out, in terms of demand on our supply chains. Not only from Brexit, but also because of all the various lockdowns throughout the pandemic.

What then happened in 2021, was the tsunami came in. And with that tsunami, what have we seen? We’ve seen gas prices going up, energy prices going up, because everybody is wanting to get back to normal. All of these things have occurred, so in reality, Brexit is just the cherry on a very nasty pie that all supply chain professionals are having to manage at the moment.

JB: As probably the most recent crisis to impact global supply chains, how is the war in Ukraine causing supply chain challenges?

RW: When we’re looking at Ukraine, I think one of the key things we need to recognise is how much of an impact the war is having on certain key resources; not only oil and gas, but we also should think about food. Watch this space for further food inflation because Ukraine is the breadbasket of Europe. Over 30% or so of the cereal crops in Europe come out of that region. We also can’t forget that crops are seasonal, so even if the situation isn’t impacting supply now, it may impact us later. Lastly, to tie it back into gas prices, gas is used for making ammonia, and ammonia is used for fertilisers, further crippling the supply of crops.Brexit continues to affect supply chains

To make matters worse, potash, which is a salt used as fertiliser, predominantly comes out of Russia and Ukraine. What does a change in the supply of all these materials mean? Even before the war in Ukraine, I was concerned that this coming year, because of fertiliser prices going up caused by it. Just to give you an example, if you think about the current microchip shortage; this is a process in which silicon wafers are produced using lots and lots of pure water. In Korea, there was a drought, which actually created some real challenges for those manufacturing businesses. What we’re starting to see here is an example of climate change not just having a general impact, but on very specific industries and sectors.

Having said that, climate change is easing some other supply chain challenges caused by Brexit and some of the issues I’ve previously mentioned. Take the supply chain of wine, for example. Now if you’re looking at the English sparkling wine business, it’s really moving forward. Because of climate change, we’re seeing more English sparkling wine and champagne equivalents. The vines are growing better in the United Kingdom now than they are in the Champagne region. All kinds of things are changing due to climate change.

JB: Given the past couple of years, it’s clear that resilient supply chains are key to mitigating future challenges. What do you think are the stand-out components that make up a resilient supply chain?

RW: One of the concepts which I’ve been telling companies to adopt for many years is a structure which I call ‘the temple of supply chain resilience’. There are a number of key elements to it, which I’ll describe.

We have to have a foundation of effective supply chain strategy. Supply chain strategy is really all about understanding what our customers value, and that has changed quite dramatically. In essence, if we think about the retail supply chain, the shift to online basically means that what customers value has changed. If we think about the traditional retail environment, we were designing supply chains to make it nice, easy, and even a little bit fun for consumers. People could park outside a supermarket and wander in, and you were very much in control. All of a sudden, with social distancing, having to wear masks, one-way systems in supermarkets, it became, well, less fun. It certainly wasn’t that easy, I don’t think many people really felt in control, and no, it didn’t feel safe at times, hence that rapid shift to online shopping. Of course, the customers valued that shift. Naturally though, processes within supply chains had to be changed to cater for these differences; the infrastructure, the equipment used, the information systems, but also the organisation and training of the people required to achieve it.Supply chains require agility to face unforeseen challenges

Understanding the customer is absolutely critical if you’re going to create a resilient supply chain. On top of that, you need product design and service design, which takes the supply chain into consideration, because you lock a lot of the risk into a product or a service at the design stage. If you need to use a particular raw material which can only be sourced from one particular region of the world, that is going to lock in a lot of the risk. But, if you’re able to design things which use, say, multiple resources (multi-shoring), that’s even better.

Once you have these aspects correctly in place, you then have a number of key pillars to address. You have to think about agility; making sure you’ve got good, agile supply chains, which are responsive. You also need to think about collaboration - relationships have been shown to be the absolute critical thing, particularly how you manage your relationships with your customers, and how you manage your relationships with your suppliers. Get a culture of supply chain risk management, and what I mean by that is, when people make a decision in the business, they need to ask themselves: “how will this impact the risk profile of the supply chain?”

Next – and they really are core factors – are transparency and visibility. You’ve got to have transparency within the supply chain. Knowing where your supply chain goes and where it comes from is really important. Lastly, you can overlay that with continuous monitoring and intelligence. We’ve seen a massive move in terms of the amount of data we can get nowadays. Having various feeds that allow us to see exactly what is going on in the operation, and across the global supply chain, is useful.

So, if we can get all those things in place: understand your supply chain strategy; make sure you design the products for the supply chain and think about the risk being locked in at that design stage; get agility; get collaboration; get the culture right in your business; make sure you’ve got some transparency; and make sure you’ve got continuous monitoring and intelligence. If you can get all that in place, you will be able to be resilient moving forward.

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