Permanent volatility means building resilience of growing importance
- Four fifths of manufacturers say supply chain monitoring vital for their business
- Almost half of companies have increased investment in supply chain resilience
- But a quarter of companies not monitoring supply chains and digital adoption remains low
- Increases in cost of raw materials, transport and energy the biggest drivers
- Four fifths of companies diversifying their supply chains by increasing or reducing suppliers
- 40% of companies have re-shored suppliers back to the UK in the last year
Manufacturers are being urged to step up their adoption of digital technologies to monitor supply chains as part of efforts to build resilience in the face of permanent volatility in their markets.
The call was made today on the back of a major survey on supply chains, published by Make UK and Infor, and launched at the Make UK National Manufacturing Conference.
According to the survey, the biggest drivers of supply chain disruption are all related to increased costs with almost three quarters of companies saying higher raw material prices were the biggest challenge (71%). This was followed by higher transportation and energy costs (69% and 68% respectively).
The extent of these challenges is highlighted by the fact seven out of ten companies said they were facing all three of these challenges in their supply chains with only 3% of companies saying they don’t expect to face supply chain challenges this year or next. By contrast, almost four fifths of companies (79%) say that supply chain vulnerabilities are a strategic risk to the business over the next two years, highlighting the extent to which supply chain pressures are likely to continue on a permanent basis.
In response to this volatility, manufacturers are continuing to re-think their supply chains and develop new processes to monitor them. Over four fifths of companies (81%) have diversified their supply chains with almost a third of companies increasing the number of suppliers to reduce risk, while two in five companies have reduced the number as they seek to collaborate with suppliers via long-term agreements to guarantee supply.
Furthermore, almost half of companies (47%) have increased investment in supply chain resilience over the last year and a further fifth (19%) are exploring ways of doing so.
However, while over four fifths of companies (82%) believe monitoring suppliers is critical to their business there is a lag between citing its importance and using digital technologies that can enhance their monitoring efforts.
In particular, while dashboard and analytics dominate the most popular digital tool for almost half of companies (46%) there is minimal take up of technologies such as AI and machine learning (8%), robotics and automation (7%) and augmented and virtual reality (4%). Furthermore, two in five companies don’t use technology to monitor their supply chains, while around a quarter of companies don’t monitor either up or down their supply chains.
Verity Davidge, Director of Policy at Make UK, said: “Supply chain disruption has created unprecedented times for businesses across the globe in recent years, a pattern of volatility which is fast approaching a permanent state. However, resilience in supply chains is growing and driving new behaviours as companies diversify and increasingly seek new ways of doing business and managing their processes.
“While there is no one size fits all strategy that companies are exploring the trend towards re-shoring and near-shoring is an increasing trend that can only benefit the industrial supply base in the UK in the long term.”
Andrew Kinder, SVP, International Strategy and Sales Support at Infor added: “There is no escaping volatility, but use of the right supply chain technologies can dramatically mitigate the worst impacts of disruption. Whilst the report shows nearly half of manufacturers are taking advantage of analytics for improving visibility, the real value will come from increased use of Artificial Intelligence (AI) and Machine Learning (ML) to help identify and predict events, analyse the best alternatives, and automate responses, giving manufacturers a competitive edge.”
“Whilst nearly half (46%) of manufacturers are combating volatility through supply chain dashboards and analytics, less than 14% are taking advantage of the most advanced capabilities, including real-time sensors, automation, artificial intelligence and machine learning. These under deployed technologies hold massive potential in delivering real value to boost decision velocity, ultimately providing manufacturers with a competitive edge.”
According to Make UK, manufacturers need help with understanding what technologies are being used and, how to acquire them, while businesses need to feel confident that their security won’t be breached, and that commercially sensitive information is protected before they share their data with suppliers up and down the chain.
While there are many lessons for industry to learn, Government and wider policymakers can help:
- Establish a regional SME advisory service for digital adoption: This impartial advice could be delivered within existing structures such as the Catapult Network. In a similar vein, regional SME advisory services must be strengthened to include technical, process and change management expertise linked to industrial digitalisation and resource efficiency.
- Introduce a tax break for businesses that adopt digital solutions: Government should introduce a form of a tax break for businesses that choose to adopt digital solutions. Greater incentives to invest in digital solutions will not only support manufacturers to improve efficiency and productivity, but it will also support the Government in its wider ambition to become a science superpower.
- Introduce a Manufacturing Mentor Scheme:The current Help to Grow Management scheme is a welcome start to tackling the leadership and management challenge in the UK. The Government should look at how it encourages recent or early retirees back into the industry to educate and guide the next generation of leaders, managers and business owners with critical skills around culture change, supply chain resilience and Net Zero.
- Actively seek to use digital platforms in order to build supplier security:Supply chain vulnerability remains a key risk in 2023, but ever-improving digital technologies allow manufacturers to better anticipate and predict supply chain disruption.
The survey also shows that almost half of EU suppliers (48%) are now more cautious about supplying the UK. This is also reflected in the changes to the supplier base, with almost a fifth of manufacturers reporting they have reduced the number of suppliers from the EU in the last twelve months.
Unfortunately, the damage to the UK’s image and trading relationship is not limited to partners in the EU, with a little over a third of companies (35%) also agreeing that suppliers from the rest of the world are cautious about supplying UK customers.
The survey shows that to mitigate risks of unacceptable lead times and increased costs companies are continuing to re-shore suppliers with 40% having done so in the last year with a similar number planning to do so in the next twelve months.