The ongoing disruption in Ukraine, rising energy and raw material costs, alongside inflationary pressures caused by ongoing political disruption in the UK, is making supply chain operations increasingly expensive and unpredictable. Arecent surveyfound that 58% of business leaders believe their supply chain issues primarily stem from global political unrest.
The ongoing disruption in Ukraine, rising energy and raw material costs, alongside inflationary pressures caused by ongoing political disruption in the UK, is making supply chain operations increasingly expensive and unpredictable. A
recent survey
found that 58% of business leaders believe their supply chain issues primarily stem from global political unrest.
From a consumer’s perspective the rising cost of living and skyrocketing inflation is continuing to reduce demand, evidenced by Barclaycard finding that card spending fell1.9%between July and August this year. This is naturally having a knock-on effect on supply and required stock levels, as retailers are finding themselves with surplus stock to the low level of demand, at a time that is usually considered their ‘golden quarter’ in the run up to Christmas.
From a consumer’s perspective the rising cost of living and skyrocketing inflation is continuing to reduce demand, evidenced by Barclaycard finding that card spending fell
1.9%
between July and August this year. This is naturally having a knock-on effect on supply and required stock levels, as retailers are finding themselves with surplus stock to the low level of demand, at a time that is usually considered their ‘golden quarter’ in the run up to Christmas.
To ensure they remain able to service customer demand and maintain profitability during this period of geopolitical instability, retailers should be evaluating the location of their key resources and suppliers to ensure that the supply chain is adaptable to change.
The growth in onshoring and nearshoring
Traditionally, to cope with instability, many businesses have turned to offshoring, to reduce manufacturing costs, and to access skilled workers and specialist technology. However, during the pandemic when international transport became increasingly difficult, many businesses turned their back on offshoring, and instead chose to move operations closer to home by onshoring and nearshoring.
Despite the previous advantages associated with offshoring, including lower wages, many businesses have decided to accept higher costs in favour of flexibility.Researchin November 2021 found that, with pandemic-related problems continuing to disrupt global supply chains, 90% of firms were planning to pull at least some processes back closer to where the resulting goods were being sold. The ongoing instability is likely to make this decision permanent for many, as companies will have learnt from the pandemic that moving forward, resilience is key to avoiding significant disruption, and offshoring makes this significantly more difficult.
Despite the previous advantages associated with offshoring, including lower wages, many businesses have decided to accept higher costs in favour of flexibility.
Research
in November 2021 found that, with pandemic-related problems continuing to disrupt global supply chains, 90% of firms were planning to pull at least some processes back closer to where the resulting goods were being sold. The ongoing instability is likely to make this decision permanent for many, as companies will have learnt from the pandemic that moving forward, resilience is key to avoiding significant disruption, and offshoring makes this significantly more difficult.
The fast fashion industry in particular has made a move to onshoring. In 2020, Ted Baker produced a ‘Made in Britain’ collection to celebrate British manufacturing and the high quality of local products. Boohoo also made the decision to open a 23,000 sq ft factory in Leicester earlier this year in an effort to reintroduce garment manufacturing to the UK and reduce its reliance on offshored factories in Asia.
Diversifying suppliers
However, it is important to recognise that onshoring and nearshoring is not viable for all businesses. Some companies rely heavily on imports from specific locations, due to the availability of resources. When this is the case, diversifying suppliers can be a good option as it provides a safety blanket should disruption occur.
In terms of how this diversification might look, retailers that carry and sell own-brand products, and therefore have more power to select specific sources of supply, may explore alternative supply sources, different countries, varying suppliers, or making alternate products available for sale. Those that rely on specific materials from a region should look to form relationships with multiple suppliers in that region, so if one is unable to provide, another will hopefully be available. Evidently, strong and varied supplier relationships will be invaluable when facing supply chain disruption.
Final thoughts
Supply chain management can be daunting for businesses, as we continue to face geopolitical and economic disruption. To deal with ongoing instability, making the transition to onshoring and nearshoring can be beneficial to businesses that previously offshored aspects of the chain. Where this isn’t possible, improving supplier relationships and developing new ones in various locations can help businesses to adapt to change.
Ultimately, during the cost-of-living crisis the goal should be to keep prices as low as possible for customers. Effective supply chain management that takes flexibility and resilience into account can provide this…but first customers need to fully understand their supply chain!