Manufacturers can build supply chain resilience through self-challenge, screening, and standards
After the distress and disruption of the last 18 months, many business sectors are seeing signs of relief and recovery from the worst effects of the COVID-19 pandemic. UK manufacturing is among them, recently experiencing a robust rebound in growth.
In May, the UK’s manufacturing sector grew at its fastest rate for almost 30 years, as the easing of lockdown unleashed pent-up demand. The widely-watched IHS Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) reached a high of 65.6 – with any reading above 50 indicating growth – the highest figure since the survey began in 1992.
But the PMI also indicated that many suppliers are struggling to keep up with the increased demand.
Other factors are adding to supply pressures, including a backlog from the lengthy Suez Canal blockage in March, increasing global demand for shipping containers, disruption caused by India's public health crisis, and a global shortage of packaging materials. It all adds up to shortages and delays in the supply of raw materials and components for UK manufacturers, along with increased prices. Experts are warning that further supply chain bottlenecks are likely in the coming months.
While manufacturers can be forgiven for failing to foresee such a ‘perfect storm’ of disruption to their inputs, it serves to highlight the high vulnerability of many to supply chain risks, and the need for them to strive for greater supply chain resilience.
Lack of visibility in the supply chain can expose your business – and your consumers and end-users – to unnecessary risk. The consequences can be severe. The forced recall of unsafe products because of faulty components, for example, or the discovery that child labour is being used in the supply chain, can be linked not only to human costs, but also to significant financial losses, permanent reputational damage, and even business failure.
Creating and maintaining a transparent supply chain is vital for organizational control, enhanced production efficiency, reduced costs and improved sustainability. It’s also central to building trust with customers and other stakeholders. Yet the complex nature of modern supply chains often makes this challenging.
Supply chain resilience requires manufacturing leaders to identify exposures and establish a strategic plan that both ensures business continuity in the event of an incident, and pro-actively instils resilience throughout the supply chain. The role of senior management is vital in bringing together the necessary business functions – including operations, procurement, finance, and business continuity – and embedding a collaborative risk management culture.
Start with sustainability
Supply chain resilience demands a broad vision of sustainability. This starts with a company’s value system and a principled approach to doing business. It means operating in ways that meet fundamental corporate responsibilities in the areas of human rights, labour, the environment, and anti-corruption.
Many supply chains are like black holes: what you don’t see, you don’t know – and what you don’t know, you can’t manage. So, manufacturers should aim for visibility of their supply chain, not just because of the need to comply with legal and regulatory obligations, and not only to advance the admirable United Nations Sustainable Development Goals, but quite simply because it is good business practice.
If you can ensure sustainability is integrated into your procurement practices, which may have traditionally considered only cost, quality, and availability of products, you can begin to consider other key areas of risk, from modern slavery to greenhouse gas emissions.
Screening for risks
From this foundation, the focus shifts to supply chain continuity, determining tiers of high and low risk suppliers, and integrating risk management processes into daily procurement activities. Here, screening has a key role to play.
Embedding country risk intelligence in the supply chain framework makes manufacturers aware of the inherent risks of suppliers operating in a particular country, so they can develop policies and procedures to meet regulatory, responsible sourcing, business continuity and security requirements. Data sharing is key, for example, through BSI’s Supply Chain Risk Exposure Evaluation Network (SCREEN), a web-based supply chain intelligence system that can be used to quantify the risk of supply chain incidents in over 200 countries.
The role of standards
Committing to a standards-based approach can establish greater supply chain resilience – and organizational resilience – by advocating the development of three key capabilities: firstly, collaboration and data-sharing across disciplines such as business continuity, information security, human resources management and procurement; secondly, horizon scanning, so that emerging risks can be identified early and the organization can prepare to manage them; and thirdly, the agility to adapt to changes following disruptive events to secure the organization’s longer-term future.
Many internationally recognized standards can help you manage and protect valuable assets, build supply chain resilience and sustainability, and give immediate confidence to stakeholders. They cover everything from business continuity (ISO 22301) and information security (ISO/IEC 27001) to environmental management (ISO 14001) and occupational health and safety (ISO 45001).
Standards call for accurate data and operational and financial reporting. You can use them separately or together to help you to measure the risks of your supply chain, manage or mitigate their impacts, make improvements, and report on them to stakeholders.
All the standards are scalable, making them just as easy for SMEs as large organizations to implement. Certification adds the credibility of assessment by an independent expert such as BSI, demonstrating compliance and further reassuring stakeholders.
To conclude, consider the following statements in relation to the resilience and sustainability of your company’s supply chain:
- We align our supply chain with our corporate values
- We maintain a living database of approved supplier profiles
- We conduct supplier risk assessments relating to country, product type, process, supplier, and reputational risk
- We map intelligence-based enterprise risks of global supply chain threats, including environmental, social and human rights risks
- We undertake risk-based procurement, categorizing suppliers into risk profiles by country, product, process, value etc.
- We allocate resources based on areas of greatest known risk
- We conduct on-site validation of higher-risk suppliers
- We strive for continuous improvement by measuring and monitoring the performance of suppliers, supporting those that adhere to corporate values.
How confidently could you make these assertions?