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Rethinking supply chain models in the aftermath of Covid-19

Posted: 17 November 2021

 

In September, the UK experienced a so-called ‘fuel crisis’ with consumers panic-buying petrol and diesel and leaving the pumps dry. Petrol stations around the country experienced long queues around the clock and, in some cases, aggression amongst frustrated customers. However, this reportedly had nothing to do with an actual lack of fuel but rather a shortage of Heavy Goods Vehicle (HGV) drivers. Consequently, the average prices of petrol and diesel rose to their highest level since September 2013.1

A shortage of lorry drivers was also cited as a key factor in the supply chain issues experienced by McDonald’s in August, when the fast food behemoth announced it was struggling to supply milkshakes and bottled drinks across its 1,250 outlets. This came merely a week after casual dining chain Nando’s was forced temporarily to close 10% of its outlets due to a chicken shortage.

Concerns are now mounting in the lead up to Christmas, with an Ipsos MORI poll revealing that 75% of people are worried about panic-buying and that 68% fear lorry driver shortages will impact negatively upon food and present deliveries.2

So, what’s causing the dearth of HGV drivers?

It would seem a number of factors have contributed to the current lorry driver shortage, including the Covid-19 pandemic and Brexit. According to Logistics UK, the UK was already lacking 76,000 HGV drivers before both of these events.
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However the situation has since deteriorated, highlighting the dependency on European drivers. Data from the Office for National Statistics
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indicates that 14,000 EU HGV drivers left the UK in the year to June 2020 and only 600 returned in the following 12 months. As of the end of July, the UK’s HGV driver shortage stood at approximately 100,000 according to the Road Haulage Association, prompting a letter to the Prime Minister imploring urgent action. 

The Government responded with the announcement of a temporary visa scheme, set to run until Christmas, to make it easier for foreign lorry drivers to work in the UK. However, some experts voiced doubts about these plans, with the head of the European Road Haulers Association speculating that higher salaries and better working conditions in the EU, coupled with customs and border checks for entry to the UK, would do little to entice foreign drivers back. It seems he was right; according to The Times, only 27 fuel tanker drivers applied for the temporary visa scheme.5

The pandemic has also been cited as a reason for delaying HGV training schedules, combined with a lack of examiners to book tests. Waiting times for tests remain lengthy, despite the Driver and Vehicle Licensing Agency (DVLA) pledging to prioritise the processing of provisional and vocational HGV licence applications.

The current supply chain issues are not limited to the UK. Some ports in the United States have experienced a significant back-up of container ships unable to dock and deliver cargo, partly due to a shortage of drivers and dockworkers available to collect the goods. Another factor seems to be a ‘pandemic-induced buying boom’ with consumer spending having shifted its focus to goods rather than social events during lockdown periods.

Whilst the effects have been arguably less noticeable for consumers in Germany, like many others the country is being impacted by a shortage of raw materials. A case in point is car manufacturer Opel which announced the temporary closure of its Eisenach plant in September, blaming both labour shortages and a global lack of microchips.6

Sourcing raw materials is also causing issues in Australia, particularly in the construction industry, where waiting times for steel and timber have reportedly increased from one month to around five months. Once again, delays in the ports are being cited, with many supplies arriving from China and India.

The UK is experiencing similar construction related issues. Where materials are available, many are subject to significant price increases due to demand outstripping supply. As a result, a number of building projects have seen considerable delays.

Many industries rely on lean ‘just-in-time’ (JIT) supply chains, where goods are moved along the supply chain only at the point they’re needed. Whilst this has a number of advantages including reducing the need for storage and reducing waste, it relies heavily on upstream suppliers and introduces the risk of running out of stock.

The automotive industry has historically relied on JIT supply chains since Toyota pioneered this in the 1960s. However the global deficit in semiconductor chips (known as the ‘Chip Crunch’) has forced the industry to reconsider its supply chain model and turn towards the ‘just-in-case’ (JIC) model.

JIC supply chains are more proactive than JIT although not necessarily more effective. The former works on the basis of maintaining a large inventory in anticipation of high demand, and so can be compared with stockpiling. This approach offers the security of being able to fulfil orders, but has implications for storage costs, potential waste due to fluctuations in demand, and can mean that capital is tied up in stock.

As some businesses have undoubtedly discovered during the pandemic, disruption to the supply chain can have a number of unwelcome consequences beyond just frustrated customers. The inability to deliver or fulfil orders could lead to a loss of consumer confidence and reputational damage and ultimately could impact negatively upon revenue and profit.
empty shelves

Successfully managing a supply chain is a delicate and complex process having evolved from a relatively simple exercise of controlling an end-to end set of processes, to managing large, international interdependencies. Getting it right isn’t always easy, but businesses can put steps in place to help mitigate, and best equip themselves for, supply chain disruption.

-          Be familiar with the chain

Firstly, it’s important for a company to have a comprehensive view across all tiers of the supply chain. This includes undertaking due diligence for second and third tier (in addition to first party) suppliers to check the integrity and resilience of these business partners. Developing and nurturing such relationships is also key, and most likely to encourage collaboration through challenging times of disruption. 

-          Diversify

Placing too much reliance on a single supplier can be risky. By diversifying where possible, the risk can be spread and there may be more options with regards to goods and services. Furthermore, it may be advantageous to utilise a mix of larger companies and SMEs in the supply chain, thereby benefitting from both the resilience of larger companies and the agility and innovation often inherent in smaller enterprises.

-          Supply Chain Risk Management (SCRM)

Insurance alone cannot eradicate the risks associated with supply chain disruption; therefore it’s important to strengthen resilience through SCRM, which focuses on avoiding and managing the potential impact of events which can threaten the supply chain. It’s recommended this is undertaken in conjunction with risk management experts. Once risks are identified and prioritised, brokers and insurers can assist in advising on suitable cover.

Once a SCRM programme has been fully developed, a monitoring system should be introduced, including periodic reviews, testing, post-incident report analysis of plans and processes, and implementation of any identified improvements to ensure it remains fit for purpose. Only then, will a business have put in place the most robust plans to ensure its survival in the event of a supply chain emergency.

-          Technology

As supply chains become increasingly integrated, many businesses are capitalising on supply chain technology. This allows companies rapidly to obtain and analyse data which can help in mapping out the chain and ensure that goods are moved in the most efficient and effective way. However this should not be seen as a substitute for trained, skilled supply chain professionals; rather a balance of human and machine makes for best results.

The unforeseen nature of the Covid-19 pandemic, following so soon after Brexit,  has tested supply chains to the extreme and highlighted the need to be prepared for all eventualities. This is best achieved through a combination of measures, from ensuring transparency and familiarity across the whole chain,  nurturing supplier relationships and having robust risk management processes in place, strengthened by the right insurance cover with adequate sums insured and indemnity period.