09 June 2020

Get your supply chain recovery-ready

As we move beyond the initial phase of the coronavirus pandemic, ensuring your supply chain is in good shape and that it won’t endanger your recovery plans is essential.

Changes to government guidelines or to your own way of working may mean you’re ready to re-start your business, but if your suppliers and distributors are working to a different timescale, or suffering financially, there may be issues that could negatively affect your operations and your reputation. Even if you were permitted to continue trading through lockdown, falling demand and the ability to meet that with existing inventory may have reduced your reliance on suppliers, but as the economy begins to re-open, ensuring that you can meet increased demand could be a challenge.

Highlighting supply chain vulnerability

In many ways, the global nature of today’s supply chains, combined with the global span of the pandemic has only intensified potential disruption. “The pandemic has taught us the downside of globalisation,” says Brian Templar, Chairman of Davies & Robson, Supply Chain and Logistics Consultants. “It’s shown us the vulnerability of extended supply chains. Of course, we’ve seen glimpses before, such as in the oil crisis – but this is on a far greater scale.”

Even if your supply chain is wholly domestic, the responses of the devolved governments has the potential to create disruption. Suppliers too are also not simply flicking a switch and restarting but having to adapt to new ways of working. The demands of social distancing and safer working patterns may mean reduced hours of operation, fewer members of staff and longer lead times. Costs too may increase.

Looking at points of threat to your business can make you re-evaluate your priorities. Is it worth, for example, saving 20p on a widget made in China if the long closure of the factory or quarantine means that you can’t restart your production line?

Brian Templar, Chairman of Davies & Robson, Supply Chain and Logistics Consultants

A good time to review processes

Identifying and addressing the vulnerabilities in your supply chain is an important first step. Whilst it’s good business sense not to rely on a sole supplier, dependencies can build up over time. Now may be a good time to consider broadening your options and, if you’re a business supplying other firms, they’re likely to be undertaking a similar process.

“Situations like this are a good opportunity to review your processes,” says Brian. “Big companies, who’ve perhaps taken for granted that goods can move quickly and easily around the world, will be looking at the resilience of those supply chains.

Opportunities for agile businesses

That could present opportunities for smaller businesses who can demonstrate their own resilience and responsiveness combined with an ability to understand and meet customer need. Beleaguered high street retailers in Birmingham, for example, took the opportunity to re-take market share from the large supermarkets when lockdown led customers to stockpile and shortages of key goods ensued. With supermarkets tied into supply contracts, more agile smaller grocers were able to quickly widen their supply base and source hard to come by goods to meet customer demand. So, while supermarkets ran out of toilet roll and fruit and vegetables, the smaller shops were often well-stocked.

“The ability to adapt very quickly to what’s happening can make a big difference,” agrees Brian. “It gives smaller businesses an advantage, in that the decision-making process is often less complex and change can be communicated and implemented more easily.”

Diversifying production and supply base

One of the success stories of the pandemic has been the ability of businesses to adapt and diversify into new product lines or services. Numerous businesses, those experiencing a drop in demand, those wishing to maintain operations (perhaps to avoid the cost of shutting down and then restarting machines) not classed as essential, or those keen to support the fight against COVID-19, shifted production – from hand sanitisers and PPE to ventilators.

For some businesses, it was a way of ensuring that an eventual return to normal would not just be possible but expedited. As well as highlighting the adaptability of staff and production lines, offering up the opportunity of new areas of growth through recovery, it prevented plant and machinery from being mothballed, retained key skills and diversified the supply chain to support a return to normality.

Conserving cash will be an important part of a business’ ability to emerge and rebuild, and supply chains are one of the most cost-heavy parts of a business. That means they need to be rigorously reviewed and made more efficient.

Brian Templar, Chairman of Davies & Robson, Supply Chain and Logistics Consultants

Building in efficiency

Supply chain strain can not only lead to problems of physical supply but can potentially increase costs – challenging at the best of times, but even more so in the face of widespread economic slowdown and uncertain demand levels. “Managing cash, supplier and sales terms and what you stock are going to be vitally important,” says Brian. “Conserving cash will be an important part of a business’ ability to emerge and rebuild, and supply chains are one of the most cost-heavy parts of a business. That means they need to be rigorously reviewed and made more efficient.”

That may mean reviewing your existing quota of suppliers, payment terms, stock-holding patterns or using specialist finance to support gaps. Building closer relationships with suppliers and customers can help integrate demand and supply and create a more responsive chain. Capitalising on the goodwill that’s bound people together to deal with the crisis could enhance resilience in the longer-term.

Keeping an eye on innovation

Software solutions to track stock can boost efficiency and, as Brian points out, we’re likely to see further innovation emerging in response to the changed and evolving environment we’re operating in. “Businesses will be looking for solutions that are cost-efficient and that create a competitive advantage – either new innovations or those borrowed from other industries. That could be anything from increased automation of picking and packing, drone delivery or even machine-learning to spot potential lags in the supply chain.”

The necessity of social distancing, shifting global patterns of lockdown on manufacture and trade, changes to consumption, and the requirements of the new normal could spark innovation with the potential to revolutionise the supply chain of the future.

Simple steps to make sure your business’ supply chain is recovery-ready

- Review your supply chain and identify critical suppliers, potential pinch points or opportunities.
- Keep communications open with your suppliers during the recovery, which will help you both forecast changing levels of demand.
- Consider whether you could bring in new suppliers to diversify your risk.
- Take a look at payment terms to see if there’s scope to change that would benefit efficiency.
- Consider specialist finance to support you through tricky times.
- Could diversifying your product/service range work for the long-term?
- Keep an eye out for innovations that could help support your plans.
- Scenario plan for different phases/states of recovery and test the resilience of your supply chain against them.

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.