Chain Reaction

2 mins read

Global events are forcing us all to get under the skin of global supply chains, says David Atkinson, Regional Director and UK Head of Manufacturing, Lloyds Banking Group

The conflict in Ukraine has exposed just how reliant we all are on global supply chains. Like so many, I must confess I wasn’t aware just how important Ukraine is to the global economy. The country produces more than a third of the world’s supply of wheat, while more than half of the world’s supply of sunflower oil also comes out of Ukraine and Russia.

The region is a significant supplier of metals and critical minerals like aluminium, nickel, titanium and palladium, which are vital for the automotive and aerospace industries, used in everything from batteries to catalytic converters and semiconductors.

And we can confidently imagine that the situation is only likely to get worse; at a time when Ukrainian farmers should be planting next year’s wheat crop, for example, fields are inaccessible and many workers have been unable to do their jobs. A shortage of aerospace components could ground planes, exacerbating transport challenges and pushing prices up even further.

As I write, China’s ‘zero Covid’ lockdown policy only looks set to exacerbate and extend these pressures.

Identifying alternatives

As war rages, input costs are soaring and UK manufacturers are struggling to ramp up production. We can see from the latest Lloyds Bank Recovery Tracker, which monitors the shape and pace of the UK’s economic recovery, that the gap between manufacturing and service output growth is the biggest it has been for 13 years.

The situation should prompt manufacturers to interrogate their supply chains in detail to identify any potential alternatives. Could rapeseed oil be used as a substitute for sunflower oil, for example, or could raw materials be sourced from other countries?

A moral maze

Businesses aren’t just facing difficult practical and operational decisions; the war represents a real moral dilemma too. Brands are increasingly expected to take an ethical stance by consumers, employees and investors and most have suspended any activity that could support the Russian war machine, including sourcing supplies from the region. Those who have not acted decisively have faced the wrath of public opinion and have subsequently changed tack after threats of boycotts.

These are all factors that will continue to exacerbate the inflationary pressures on British businesses. So, manufacturers need to interrogate their supply chains in detail to identify any potential looming issues, even when they may be several steps away.

International oversight

Of course, it’s not practical to identify, contact and question every business in an international supply chain, which is why manufacturers should seek the support of a supply chain expert. They have the experience to map out supply chains and test their resilience, identifying any inputs where cost and availability could be vulnerable to change and suggesting alternatives.

By getting familiar with your supply chain now and considering alternatives, you can lock into contracts to secure supplies from different sources. That must be better than waiting for problems to happen.

Opportunity knocks

But the current situation also presents a huge opportunity for UK manufacturers. Tier One suppliers and OEMs are seeking to de-risk their supply chains and are looking closer to home to reduce lead times, strip out shipping costs, ensure sustainability and maintain quality. Cheap overseas labour costs can no longer offset the soaring price of shipping, while shorter supply chains also mean a smaller carbon footprint.

So, the economic argument for offshoring just doesn’t stack up any longer.

We've got some of the world's best manufacturing companies, with the versatility to apply their skills in new and diverse ways. Reshoring can support a renaissance in UK manufacturing, while also helping build a more resilient UK economy.

Let’s make the most of this opportunity to secure our supply chains and reflect on how we all get behind a fantastic opportunity for UK growth.

This article first appeared in Manufacturing Management's April/May 2022 issue. The full issue can be found here