Disruption and the effect on supply chains

Ian Thompson at Ivalua argues that UK businesses are in the middle of a supply chain reaction

 

In today’s global economy, supply chains are a complex web of transactions linking manufacturers, suppliers, and consumers. However, value chains are facing regular, major disruptions that are jamming the gears and slowing down the pace of business.

 

From geopolitical tensions and natural disasters to pandemics, disruptions are becoming more frequent and severe. As a result, supply chains are left in a constant state of flux, struggling to rebound and adapt before the next incident strikes. This is also preventing value chains from fully recovering with four-in-ten UK businesses agreeing that supply chain recovery moves at a snail’s pace.

 

So, in the face of constant disruption, what can UK businesses do to keep supply chains moving?

 

Disruption, disruption, disruption

Research reveals that nearly half of UK businesses (47%) have experienced an increase in supply chain disruption in the last 12 months, showing little sign of abating. In the last few months alone food and plant businesses have been thrown into disarray with compulsory inspections and complex paperwork requirements coming into force at UK and EU borders following Brexit. In fact, 67% of UK businesses said they have been disrupted by Brexit in the last 12 months.

 

At the same time, UK businesses have been disrupted by geopolitical conflicts (such as the war in Ukraine) and the Red Sea Conflict. In particular, the Houthi attacks on container vessels in the Red Sea disrupted navigation through Suez Canal – a route that accounts for 10-15% of world trade. These conflicts are affecting the amount of stock and resources available, shifting the level of supply and demand, giving suppliers more power and customers less flexibility.

 

Adding to the chaos, in the last year, businesses have also been disrupted by high inflation and high energy and fuel costs. Following the War in Ukraine, energy prices increased by 20% worldwide as Russia cut off energy supplies to selective countries. Businesses consequently faced higher prices, adding further pressure on procurement teams to source essential resources at a premium.  

 

These major disruptions used to be rare, but now feel like a fact of life. This has meant global supply chains have become more fragile than ever, causing delays, shortages, and increased costs as factories shut down and transportation networks fall victim to delays.

 

As disruptions continue, and with the next event inevitably around the corner, businesses must adapt their procurement and supply chain processes to ensure resilience across the entire supply chain. This, for many, will require a change in mindset.

 

Anticipating disruption, becoming agile   

One of the biggest challenges faced by procurement leaders during this disruptive landscape is the lack of visibility into their supply chains, including their suppliers’ suppliers, meaning when disruptions occur, they don’t have the insight to mitigate disruptions at speed.

 

In fact, research reveals that almost half (46%) of businesses don’t have enough visibility into which suppliers are impacted by supply chain disruption. This is often caused by procurement teams relying on manual or excel based tools and systems to monitor their supply chains.

 

To deal with this and protect themselves from ongoing uncertainty, businesses must focus on adopting the right tools and processes to help mitigate supply chain shocks. A smarter approach is required and UK businesses are turning to technology to help make procurement smarter and gain deep visibility into suppliers and spend. For example, 71% of businesses say implementing AI to automate supplier risk management has helped reduce the effect of supply chain disruptions.

 

By utilising AI, businesses can become more agile by gathering better insights from disparate information sources in near real time. This allows employees to effectively “chat with your data”, and instantly find information about suppliers, spending, contracts and transactions.

 

This visibility into all suppliers and all spend will enable better decision-making, while speeding up risk assessments and mitigation plans – empowering procurement teams to anticipate disruption and be more agile in their response.

 

While technology has been beneficial to organisations amidst the supply chain chaos, many have also benefited using other strategies. For example, research shows that businesses have mitigated the impact of supply chain disruptions by improving the geographical diversity of their supplier base, as well as increasing nearshoring and onshoring.

 

Adopting these new strategies should be front for mind for businesses to help procurement teams be prepared for when the next disruption hits.

 

Disruption as the new norm  

The globally interconnected supply chains of today are a bit of a hidden miracle when you think about it. The goods that make our everyday lives easier require multiple suppliers working together across continents. But, we have become so used to the miracle that we’re surprised when this fragile process is proven to be vulnerable. 

 

Rising supply chain disruption underscores the critical need for a smarter, more strategic approach to procurement and supplier management. The integration of AI and enhanced visibility into suppliers and spend is crucial for navigating these challenges. AI can offer predictive insights, optimised decision-making, and ultimately streamline procurement processes, all while improved transparency enables better risk management and more informed choices.

 

By embracing this smarter approach, businesses can build more resilient and agile supply chains, ensuring they are better equipped to handle future uncertainties and maintain competitive advantage.

 

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Ian Thompson, VP Northern Europe at Ivalua

 

Main image courtesy of iStockPhoto.com and DNY59