Collaboration is the key to solving supply chain fragility
The full impact of the COVID-19 pandemic on the UK economy will not be understood for some time, particularly while essential government support continues for businesses and their suppliers. Yet construction ended last year, and emerges into 2021, in a more promising position than some industries.
According to the Office of National Statistics (ONS), the construction sector’s recovery even outperformed the wider economy, with output growing by 12.4 percent in the three months to November 2020, compared with the previous three-month period.
Caution is the watchword for the moment though. The November figures preceded the national lockdown that started in December and the start of a new trading relationship with the European Union from January, which carries additional bureaucracy and a potential slowdown in the movement of goods.
The International Monetary Fund (IMF) has also downgraded its forecast for the UK’s Gross Domestic Product (GDP), predicting an expansion of 4.5 percent in 2021. Last year GDP contracted by 9.9 percent, the biggest fall of any Group of Seven countries.
Low on reserves
Many suppliers in the construction industry are struggling to return to their pre COVID-19 business models. The ONS reports that before the second national lockdown the operating costs for 9.5 percent of construction businesses in the UK was lower than their turnover, meanwhile, 43.2 percent had resorted to Government backed finance to see them through the pandemic.
The data suggests that the industry will emerge from the pandemic in a fragile state even for those who entered the pandemic on a sound financial footing. This risk of failures in the supply chain derailing projects and programmes is therefore very real and it requires clients and projects revisiting how they engage with their supply chains.
Collaboration, collaboration, collaboration
One of the key learnings for clients from the last few months has been realising their exposure to fragilities in lower tiers of the supplier chain. Bottlenecks have become apparent and clients and projects are developing a better understanding of their extended supply chain to build better resilience. The main areas of fragility being addressed by clients are:
- Market fragility: Understanding how the pressures from the COVID-19 pandemic and EU Exit are impacting the supply chain and support critical suppliers, financially or otherwise, to mitigate disruptions in the supply chain.
- Market capacity: Identifying capacity bottlenecks in the supply chain that can reduce productivity and determine the most suitable strategy to build resilience.
- Market capability: Assessing the supply chain’s ability to fulfil the technical requirements to develop fit-for-market packaging strategies.
The crucial element for managing these supply chain fragilities is collaboration. Identifying and understanding supply chain fragilities is the first step but addressing them successfully needs to be the ultimate objective.
Clients and project teams need to be part of the solution and collaborate with their Tier 1’s to mitigate the overall fragility exposure.
Supply chain command centre
An alliance-style supply chain management command centre that integrates clients and Tier 1 suppliers, is the most effective mechanism to manage fragilities. This command centre provides both forum and platform for Tier 1 suppliers and client teams to share, discuss and coordinate mitigation strategies.
Projects that have adopted this type of approach become more aware of their risks and can coordinate more effective interventions.
Whether the interventions require advancing procurements activity sooner, expanding the supplier base, improving payment terms or concentrating spend on specific lower tier suppliers; their impact is more effective if it is done at scale and in a coordinated manner.
The importance of the quality of the supply chain information is critical for the success of the command centre. All must share their knowledge of fragilities and consideration should be given to developing a supply chain map that provides insights on the fragilities, capacity and capability issues in the market.
As 2021 unfolds, bolstering the supply chain fragility must be prioritised by project teams. If the pandemic has taught us anything it is that we need a plan A, B and C. The good news is that how we identify and manage supply chain fragility has evolved significantly in recent years, and both COVID-19 and Brexit serve as constant reminders that the deeper our understanding and collaboration with the supply chain, the easier it is to mitigate project risks.
Through awareness and collaborative supplier management, clients can navigate these uncertain times with confidence as we emerge into the new post COVID-19 world.