Back in 2004 I wrote a report entitled ‘life without lorries’ to show how dependent we are on road haulage in the UK. It examined how long it would take for supplies of most products to run out in the event of an abrupt cessation of road freight operations. Without panic buying, it would have taken around 4 to 5 days. This, of course, was a most unlikely scenario. Even during the first Covid lockdown, UK lorry traffic dropped by ‘only’ 40%.
The pandemic and its aftermath have, nevertheless, severely stress-tested supply chains showing just how fragile they are. Thirty years of globalisation, centralisation, inventory reduction, time-compression and single-sourcing – all promoted as good business practice – have left supply chains highly vulnerable in a world of extreme weather, medical emergencies, cyber threats and geopolitical crises. In pursuit of cost reductions, companies increased the exposure of their supply chains to risk and reduced their ability to recover quickly from disruptions.
According to recent surveys, many companies are now redressing this balance. They are prioritising supply chain resilience over other business goals, finally heeding the advice of twenty years of literature on business continuity. Its standard prescription has been to improve supply chain visibility, source more locally, relax just-in-time regimes, diversify the supply base and build more redundancy into systems. But will all this be enough to deal with the series of mega-shocks that have hit global supply chains in quick succession in recent years?
Supply chain disruptions have traditionally been seen as having a U-shaped profile, suggesting a return to some previous state. The pandemic, the Ukrainian war and climate change, all major supply chain disruptors, are collectively pushing us into new world order. This will require a shift from what the Economist Intelligence Unit calls ‘real time’ to ‘strategic’ supply chain resilience, the latter being ‘an ability to bounce forward and adapt to a new normal’.
One could get into a semantic argument about where resilience ends and adaptation begins. Suffice to say that the longer term process of adaptation to climatic and geopolitical realities will impose new stresses on supply chains to which companies will have to become more resilient.
The latest IPCC report on adaptation to climate change emphasises the need for greater protection of supply chains against changing weather patterns and rising sea levels. The huge reductions in greenhouse gases required to meet net zero targets will also require the reconfiguring of upstream supply chains because typically it is from there that 80% or more of company’s carbon emissions emanate.
Another pressing concern is the break-down of the liberal economic order that has underpinned 30 years of globalisation and the related ‘weaponising’ of supply chains as a surrogate for military action. As Mark Leonard observes in his recent book the Age of Unpeace, ‘hitting one small link in the chain …can be enough to bring a company or country to its knees’. The Ukrainian crisis is bringing this new geopolitical threat to supply chains into sharp relief.