The landscape of global trade and supply chains is perpetually evolving, more so under the weight of rising inflation experienced in recent times. In our recent podcast episode, we dissect the intricacies of inflation’s impact on supply chains and the subsequent ripple effects on consumer experiences and economic strategies. We analyze the U.S. inflation rate which reached 2.8% in March and the potential stasis of interest rates. This pivotal economic indicator has profound implications on global supply chain dynamics, and its influence extends far beyond the confines of national borders.
US – China Relations And Resilience Policies
In an era where strategic positioning is vital for economic survival, the phenomenon of nearshoring has taken a novel turn. Chinese firms have been astutely establishing manufacturing sites in Mexico as a strategic move to bypass U.S. tariffs. One company Man Wah Furniture in Monterey is emblematic of this trend. They moved to Mexico in 2022 and employ 450 people in the China owned factory. From here they export furniture into the US avoiding sanctions and tariffs imposed on goods arriving directly from China. It is happening with automobiles too. This not only impacts U.S.-China trade relations but also sends ripples across Southeast Asian economies, reshaping the future of bilateral trade and offering a glimpse into the evolving landscape of international commerce. The very policies designed to reduce reliance on China by the US economy has simply created a different opportunity for Chinese companies to avoid tariffs and ramp up trade.
Automation in the warehouse
Advancements in technology have invariably led to the integration of robotics and AI in logistics, revolutionizing warehousing operations. The deployment of robots has transformed the warehousing industry, making it more efficient and robust. As the capabilities of these automated machines expand, the implications for economic output and the labor market are profound. This investment in robotics and AI signals a shift towards a future where technology drives logistics, and businesses must adapt to maintain competitiveness in this new reality.
Automotive Industry
Turning our attention to the global automotive industry, we delve into the currents shaping this sector. The protectionist sentiment among U.S. and European automakers is a response to the competitive pressure from Chinese EV manufacturers like BYD. Tesla’s strategic plays are scrutinized, with speculation surrounding their plans for an affordable car.
Air Quality
We also discuss the environmental concerns as air quality in parts of the U.S. plummets, bringing health risks to the forefront of policy discussions.
Post Brexit Disruptions Rumble On – Six Years Later
Looking across the Atlantic, the post-Brexit border controls in the UK are poised to introduce new challenges. The impending regulations could exacerbate food inflation, add billions in costs to importing goods, and increase supply chain friction. This scenario has the potential to lead to food wastage and additional consumer expenses, highlighting the complexity of trade policies and their far-reaching consequences.
Our podcast episode serves as a platform for understanding these multifaceted issues, providing listeners with a nuanced perspective on the forces shaping the future of global trade, technology, and environmental policy. The interconnectedness of these topics underscores the importance of staying informed and proactive in an ever-changing economic landscape.
As we continue to monitor these developments, it becomes clear that businesses and policymakers must navigate these turbulent waters with strategic foresight. The decisions made today will chart the course for tomorrow’s trade dynamics, the integration of cutting-edge technologies in logistics, and the sustainability of our environment. Tune in to our podcast for a candid and informative exploration of these pressing matters.
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In the rapidly evolving world of global commerce, the supply chain is the backbone of every successful business. It’s the conduit through which goods flow, orders are fulfilled, and customer satisfaction is secured. However, this complex system is not immune to disruption, be it from geopolitical shifts, climate change, or technological challenges. In a recent episode of the Chain Reaction Podcast, we had the pleasure of engaging with Bindiya Vakil, CEO of Resilinc, whose expertise in crafting resilient supply networks using artificial intelligence (AI) provides an enlightening perspective on mastering supply chain risks.
Bindiya’s narrative is not just one of theory but practice. She recounts her transformative journey at MIT, which culminated in the innovative restructuring of Cisco’s supply chain post-Hurricane Katrina. It was a watershed moment that saw a shift from a reactive to a proactive stance in crisis management. Bindiya stresses that the real game-changer in supply chain resilience is not merely holding inventory but harnessing the predictive power of data.
In the podcast, the conversation seamlessly transitions to the intricacies of supply chain crises, a realm where Bindiya is no stranger. With geopolitical instability, the energy crisis, and the specter of cybersecurity threats looming large, the need for strategic agility has never been greater. Here, Bindiya delves into the importance of ESG compliance, highlighting the regulatory pressures on ‘forever chemicals’ like PFAS and the ramifications for businesses worldwide.
As we probe further into the labor crisis, Bindiya points to the dire need for innovation in workforce management. She underscores the value of adopting new technologies and AI to streamline operations and reduce dependency on human intervention, especially in a landscape where disruptions are becoming more frequent and varied.
Moreover, the podcast sheds light on the often overlooked heroes of the corporate world—supply chain leaders. Far from being mere cost centers, Bindiya argues that these professionals are pivotal to revenue generation, advocating for their rightful place at the decision-making table. Their strategic foresight and ability to manage risks are invaluable in steering companies toward prosperity.
You can listen to the full episode with Bindiya Vakil by clicking on the image
To encapsulate Bindiya’s insights, consider her view on AI’s transformative role in supply chains. With AI, the ability to process vast amounts of data, predict disruptions, and execute responsive strategies is revolutionized. This technological leap forward empowers businesses to navigate the tempestuous waters of global supply with confidence and precision.
As the episode draws to a close, Bindiya extends an invitation to connect on professional platforms, signaling her eagerness to share and collaborate with others in the industry. Her parting words serve as a reminder of the importance of embracing change, leveraging AI, and fostering robust supplier relationships to build supply chains that are not just resilient but truly unbreakable.
In the world of supply chains, where the only constant is change, the wisdom imparted by Bindiya Vakil is a beacon for businesses seeking to stay afloat and thrive. Her story is a testament to the power of innovation and the indomitable spirit of those who dare to reimagine the cogs of the global business engine.
RESILINC Find out more about Reslinc and what they are doing to build supply chain futures with data. https://www.resilinc.com/
Tony Hines Hosts the Chain Reaction Podcast All About Supply Chain Advantage Author of Supply Chain Strategies: Demand Driven And Customer Focused published by Routledge 2024.
Supply Chain Strategies demonstrates how organizations must take strategic decisions in order to manage their supply chains to sustain competitiveness in the global economy. This new edition of Tony Hines’ text focuses upon the direction-setting and efficient resource-allocation that organizations need to provide in order to satisfy their customers. Overcoming tensions between political, economic, technological, ethical and environmental considerations is shown to be vital to develop effective strategies for managing the supply chain.
The News Round Up is published weekly. It is a summary of business news impacting global supply chains. Each week millions of supply chains are impacted by decisions taken somewhere in the world and by events that disrupt or change market conditions. Stay informed and up to date by listening to the podcast airing every Saturday.
Resilience is more than risk management. It is a capability to get to the future by limiting the impact of disruptions. Risk management is necessary to manage particular supply chains as well as the supply chain system. Anticipating risks from disruption is an important skill. Assessing risk and assigning probabilities to manage risk are parts of any risk management system. Beyond the immediate supply chain risks there are risks that threaten the total supply system. It is necessary to take a systems view of risk if you want to build resilience across the total system. An example would be energy supply chains which are made up of entity supply chains (e.g.extractors, refiners, generating companies) linked to buying organizations (re-sellers, business and consumer suppliers) which are linked to business supply chains and consumers at some point in the chain. The total supply system would consider risk at each node from source to consumption. This means not simply managing risk in the organization supply chain it means managing the risk in the system which has many supply chains. Resilience requires steps to manage beyond the immediate supply chain, beyond intra and interorganizational supply chains linked in the total system. Resilience capabilities have to be developed to manage systemic risk.
We cannot solve a problem with the same thinking that created it.
Albert Einstein
As John Maynard Keynes noted markets do not always work as expected when this happens it may be necessary for government to intervene to correct the problem. Governments have a responsibility to secure strategic assets that may include: energy, food, water, public utilities, banks, defense and other resources. These are the resources that are needed to maintain life and provide security for the population. Yergin and Stanislaw (1998) refer to these resources as the ‘Commanding Heights of the Economy‘ after Lenin and Marx.
RESILIENCE
Resilience is not a quick fix
Resilience is a long-term commitment
Resilience requires investment
Resilience requires trained and highly skilled personel
Resilience is the ability to bounce back from disruptions. In supply chains one thing is certain at some point there will be disruption. Something that knocks your plans off track. Those that plan often make plans resilient by adopting ‘what if?’ strategies. This means having plans to get back on track quickly when the unexpected happens.
Resilience is tested when goods being shipped in containers are held up or when there is a labor strike at a port or supplier production unit. It can be beyond supply disruption which is a symptom not a cause of something much bigger. For example, when a pandemic grips the world. This is systemic disruption. What makes for resilience in these circumstances is having the capacity to bounce back quickly. Capacity which has been built through planning and investment to ensure it is present when needed.
Securing strategic assets must be part of resilience. If we think about the needs of a nation state we could produce a list that would include: defense, energy, food, healthcare, materials and technology amongst other things. These are what Lennin and Marx referred to as the ‘commanding heights’ of the economy. We expect governments to secure strategic assets. One of the problems for some nation states is ‘short-termism’. In democratic states governments are elected for 4 or 5 year terms and commitments follow suit. The long-view has been something that eastern countries such as China and Japan have been admired for. Without such long-term views it is difficult to develop continuity for resilience.
In my discussion of the West’s dependency on China I drew attention to the long term planning to acquire rare earth minerals and strategic metals for battery technology. China has built resilience and continues to do so. Western economies have been wedded to the market to solve their problems. I mean that they see the price mechanism as a way to fix disruptions rather than build capacity through investment to achieve it. In essence you assess and balance risk through markets. This will become clearer as I discuss risk.
People and Technology
Creating the right culture is part of building resilience. Expectations have to be set and carefully managed. Developing people and teams to respond effectively when disruption strikes is critical and it requires a mix of people and technology to achieve results. Having data in the right form to signpost what is happening in the supply chain often gives advance warning. It may not always provide signals as soon as you would like but ensuring that teams are trained to interepret data and respond effectively is the key to minimising the impact.
Let me demonstrate using an analogy from Formula 1 racing. A driver may be the first to recognise a problem in the car and quickly signal to the pit team what is happening. Each person in the pit team has a role and knows exactly what to do in the particular circumstances reported. Quick response is necessary to effect a repair or adjustment that will get the car back on track immediaitely after the incident without delay. Supply chains have to become resilient in similar fashion with every team member knowing their role and having a skill set so that each member knows exactly what to do in the specific circumstances.
In ‘Competing for the Future’ Gary Hamel talked about everyone being a prisoner of their experience but this need not be the case if you can learn skills that stretch beyond that experience. You can learn from the best and from the mistakes of others as well as from your own experience.
RISK
Risk is managed through probabilities. This is a first step to map risks that may disrupt supply chains. Time is an important element of this assessment. What is the likelihood of something happening and how long will it last? This is more than probability, it is impact too measured through time. An example such as the Ever Given Container Vessel demonstrates both. If we were assessing the risk prior to occurrence the probability statistic might have been close to zero (.0001), since in the Suez Canal’s history over 100 years of past data there had been no such event. The impact was more than the 7 days the ship was stuck. It took months for ships and container traffic to bounce back to something near normal throughput. So how do you plan resilient strategies for unlikely but possible events? If you do not want to over invest in capacity you have to be agile. Agility depends on thoughts and action. Firstly, you must anticipate such an event. Secondly, you have to think through scenarios and cost the options. Thirdly, make the decision. Necessary but not easy because resilience costs but it will cost less if you anticipate and plan agile strategies.
In supply chains there are many risks which I summarized in my 7V Framework based on more than twenty years researching supply chain risk across different industrial sectors. The factors that create value are also those factors that carry risk. Volatility, Volume, Velocity, Visibility, Variability, Virtuality and Variety are the seven risk factors. The profile of risk is not the same for every organization but the factors are. The question for organizations to address is to identify how each of the factors contributes to that particular organization’s mix profile. Of course even inside organizations there will be different supply chains that are affected differently by the mix elements. A simple example might make this clear. Supposing we operate a supply chain that has regular demand patterns that lead to constant reorder patterns from a consistent supply base. This type of supply chain should not be affected by volume risk or variability. Whereas a supply chain where volumes are less predictable and sources of supply are more volatile will have a very different profile of risk.
Resilient strategies require investment in resources to build it. Examples include people, training, technology, systems, sourcing, procurement, operations, warehousing and distribution. Each element forms part of the mix. Resilience extends beyond a single supply chain which means investment in the network is necessary. Supply chains have to be thought of as service systems satisfying customers if we want to build resilience.
Analyzing systemic risk requires constant scanning for threats. In the process of doing so we may also find opportunities to enhance the system capabilities which increase resilience. A similar process can be implemented at organizational level or for a specific product supply chain with the aim of building resilience.
RESPONSIVE SYSTEMS
Supply chains are service systems. We should never lose sight of this fact. Service to customers however defined is central to the supply system. Building resilient supply chains means that customers can be served efficiently and effectively. Service means being responsive to customers at the time service is required. This responsiveness is common to public services and to private enterprise. Time is of the essence.
CONCLUSIONS
Resilience is important in any system. In supply chain systems it is paramount. Supply systems exist beyond immediate firm and intra-firm supply chains. Risk has to be anticipated, assessed and probable outcomes assigned to manage the risk for the system. Within the system organizations are responsible for managing their own intra and inter-organization supply networks. Agile strategies can be employed by firms inside their own supply networks. Responsiveness is an important capability to build. Resilience goes beyond agility and responsiveness by allocating resources to the total supply chain system proportionate to risks identified in that system.
ProfessorTony Hines PhD, writes and talks about supply chain strategies. He is author of Supply Chain Strategies published by Routledge. He presents the Chain Reaction Podcast all about supply chain advantage.
Listen also to the episode Reflections On Resilient Supply Chains which discussed the part geopolitics has played in moving supply chains towards resilient strategies.
Cycle Time Compression in the Supply Chain can release resources and improve profitability. Identifying the cycles in your supply chain is the first step to improve performance. The second step is to measure the time it takes to complete each cycle. These simple steps have potential to bring benefits to the business, the network and to customers. Having data about each of the cycles moving from upstream to downstream enables firms to lower costs, improve throughput times and lower risk. Managing volumes, volatility and velocity to achieve value. It improves cash flows, profitability and return on investment and enables better asset utilization. Lowering cycle times improves supply chain flexibility and means that you can be more agile when it comes to implementing strategies for supply chain advantage.
Listen to the full episode on this topic available now on all major podcast platforms.
You can simply use the QR Code in the image at the top of the page to listen on Apple Podcasts now.
Redistributed Manufacturing is a term that describes a reconfiguration of supply chain resources to produce goods where and when they are needed often at speed and usually at small scale to meet the need. It is particularly applicable in health care. It offers a flexible manufacturing solution with a shorter supply chain changing the default geography of global supply chains by reducing time and distance. Disruptive digital technologies are transforming manufacturing supply chains bringing value enhancement capabilities. Professor Wendy Phillips at Bristol Business School, University of West England is a leading researcher in this field. You can hear what Professor Phillips had to say in conversation with me on the Chain Reaction Podcast.
Further Reading: Phillips, W., Roehrich, J. K., Kapletia, D., & Alexander, E. Global Value Chain Reconfiguration and COVID-19: Investigating the Case for More Resilient Redistributed Models of Production. California Management Review, 0(0), 00081256211068545. doi: 10.1177/00081256211068545
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Supply Chains have become critical. They are not yet in the emergency room or on life support but they are severely distressed. One development that will help is the insatiable demand for data since the pandemic began in the first quarter of 2020. Data has become the new fuel to drive decision-making. In the United States the Biden Administration views supply chains as central to the well-being of people and the economy. They have taken steps to gather data to understand data and what it is telling them about supply chains. Just after Thanksgiving weekend President Biden gathered a mixed group of retailers, suppliers and businesses together to ask a number of questions about supply chains.
In the United Kingdom since the pandemic started the Office of National Statistics (ONS) has used regular surveys to understand the pandemic and this was extended to how business has been affected. The Business Insights and Conditions Survey is conducted fortnightly to test the temperature of the business environment. There are a number of questions on the survey that examine the impact of Brexit and how supply chains have been affected by shifts in conditions.
Supply Chain Critical could well describe many supply chains around the globe right now. In this episode Tony Hines takes a look at US food and other supply chain disruptions following President Biden’s initiative to get parties around the table to discuss issues. On November 29th the Federal Trade Commission (FTC) issued an order to discuss what’s going on in those supply chains. The FTC stated “Supply chain disruptions are upending the provision and delivery of a wide array of goods, ranging from computer chips and medicines to meat and lumber.” Price hikes and anti-competitive practices are also under the spotlight. With US inflation at 6.2% and some goods coming in at higher than that for consumers this is cause for concern. Availability of products is also of concern. Ranges have thinned and there are reported shortages in specific categories.
“The FTC is issuing the orders under Section 6(b) of the FTC Act, which authorizes the Commission to conduct wide-ranging studies that do not have a specific law enforcement purpose. The orders are being sent to Walmart Inc., Amazon.com, Inc., Kroger Co., C&S Wholesale Grocers, Inc., Associated Wholesale Grocers, Inc., McLane Co, Inc. Procter & Gamble Co., Tyson Foods, Inc., and Kraft Heinz Co. The companies will have 45 days from the date they received the order to respond.”
Source: FTC (see the link in the text)
In the UK Data Are Key To Understand What’s Going On
In the UK inflation is 4.2% and on the rise. There is also concern about shelf availability for many goods. The Office for National Statistics has been gathering data fortnightly from businesses in the UK. We take a look at some of the findings from the data and what it means for supply chains. The ONS Business Industry and Conditions Survey reports on ‘the impact of challenges facing the economy and other events on UK businesses.’ The survey is based on responses from the voluntary fortnightly business survey (BICS) including financial performance, workforce, trade, and business resilience. Businesses currently trading who reported that the prices of materials, goods or services bought in the last month had increased compared with normal expectations for this time of year was 38%. In the last month, 17% of businesses reported they were either not able to get the materials, goods or services they needed from within the UK, or had to change suppliers or find alternative solutions to do so.
Nurdles in the Oceans Time For The IMO To Classify As Hazardous Waste?
A few weeks back I reported the distressed ship Xpress Pearl was on fire and sinking off the coast of Sri Lanka with diesel and other chemicals on board the vessel leaking into the Indian Ocean. Since then it has come to light that nurdles were also on board, Nurdles a small plastic pellets that are used to produce packaging materials. Being plastic they are of course produced from oil (fossil fuel). However, nurdles are not classified by the International Maritime Organization (IMO) as hazardous waste. The damage to the local ecology and economy from the leakage has been devastating to livelihoods of fisherman in Sri Lanka. Listen to the episode to find out more. Notes: 1. 250,000 tons of plastic pellets known as nurdles pollute our oceans every year. https://cbsn.ws/2QXCkxO Trillions of small plastic pellets have been escaping from petrochemical plants into waterways and oceans for decades. 2. The IMO is aware of the problem but so far has not classified nurdles as hazardous waste which they clearly are.
Up Next
A look back at 2021 – Retrospective on Supply Chains – The Ghost of Christmas Past.
A look forward to 2022 – The Future of Supply Chains.
A special edition on Trade Policies and Supply Chains in January 2022
Special Report Examining the Supply Chain for Batteries to power the electric car revolution in January 2022
Catch Up – Listen to All Available Episodes Here…
The Only Way Is UP
Inflation in the US is at a thirty year high standing at 6.2% and in the UK the Consumer Price Index stands at 4.2% in November up 1.1% from a month ago. As demand goes up and supply remains short inflation is one consequence. In this episode Tony Hines discusses cause and effect and what it means for supply chains. Shipping accounts for 90 per cent of the moveent in gloabl trade and it is still reliant on the dirtiest fuel to drive them around the world. So what can be done to clean up the industry? What will the UK Government decision to pull back from investing in rail infrastructure in the Nort really mean for the economy including future supply chains?
Timing is everything says Tony Hines when it comes to achieving supply chain advantage. Whether it is how long it takes to procure goods, process work-flows or transport goods (raw materials, work-in-progress or finished inventories) to the customer. Time endows advantage. Of course time can also be a problem if you do not manage it well. Managing time in supply chains is a risk. There are uncertainties beyond your control that give rise to risks that you may not have factored in. Even the most savvy supply chain professionals are subject to it.
Cargo
Take the current issues in global supply chains with ports experiencing delays in handling cargo. Satellite pictures of ports in California showed about seventy ships lining up waiting to discharge containers at Los Angeles. Long Beach too has delays. About 40 per cent of US Container traffic passes through these two ports. In the UK too at Felixstowe which handles about 36 per cent of the UK container traffic there are similar problems. In the US it has been taking up to 14 days to get ships into port and in the UK 6 days. There is also increased dwell time in turning around containers. It has raised form 4 days to 10 in the UK. The Biden Administration brought those involved in the US crisis to the table to discuss practical solutions and gain commitments. This is seen as a positive move and parties are keen to operate ports 24/7 to get the job done. In the UK the underlying problem is the shortage of 100,000 HGV drivers to clear the ports and get containers in the right places. Time is everything because these delays are costly for everyone the shippers, the ports, the hauliers, the customers and those managing the various operations. A number of large retailers have been agile in trying to manage the risk by hiring their own vessels to move goods. These are generally smaller ships to weave in between the larger ships and to drop cargo at smaller facilities to avoid the backlogs. Home Depot’s Sara Caliga said the idea started as a joke saying they would charter the ships themselves to get the job done but that’s exactly what they have done. Wal-Mart said their strategy was to hire smaller ships to move goods more quickly. IKEA, Target and Costco are all doing something similar. Coca Cola said it was using smaller vessels usually used for grain or coal to move their products around. In the UK the John Lewis Partnership runs 38 department stores, 12 at home stores and about 338 Waitrose Stores and it too committed to charter ships on 16th September to ensure they had supplies for the run up to Christmas. Hiring ships is not cheap. It is also not a skill expected of retailers to run the shipping operation so it will be interesting to see how they do. These retailers are looking to secure the high velocity inventories the goods that make them most profit. Listen to the podcast and find out more.
Electricity Shortages in China
Electricity shortages in China have impacted production capacity as factories in some of the biggest industrial areas have had to close. This is in addition to the problems experienced from the pandemic shutdowns that occur with China’s no tolerance policy to Covid. This will mean more disruptions to some goods. Recent closures in Vietnam have also seen some production move from there to China but Vietnam is now opening up again.
Driver Shortages
The UK is still impacted from the HGV driver shortage (100,000) meaning goods are not moving as quickly as they should. This is impacting the UK’s largest container ports. This week the reintroduction of cabotage by the UK Government means that EU drivers can do more pickups in the UK but this has not gone down well with UK hauliers who fear their work will be taken away by EU firms.
Planning and Control
Planning and control are two concepts to employ across supply chains if you want to deliver on time, every time. On time delivery is always important but with some categories it is not just important it is essential e.g. medicines, fresh food and ambient goods. To plan effectiveley you need systems, processes, technologies and people working seemlessly together across the supply chain. Visibility across the system for all parties that are partnering in that system is essential. Communicating information that is timely to take action to control the system is essetial.
Time is of the essence. It is about perspective. Time in supply chains is critical. The faster you can move goods from point of origin through to customers means you incur less cost, there is lower risk because you do not have to store goods longer than required. Goods in transit are always better than goods in storage. Warehouses are stuck in time. They are a place where goods travel at zero miles per hour.
Are you working on monochronic time? Put differently does everyone in your supply chain work to the same timescale? To be efficient everyone has to work to the same timescale. If your supply chain works on polychronic time you need to correct it. Time is of the essence. All goods have some type of time criticality. Of course not all goods are time critical in terms of perishability as food is but they all require management to deliver on time.
Political Time
Political time is often short. Governments are voted in to office for specific time periods usually 4 or 5 year terms of office. Decisions taken by government are not always in the interests of the population or indeed the state. Government’s are populated by people with different interests and priorities and they do not always act or behave in democratic ways even in a democracy. Factions emerge and sometimes they become dominant sometimes this can be good and other times not so. Governments in a democracy are supposed to represent the views of the people being governed. In a party system that is usually but not always limited to people who voted for the party in government. Time is of the essence. To get things done within their term of tenure governments have to act quickly. This often limits their time horizons on what to do, which means they will action what they can do within time. In this decision algorithm they will limit policy choices. Implementing only those they can within time, with maximum gain meaning they will have one eye on the impact this will have on attracting sufficient votes to stay in power for another term.
Just-In-Time
Just-in-Time is what it says something that arrives just-in-time and not too late. It is in the ‘nick of time’. For politicians it might be the introduction of a policy to correct some injustice or inequitable allocation and distribution of resources. It might be an action to prevent something from occurring which is harmful or undesirable. If it is just-in-time it may stand a chance of working when it is too late it does not.
In supply chains just-in-time (JiT) is a system to move goods from one point to another as they are required. An example might be a material planning requirement to get materials just when they are needed. This way inventory risks and the cost of holding stock just-in-case is minimized. It means that working capital requirements are significantly lowered. JiT supply lowers carbon footprints by reducing waste as well as time in production and distribution. Thus, increasing throughput in a shorter time. Just-in-time systems are efficient. You only produce what you need to. JiT supply systems can of course be disrupted in the same way that other supply chain systems are. When this happens they can appear less resilient than supply systems holding buffer inventories to mitigate risk but there is nothing stopping JiT system adjustments to mitigate some risk by holding a minimum risk level of inventories. This is the premium for resilient supply chains. This will work most effectively for non-perishable goods. After all there is a limited time to hold perishable goods in any supply system. The bland criticism in the press that JiT systems are to blame for supply chain problems is just not true. How well these JiT systems are managed is the issue. Any friction in the supply chain such as additional time delays at ports for any reason will impact JiT systems. If you know this is likely in your supply chain you can take steps to mitigate risks. JiT supply chains work most efficiently when friction is removed. Sometimes unforseen frictions occur causing disruptions e.g. volcano eruptions, floods, adverse weather conditions, cargo lost at sea or delays due to other causes that are not known in advance. In the case of goods disrupted at UK ports because of increased time taken with border checks and administration after leaving the EU (Brexit) then this is bad planning and preparation either on part of government or by businesses. Most examples I am aware of have been because government did not plan particularly well and was unclear about processes. Furthermore, processes were not only unclear but were not clearly communicated to those who were bound by them in time to prepare and act. It was a case of too little, too late.
Too Little, Too Late
Too little, too late, is a political malaise when governments either do too little or are too late to act. This type of malaise can occur when governments fail to recognise their responsibilities or decide that something is not their responsibility. Complacency or indecision is another reason for delays in taking action. It can affect business too. This malaise of too little, too late will be recognised by business leaders. In supply chains those that act fast are the one’s to succeed. Procrastination is not an option. ‘Procrastination is the thief of time’ meaning you will always be too late.
The list of supply issues in the UK grows ever longer: Labour shortages in food processing, shortage of butchers in abatoirs, shortage of C02 for stunning animals, putting fiz in drinks and in food packaging, fuel shortages because of a shortage of HGV drivers, Food shortages at supermarkets and retail stores because there is a shortage of 100,000 HGV drivers after many returned to their home EU countries after Brexit, Builders and other construction workers and materials, doctors and nurses, medicines, microchips, shipping and shipping containers, not enough farm labourers, flower pickers and crop pickers with daffodils left to rot, blueberries too, courgettes, lettuces, tomatoes and potatoes also left in the fields. The PM said he wants a high wage economy and we are going through a period of adjustment but this belies the facts. Many of the daffodil pickers for example earn £200 per day if they pick around 1600 bunches and many do, so that is already decent pay. Some sectors in which there are skill shortages are already by most standards highly paid such as doctors. Migrant workers have always travelled to pick crops so there is some fundamental misunderstanding by many, that people just sit and wait for the work to come to them, it doesn’t work like that. The impact of the pandemic is one issue but the elephant in the room is Brexit restrictions on the movement of labour and a failure to act quickly to issue work permits to allow skilled people to do the work when needed. Even when the UK government did act timely they were swallowed up in their own post Brexit red tape. Employment licenses were too slow to be enacted. There was said to be a shortage of 20,000 HGV drivers five years ago when the UK was in the EU. In China there is a reported shortage of HGV drivers – 20,000 – for a completely different reason – increasing demand for goods. In the UK prior to the pandemic this number of HGV drivers had swelled to around 60,000 a substantial number returning to their home countries prior to Brexit. After the UK left the EU on December 31st, 2020 it became impossible for many EU nationals to remain and a further 20,000 are said to have returned in the run up to that. Growing demand during the past few years accounts for the remainder.
At present the labour shortages in many supply chains have become critical. This despite the UK Government issuing 5,000 short term visas to attract HGV drivers – apparently only 27 people have applied so far. The time limits and restrictions on the visas were set too tightly to be of much use in encouraging people to apply. Also, in some quarters the loss of self-employed status for some contractors including HGV drivers (and IT professionals) has been blamed with HMRC pushing contractors to employed status through the IR35 rules. This moves those contractors to PAYE tax at source and an inability to claim expenses against income which some relied on. There are 5,500 visas available for food processing workers.
Supply Chain Disruptors
Time To Put Things Right
Who is responsible for putting things right? As with many things this answer is not straightforward. Government have a responsibilty to ensure that citizens have security. This security extends from personal safety through to other securities inter alia including, cyber, health, welfare, energy, food, financial and employment. So when it comes to managing the infrastructure to achieve such security the government has a clear responsibility. Government has a responsibility to take action, implement policies and put in place regulatory frameworks that ensure security in these matters. Governments are not responsible for disruptions due to matters beyond their control such as accidents or what insurance companies refer to as ‘Acts of God’. Labour shortages in an industry are caused by many factors including pay and conditions of work. It is up to government to ensure safe working conditions through legal protections and law enforcement. It is up to government to put in place arrangements that make it easy to employ people and minimise the impact of bureaucratic arrangements that impede employment opportunities. For example, if a government department is unable to issue driving licenses to HGV drivers in time then that is down to government to act. If a government is slow to carry out a responsibilty to test HGV drivers in order to license them through DVSA then that is down to government to take corrective action. Actioning work permits in a timely manner when necessary is a government responsibility. These are matters that firms have little control over but they can be badly impacted by too little, too late. Time is of the essence.
Time Enough
It was 2016 when the UK voted to leave the EU. More than five years have passed which you might think is a good length of time to plan and prepare effectively for a smooth exit to minimize the impact on businesses and people who have to adapt to different systems that affect their daily lives. Governments are responsible for conditions created by their actions or inaction. How come five years was not long enough? Well maybe because much of the available time to negotiate an exit deal was wasted and wasteful in negative rhetoric. Government did not really get on with it despite the rhetoric. The vote may have taken place but the fights were replayed in Parliament, in every newsbite, soundbite and political meeting. Without going into great detail not much was done in that period to secure a smooth exit to reduce risk and minimize the impact of all the necessary changes that would come into play after Brexit. The task was grossly underestimated and the detail was thin. Many of the claims and promises made to persuade people to vote to leave the European Union by the ‘Vote Leave Campaign Group’ melted away as positions on both sides of the vote became frozen, hardened in the passage of time. Not a great deal of thinking about what future arrangements between the UK and EU might look like was given mind space or indeed communicated to the nation who would have to pick up the pieces later. Signals of future disruptions were coming from industries who had benefited from frictionless trade with the UK’s biggest trading partner, the EU. Not enough time was set aside to deal with the detail of these real issues until it was too late to act and get a deal in the best interests of the UK. Despite all the rhetoric about ‘an oven ready deal’ the reality was different. The eleventh hour trade deal struck by the government in December 2020 with a few January tweaks did not give sufficient time to communicate with businesses about what they needed to do to prepare and plan by putting appropriate systems and procedures in place. Inevitably, the chaos emerged with hold ups at Dover and other ports and the fiasco to build a lorry park at Dover to store the delayed trucks waiting to move cargo to Europe. Many businesses incurred additional costs that they had not been able to budget for because of the failure to plan and prepare properly. Each transaction now had to contend with extra bureaucracy that added a minimum of £180 to a consignment. Some businesses rapidly began to seek out premises in the EU to move their operations outside the UK to lower their costs. There were ludicrous examples of small consignmnets perhaps worth only a few pounds having to pay a hundred pounds or more to export the low value item. Many smaller firms gave up. Others made big investments in facilities in the EU. Although initially this might cost substantially more by way of investment they were planning to reduce the cost of supply chain friction longer-term.
Covid Time
In the first quarter of 2020 it became clear that we were all entering a strange period threatened by a virus that had started in Wuhan, China, Covid 19. A virus that began to infect and kill people at scale. The whole world was caught short. Apparently back in 2016 the Government in the UK had simulated the impact of just such a threat to the environment and concluded the UK was not particularly well prepared to meet all the challenges. There were some damming reports about a lack of any follow-up regarding the simulation failures. How true this prophetic conclusion became as equipment shortages in the form of ventilators in Intensive Care Units (ICU) and Personal Protective Equipment (PPE) were all difficult to source and procure. There was also no antidote to the virus and epidemiologists, immunology experts and virology researchers started to cooperate to find one. This was done in double quick time. Within a year there were several vaccines including the Oxford Astra Zenica, Pfizer and Moderna vaccines. From March 2020 the UK Economy locked down under governmnet directives. The impact on businesses and people’s livelihoods were to some degree mitigated by government funding but not everyone was protected. As a vaccination programme was rolled out by the National Health Service (NHS) in the UK early in 2021 the worst of the pandemic began to ease and restrictions were slowly and painfully in many cases lifted. There were some false starts until pressure on the NHS were lowering. Non Covid Health Services during the pandemic had been badly impacted and many patient treatments were postponed. As with all bad news stories there were many other failures blamed on the pandemic to deflect attention away from the real cause of problems such as underinvestment in health and care services. Not enough was done quickly enough to protect the elderly in care homes and medical staff were at high risk on a daily basis because of a shortage of PPE. Time is always of the essence in these circumstances. Unfortunatley time had passed to invest in resources that might have achieved better outcomes in this pandemic. This week a joint report from the Commons Science and Technology and Health and Social Care Select Committees said government had “made big mistakes” in handling the pandemic. They cited ‘Group Think’ among ministers and scientific advisersers preventing lockdown sooner. Poor performance of Test and Trace and social care not prioritised. Maybe next time we can learn the lessons from this experience.
As people became ill with Covid 19 supply chains became disrupted. Ports in China were closed as outbreaks occurred sporadically and elsewhere in the world too. Factories had to close or reduce their output and materials were often late or difficult to procure due to Covid.
Businesses exist in a system that is subject to regulation by governments. Institutional arrangements determine how businesses behave and act within the system. It is not simply possible to trade freely with businesses either inside the system managed by a national government or to trade internationally without being subject to regulatory frameworks put in place by governments. Even trading groups such as the EU and NAFTA have regulation so called free trade areas. This regulation is a form of protectionism. Any free market is regulated. It is the degree of regulation that gives consideration to calling it free or not. Communist states were said to be planned economies which somehow suggests that market economies are not planned when in fact they are. Both types of economy are regulated and government control ranges from total to some point on a measuring scale that is less so. If markets were completely free a business would simply hire labour from anywhere at a price it was prepared to pay for that labour without any regulation or control from government. Taxation and public spending would not be necessary if markets were completely free. Clearly they are not free if the aim is to protect industry and to provide public goods because to do that we need government to generate taxes to fund the administrative structures, regulations and investment required. There is somehow a myth of time that once upon a time we had free markets without government regulation. In this polemic it is up to merchants to manage markets and for government to manage affairs of state and never the twain shall meet. The reality is very different there has been some degree of regulation in international trade since the emergence of nation states through quota restrictions and tariffs. All forms of economic activity – feudal, agrarian, industrial, service – were subject to regulation be it manorial, guild, community, state, national and international. The pre-industrial age relied much more on local arrangements than national and international regulation. The rise of nation states gave rise to international regulations. Regulations were designed to protect a nation state from other nation states; a means of security. In England it took the form of what came later to be described as ‘Mercantilism’. It is in these roots we find discussions of trade, health security, food security and security of other national interests. In 1563 the ‘Elizabethan Statute of Artificers’ ensured overseas trade was subject to State control. Today the World Trade Organization (WTO) administers the rules by which all nations trade with each other. This regulatory authority was set up by the Bretton Woods Agreement in 1944 setting out a General Agreement on Tariffs and Trade (GATT). Trading Blocs too like NAFTA and the EU have to abide by WTO rules.
Regulation of trade has given rise to wars between nation states. When Britain tried to impose taxes on the tea trade in Boston 1773 it caused the American Colonies to break away from British rule. It was said to be “Taxation without representation.” Quota restrictions and tariffs where there are imbalances seen as unjust by one party can escalate. Others have resulted in bitter trade wars between nation states such as the Smoot-Hawley Act 1930, The Chicken Tariff war in the 1960s, The US 1987 trade war with Japan related to cars, electronic goods and motorcycles, Canada-US lumber wars, the 1993 Banana Wars betwenn the US and Latin America and the current episode between the US imposing 19 per cent tariffs on China.
Time is Money
The one thing that most business people and governments would agree upon is that time is money. The faster business can produce outputs, supply goods to customers and get payment for their service means they will generate profits to invest. The shorter these cycles become the more money they accumulate. This is capitalism. Governments too know that time is money as they collect taxes within time periods to ensure they have sufficient funds to pay for public services and affairs of state. Given that time is money it is incumbent on government to act fast to solve problems that affect the business environment and the livelihoods of citizens. It is incumbent on businesses to act fast to solve their problems too. Agility, responsiveness and resilience is an investment required by government as well as businesses if we are to increase national income in a global economy and improve the wellbeing of citizens and maintain security. Put differently, businesses can only be as good as the systems and environments they operate in. Individul businesses cannot maintain the regulatory frameworks and the business environment in which they find themselves.
Out of Time…
Below you can play an audio transcript of this article TIME in the Tony Hines Blog
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