Due to the lower labour and operating costs, wider product ranges and better reach to new markets, global supply chains have huge benefits for companies in different industries. However, the COVID-19 pandemic exposed many of their vulnerabilities. Here, Neil Ballinger, head of EMEA at automation parts supplier EU Automation, discusses three key challenges for global supply chains.
Customers are now expecting faster and faster deliveries. To ensure a one-day delivery on your purchase, you only need to pay £7.99 per month for Amazon Prime. However, when it comes to global supply chains, it normally takes weeks and even months to ship goods from overseas owing to port congestion, raw material shortages, transportation bottlenecks and so on.
In the past year, the combination of national and local lockdowns, raw material shortages, economic and political instability has made global supply chains even more fragile, highlighting three main concerns.
The global COVID-19 crisis has exacerbated the challenges of managing extended supply chains. The Institute of Supply Management (ISM) surveyed 559 respondents and reported that since the pandemic, average lead times for input are at least twice than normal. For China the lead times increased by 222 per cent, for Europe by 201 per cent and for the US by 200 per cent.
Manufacturers who need electronic components are also faced with another challenge — material shortages. The ISM’s June 2021 Manufacturing report points out that electronic components are facing the biggest supply chain constraints, with lead times increasing from 16 weeks to over 52 weeks. Consequently, manufacturers now face a greater risk of running out of inventory. The lower speed to market because of longer lead times also means that competitors may occupy more market share by releasing new products earlier.
Brexit poses even more challenges to UK manufacturers. The EU is the UK’s largest trade partner, with 52 per cent of all UK imports and 43 per cent of exports in 2019. Brexit causes border delays and additional administrative burdens, significantly extending the lead times. As a consequence, the end customers will not only need to pay for increased import tariffs for components, but also for extra costs throughout the supply chain, such as additional inventory holding costs and transportation costs.
Lack of diversification
To cut their costs, companies tend to outsource production. However, the COVID crisis has highlighted the weakness of putting too many eggs in one basket. Excessive reliance on one specific location or supplier may put business in higher risks.
For instance, if the supplier’s operations in tier one are interrupted, crucial supplies might not be able to travel to the next nodes, causing a domino effect that will result in expensive downtime for manufacturers down the line.
In addition, if a single source base experiences an unpredictable and catastrophic event, or it is purchased by a competitor or encounters financial problems, companies that depend on it will be put in a very unfavourable position.
Lack of visibility
During the COVID-19 crisis, companies have witnessed a radical shift in customer demand and disruptions to their supply network. Research company Capgemini published a report on rethinking supply chain resilience for a post-pandemic world, which highlights that in the past year, at least 72 per cent of companies faced huge challenges in monitoring their end-to-end supply chain. The main challenges reported by business owners are keeping track of the location and status of their inventory, forecasting customer demand, and precisely tracking the share of transport capacity.
In case of geopolitical unrest, the lack of end-to-end visibility in global supply chains can expose companies to higher risks of disruptions. Companies that don’t have transparent supply chains may suffer huge financial losses, because they don’t have enough information to identify disruptions and act accordingly.
With the accelerating globalisation, our life necessities, from mobile phones to vehicles, are produced by components sourced across the world. Manufacturers relying on global supply chains will face increasing challenges but sourcing crucial industrial automation parts shouldn’t be one of them. EU Automation has successfully overcome the three main challenges of extended supply chains by operating from four different locations — Germany, the UK, the US and Singapore — relying on a diverse and reliable network of international suppliers, and working with international sales experts that speak more than 20 languages to overcome linguistic and cultural barriers. In this way, manufacturers can receive the components they need as fast and possible, avoiding expensive unplanned downtime.
For more information on EU Automation’s global services, visit www.euautomation.com.