Could the Suez blockage bring greater resilience to the world’s supply chains?
To avoid major disruptions to trade, businesses need a much greater understanding of their supply chains, how they operate and exactly who is involved
When the megaship Ever Given became wedged across the Suez Canal, it exposed the vulnerability of global supply chains. The vast vessel, which can carry 20,000 20ft containers, was blocking a route responsible for 12 per cent of world trade, with an estimated $400 million in cargo passing through each hour.
For six days the world, and increasingly exasperated shipping companies, watched as trade was re-routed round the Cape of Good Hope, adding around ten days to the journey time and leading to headlines about delays and shortages.
A freak gust of wind is said to have sent the boat spinning in the first place and it was another act of nature – an exceptionally high tide – that ultimately helped to shift it. In the end, the effects on global trade were minimal, but the incident did bring into focus the susceptibility of global supply chains and the extent to which companies are unprepared for “black swan” events.
Add in that global trade is still recovering from the effects of the coronavirus pandemic, Europe is coming to terms with the ramifications of Brexit, and other parts of the world, from Armenia to Myanmar, are reeling from war and insurrection, and it’s clear businesses need to come up with a plan B if they’re to prevent disruption to their operations.
“Companies have developed a higher level of dependency on suppliers and third parties from other countries, and that dependency is highlighted when a link in the supply chain is impacted,” says Brian Alster, general manager of third-party risk and compliance at business analysts Dun & Bradstreet.
“The Suez Canal incident gives us yet another reason for businesses to invest in data and technology to create an agile, geographically dispersed supply chain that can quickly pivot during unexpected events; without data and insights, companies are blind.”
Phil Reuben, director at supply chain and logistics consultancy SCALA, believes the last 18 months have taught companies many lessons about how potentially vulnerable they are. And while most can navigate the occasional unexpected event, for longer-term security, they need to do something more fundamental, he says.
Visibility is a good starting point and companies need a real understanding of where everything is coming from, because “while they know who their suppliers are, they have very little knowledge of their suppliers’ suppliers; who are the buyers buying from?” Reuben asks.
Such in-depth supply chain monitoring was once the preserve of engineering companies tasked with bringing together components from multiple suppliers, or high-tech industries that needed to ensure the provenance of materials, such as conflict minerals.
But the technology is now becoming more widespread and can provide companies with accurate, real-time data about goods in motion, as well as flagging up potential downstream impacts and delays. Greater digitalisation, automation and artificial intelligence can also be used to run what-if scenarios, which allow companies to pre-plan the steps they need to take to get trade moving again.
In the case of Suez, explains Dr John Glen, economist at the Chartered Institute of Procurement and Supply, this level of monitoring means large logistics companies would have been able to quickly identify what vessels were on their way to the canal, what goods were on those vessels and if the cargo could be redirected.
“They would also provide alternative sources of supply for time-critical cargoes,” he says, “and in doing so help companies identify alternative sources that could replenish any cargo being held up in the Suez Canal and elsewhere.”
The importance of data is borne out by Dun & Bradstreet’s recent Resilient Supply Chain report, which shows that a key priority among procurement teams in 2021 is ensuring technology and data sit at the heart of supply chain operations. A third of the 500 companies surveyed indicated that digital transformation was their organisation’s top priority, with procurement teams already using technology to support supplier risk assessment and ongoing monitoring.
Boosting supply chain resilience
The events in the Suez Canal are also likely to have planners poring over maps to ensure companies are no longer reliant on single routes, while procurement teams will be looking to add some geographical diversity to their supply chains and avoid an over-reliance on one country or region.
There have even been suggestions that businesses may be about to call time on just in time, the manufacturing system that sees components delivered to factories exactly when they’re needed as a way of avoiding overheads and waste. Instead, there is talk of a move to just in case, with companies keeping much higher stock levels to guard against shortages, as they weigh up the merits of higher warehousing costs and the risk of obsolescence, with the price of manufacturing delays.
Moves to greater on and near-shoring production have also been mooted, says Glen. “Procurement managers are consistently looking at the cost of their supply chain, the complexity of their supply chain and the associated risks,” he says. If the risks become too large, then reducing the length of the supply chain becomes an attractive proposition, although local capability, capacity and cost may be the ultimate driving factors.
The vulnerability of supply chains is also an opportunity for procurement professionals to show their true worth, says Dun & Bradstreet’s Alster. Not long ago they were perceived as a necessary cost centre, with companies often not realising how critical they were. Now, in nimble, forward-thinking organisations, which have adopted data-driven approaches, they’re seen as having a positive impact on revenue. “And that’s a huge tectonic shift in the way companies think about procurement organisation,” he concludes.