A beginner’s guide to supply chains

2017-09-08 (102) ASFINAG Rastplatz Amstetten.jpg

The term ‘supply chain’ is bandied around frequently in discussions about Brexit. Since it appears  that some cabinet ministers have a somewhat hazy grasp of the phrase, I wonder if it would be helpful to explain it in simple terms. I am not trying to imply that readers of West Country Voices have an understanding poorer than that of the average cabinet minister, but it may be useful to be familiar with some of the ideas. 

 A supply chain is the activities required by the organisation to deliver goods or services to the consumer

Chartered Institute of Purchasing and Supply

In the ‘good old days’, products were usually manufactured in a single factory that made pretty much the whole product. When Henry Ford developed the production line, his factories would have made almost all a car’s components, except possibly the tyres. Contrast this with today’s vehicles, which are assembled in a factory that draws in materials from a whole range of outside suppliers. Specialist companies will supply a vast number of components and sub-assemblies, with perhaps 5,000 parts going into a car, of which – for an average ‘British built’ car – fewer than half are estimated to be sourced in the UK. The essence of a lean supply chain is that there should be a smooth flow of parts to keep the production line moving, with a minimum of stock held on site. This requires not only high- quality manufacture, but also consistent, punctual logistics.

This is magnified for the Airbus consortium (a major UK employer), for example, where approximately 8,000 direct and 18,000 indirect suppliers from more than 100 countries supply parts, components, systems and services. . Before anyone suggests that this is all about sharing work across the partner nations, Boeing is no different: it is a long- established practice in the US to spread work across as many congressional districts as possible, to ensure maximum buy-in by the legislature for any programme. The number of suppliers for a Boeing 787 is similar to that of an Airbus, and includes manufacturers in Japan, Korea and Europe.

Since we moved on as a nation from subsistence farming, we have been building similarly complex networks of supply for groceries, fruit and vegetables. These networks link growers throughout the world, and shippers, warehouses, packers and distributors bring food to the shelves in as fresh a state as possible. For many customers, the idea that items are “out of season” is a thing of the past.

“The Just-In-Time (JIT) concept is a manufacturing workflow methodology aimed at reducing flow times and costs within production systems and the distribution of materials.”

Chartered Institute of Purchasing and Supply

The point of these systems is that they operate as smoothly as possible, to deliver “just in time” to avoid waste and to cut costs. If you introduce friction into the system, it will cease to work smoothly: delay is incurred and, therefore, additional cost. When a massive container ship, the Ever Given, was stuck in the Suez Canal with 20,000 containers on board, a wide and arbitrary variety of goods may have appeared in the shops during the wrong season.

If a whole range of new red tape is introduced by requiring customs checks, it will become more difficult to deliver short-dated foodstuffs to the customer with an acceptable shelf life. If key workers are removed from the supply chain – be they vets or HGV drivers – delays or potentially absolute shortages are created. Even simple supply chains can be critical, so if Nando’s or KFC cannot obtain chicken or McDonald’s cannot obtain potatoes or milk, restaurants close.

The good news is that supply chains have a degree of resilience and will re-form to follow the most efficient available option. If the land bridge from Ireland (including the North) to mainland Europe is disrupted, then there is a market for a ferry service that by-passes England and just such a service has expanded to meet the demand. If drivers are in short supply, the price will rise but the consumer will just have to pay.        

The bad news is that there is more friction to come. People, especially trained people, are a relatively inflexible resource: the supply cannot be turned on and off like a tap. There is an increasing list of skills that are in short supply, from vets to vegetable pickers and from HGV drivers to hospitality workers. This is particularly true where the ability to train and test HGV drivers is itself under strain.

HGV drivers, as well as being in short supply, are working less efficiently than previously. Next time you travel on the motorway, just count how many vehicles you see with foreign plates; it is a fraction of the number that it once was. Foreign drivers are simply not crossing the Channel and providing some of the capacity in the UK. The loss of Cabotage rights  means that there are further restrictions on the way in which a driver can pick up a load that is not destined to return to his home country. Formerly, foreign drivers would have been free to deliver a subsequent load (or loads) within the UK on their way back to the port. The net effect is more empty working and a loss of capacity. Brexit is successfully reducing the effectiveness of a resource that is already in short supply and this issue is uniquely British, with nothing comparable in Ireland or mainland Europe. Only Britain features supermarket shelves that are reminiscent of eastern Europe in the 1980s.      

In one helpful concession, the government has postponed the introduction of the UK’s own home-made standards mark, the UKCA (UK Conformity Assessed). This recognizes the reality that government is unready, and industry is both unready and unwilling to apply a new parallel set of standards which would merely duplicate the existing CE (Conformité Européene) standards.  

However, there is still more to come. Import inspections of ‘products of animal origin’ entering the UK are due to begin on 1 October 2021, and on plants, wood and wood products from 1 Jan 2022.  Both have been deferred since 1 July 2021 since the UK has not had the control posts ready to enable the checks to be carried out. Britain is under-prepared, and more grit is still to be added into the supply chain.   

And a shortage of turkeys for Christmas? Don’t look at me; I am vegetarian (but I can suggest some good recipes).