Wednesday, February 24, 2021

COVID-19 prompts radical rethink of manufacturing supply chains

Two thirds of UK manufacturing businesses are planning to introduce dual or multi-sourcing for key components in an effort to avoid the supply disruptions caused by COVID-19, according to a new survey from accountancy and business advisory firm BDO LLP.

In a survey of 206 manufacturing businesses conducted by Make UK and BDO in November 2020, almost 9 in 10 manufacturers said they had reviewed their supply chains in response to the pandemic.

In total, 59% of respondents said that they planned to diversify their supply chains, with just under half (46%) saying they planned to create a UK focused supply chain. One third (33%) said they would focus on reshoring the manufacturing of goods to the UK.

However, just over a quarter (27%) said they were looking to diversify their supply chains across different countries in the EU, while the same proportion said they were likely to diversify in countries outside the EU.

New rules which came into force following the UK’s withdrawal from the Single Market and Customs Union on 1 January 2021 have introduced new trade frictions which could also lead to further supply chain disruption and reorganisation.

Commenting on the findings, Richard Austin, BDO’s Head of Manufacturing said: “The supply delays experienced by UK manufacturers at the start of the pandemic were a wake-up call, prompting many operators to confront the risks involved in over-relying on single suppliers for key components. This was particularly true in cases where suppliers were geographically very distant.

“Our survey has found that many manufacturers are actively formulating strategies to diversify their supply chains and opting for dual or multiple sourcing for critical supplies.

“The trade frictions created by the new post-Brexit trading arrangements have added a new layer of complexity which may prompt further supply chain adjustments and changes to logistics operations. Rethinking these arrangements is likely to be a priority for all manufacturing businesses over the coming year.

“As supply chains become more complex, many manufacturers are recognising that they will need to invest more in technology which provides end-to-end visibility across the supply chain in real-time and which provides the information required under EU export Rules of Origin from 1st January 2022. For many this will be critical in managing supply chain risks, reducing the likelihood of production stoppages and ensuring potential trading tariffs are avoided.”

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