An abstract staircase and multi colored doors, individual one is open and a light coming out, symbolising choice concept. ( 3d render )

“A fantastic opportunity”: The impact of economic crisis on supply chain

Reading Time: 4 minutes
The UK economy is creaking under the weight of several negative factors; inflation, the cost-of-living crisis, the war in Ukraine as well as the continuing impact of the Covid-19 pandemic. How is this situation impacting supply chain – and how can the function respond? Ross Dawson, Operations, Procurement and Supply Chain Practice Lead, with her colleagues Ivan Bates and Jess Jakins, shares the learnings of a recent discussion between senior supply chain and procurement leaders:  

Let’s start by looking for positives. Are there ways in which this could be seen as a time of opportunity?

More than one guest insisted that a time of crisis represents a chance to put in place different systems. As Philip Molnar, EMENA Supply Chain Director at Costa Coffee put it:
A crisis is a fantastic opportunity to re-engineer and do things differently. Sacred cows will all go on the barbecue!
In difficult times, organisations can examine their value chain to introduce greater flexibility and take a hard look at the actions that are no longer necessary and can be removed. Costs, for instance, is a scrutinising project and if they are defined as  “vampire” or  “zombie” projects which are never going to come to fruition – it’s time to kill them off. “We’re focusing on what we call must-win battles,” added Philip. The sense that we are in an age of perma-crisis also means that day-to-day activities should be revised, as well as developments and projects. Systems can be streamlined and made more user-friendly for teams and colleagues. Howard Pearson, Supply Chain Transformation Consultant has the view that: “When things are tougher, it’s a really good time to make that call.” As a result, the decision-making process can be streamlined too. Jacquie Cahill, Supply Chain Transformation Consultant suggested: “The dreaded S&OP and all the processes that feed into that can be revisited at a time of crisis like this; and this presents an opportunity.”

How would you characterise the current state of play in supply chain?

The impact of the Covid-19 pandemic continues to be felt in many sectors when it comes to supply chain. Hari Sundaresan, Vice Chair, NHS London Procurement Partnership, said that the urgency with which supplies were sourced by the NHS at the height of the pandemic has left a legacy of high stock levels – which, he said, will take several quarters to unwind. In the apparel industry, suppliers are holding components as well as the finished products. With brands about to come under pressure as consumer confidence falls – with sales likely to move in the same direction – value chains will come under scrutiny. Susanne Robbins, Supply Chain Director, River Island added: “I agree, people have much more of a ‘just-in-case’ approach instead of ‘just-in-time’, which inevitably means that at all points there’s a plethora of stock.” Product development in the consumer sector is also a source of tension as businesses compete for a shrinking consumer spend. At a time when you are unravelling inventory, said Jacquie, this can lead to some interesting conversations around new product development. With regard to 3PLs, the demand for space in the UK and Europe to hold growing stock volumes is reaching a level that is difficult to sustain. Any actions taken to reduce those levels will have an impact rolling into mid-2023. As Daniel Abda, Director of Procurement and Commercial Development, Arqiva, pointed out, the surge in demand during and following lockdown has also been impacted by factors such as the war in Ukraine, and inflation. This volatility has, he said, made predicting demand “a lottery”. He added:
After the last few years, there’s no real history to base things on anymore. You’re always professionally guessing.
Philip agreed and said that Costa initially feared it would take a big hit in Europe this year because of the inability to supply Russia. However, increased sales elsewhere, particularly the Middle East, have more than compensated. The only 3PL squeeze he reported was franchise partners “scrambling to get containers to come and collect their orders”.

How do you think things might change in the near future?

Hari described the current situation in the NHS as “living hand to mouth”. He mused: “There have been four Health Secretaries this year, and we haven’t got a clue what the current one is going to do. We are just waiting with bated breath for next year’s Budget.” In the private sector, he added, people have the luxury of being able to plan two or three years in advance. However, there remains uncertainty and caution even in the private sector. Arnaud Lafontaine, International Supply Chain Operations Director, Bazooka Candy Brands, for instance, offered that his organisation expects the same level of growth as in recent years, but added that much of its product comes from countries that are “geo-politically quite risky”. Many retail operations are still working out how the Covid-19 pandemic has changed purchasing habits. As Susanne said:
We do have a long-term plan, but we review that almost weekly at the moment. This caution will continue while brands – and their consumers – work out what the spend on fashion retailing looks like going forward.
Footfall in city centres is a source of concern at Costa, said Philip. Also, the younger demographic now using its stores is less focused on coffee – they prefer cold drinks, which will lead to the development of new products. There is no doubt that the world continues to present multiple challenges for supply chain management and it’s apparent that there is a broad range of views on the sector and experiences depending on the sector and where in the supply chain you sit.  With the war, inflation, threat of recession, geopolitical risk, continued lockdowns in China, these challenges present a moment for review and change, and we look forward to continuing to support our clients with the best talent to enable them to make the most of this opportunity.   Our thanks go out to our guests for joining us and sharing their insights. If you’d like to discuss your procurement or supply chain capability, please contact Ross at [email protected] or call her on +44 (0)7710 884 004.