A localised supply chain could minimise disaster risk
Over the past few years, procurement has been dominated by concerns about risk management and minimising supply chain vulnerability, following the mounting risk of natural disasters worldwide.
The devastating effect of natural disasters has been underpinned in the collective consciousness of big businesses following supply chain disruptions in the aftermath of the 2011 Tōhoku earthquake.
Chaos following the earthquake had a devastating effect on the business of automotive manufacturers, which saw the major player Toyota Motor Corp lose out on sales of it’s Prius model, which is manufactured in Japan alone.
In addition to specific companies losing out on profits, Japanese plants which supply engines and motor parts were also affected; causing disruptions in assembly plants worldwide which suffered from a knock on effect. In instances where these plants were the only source, this caused a devastating loss of profit in companies worldwide.
“Clearly there are disadvantages to sourcing products from countries that suffer from extreme weather conditions, especially when supply is so geographically focused,” explained Dave Alberts, Director of Crimson &Co, a leading end-to-end supply chain consultancy group.
This disadvantage is something that the vast majority of companies are vulnerable to. In the UK alone, the average manufacturer has almost 190 suppliers, with almost 100 percent of manufacturers supplying some materials from overseas, according to a new study by the EEF. Currently, over half of manufacturers source from Asia and nearly as many source from the US.
One way that companies are avoiding the disadvantage of increasing environmental disruptions is by bringing their supply chains closer to home.
The latest approach to risk minimisation in companies is to introduce local or in-house production of crucial parts, particularly in the manufacturing sector. In order to maximise resilience to disasters and build flexibility in their own operations, 40 percent of the 150 UK manufacturers are bringing their supply chains closer to home, according to a study by the EEF.
Suppliers close to home
Whilst global sourcing offers cost saving opportunities, the repercussions of natural disasters have highlighted the weaknesses of specific dependencies, leading to an increased focus on more localised or in-house production of crucial materials.
According to the report, named Be Prepared – Monitoring supply chains; Maximising Resilience, two-fifths of the 150 respondents had brought production back in house as a response to supply chain volatility, whilst a quarter had increased their use of local suppliers in order to improve their supply chain performance. These two measures have resulted in lead times being reduced and greater ease of access when it comes to quality control.
Named large companies are more likely to bring production back in-house, due to a greater access to resources, plus more space and capabilities. Small companies are more likely to turn to local suppliers.
According to an interviewee within the report, there are four key benefits to bringing production in-house: quality improvements, reduced lead-times, increased control and cost.
Moving production in-house minimises supply chain risks, however, companies often have to invest in additional premises and workers, which eats into profit margins. In addition to this, many companies who would have liked to use more local suppliers were unable to do so due to a lack of available capacity.
Advocates of localised sourcing also highlight the positive environmental effect of reducing transportation. In an interview with BusinessGreen, a spokesperson from the EEF suggested that a move to source goods locally could also help businesses reduce carbon emissions from transporting goods, while strengthening manufacturing capacity in the UK.
"If companies are bringing production back in-house or using locally sourced products then they aren't going to be transporting goods from overseas, helping to reduce transport costs and emissions," he said
Investing in the local area
Anglo American, one of the world’s largest mining companies, is a major advocate of putting more resources into the local area. In an article written for The Guardian, a representative of the company outlines a ‘strong business case’ for placing key suppliers close to operations.
Speaking from the company’s own experience, Linda Wedderburn from Anglo American highlights the greater efficiency that can be produced by investing in local suppliers, in addition to lowering logistical costs and ensuring reliable access to goods and services.
With a new strategy which invests in supplier development programmes, the company have also expanded their enterprise development programmes to ensure there are more businesses to buy from.
“This collaboration has helped our supply chain teams understand the realities of the communities in which we operate, and raised the visibility of local suppliers with the people making the purchasing decisions,” explained Wedderburn.
For companies which rely on global supply chains, a more localised approach to procurement could be the answer to greater flexibility and control in their supply chain. It is important to see beyond target meeting, and look into the economic development of local communities, which is likely to positively contribute to the long term success and reliability of the supply chain.
SAP Ariba to digitise procurement for Expo 2020 suppliers
The global trade event, this year hosted in Dubai, was rescheduled from last year and will now take place between 1 October 2021 and 31 March 2022.
As the event’s Innovative Enterprise Software Partner, SAP Ariba solutions will fully digitise and automate the procure-to-pay lifecycle, providing a streamlined experience for thousands of market leading, global suppliers and strengthening the global supply chain with enhanced transparency and efficiency. The cloud-based platforms operate through on SAP Ariba’s UAE public cloud data centre and connects to the Ariba Network.
Expo 2020 "a long-term investment"
Mohammed AlHashmi, Chief Technology Officer, Expo 2020 Dubai, said the world trade event is “a long-term investment in the future that aims to enhance opportunities for sustainable business connectivity and growth”, which stretches beyond Expo 2020’s six-month window.
“Our partnership with SAP is an example of what can be achieved with the invaluable support of our technology partners to host one of the most digitally advanced World Expos ever,” he added. “The implementation of SAP Ariba solutions has transformed our end-to-end procure-to-pay cycle and helped set new standards of procurement automation for projects of this scale.”
To date, more than AED 1bn has already been transacted by Expo 2020 suppliers through SAP Ariba. The platform promotes collaborative partnerships and allows registered users to participate in sourcing events, negotiate and initiate contracts, and centralise their invoicing and payments in real time.
Claudio Muruzabal, President of EMEA South, SAP, said: “Expo 2020 Dubai is demonstrating global best practices in digitising its procurement process with SAP Ariba solutions to help gain visibility into its spend, tighten collaboration with its suppliers, and achieve process automation, including completely paperless invoicing.”
About Expo 2020 Dubai
Expo 2020 will take place in Dubai and is the first of the long-running World Expos to be hosted in the Middle East, Africa and South Asia territory. The original World Expo, called the Great Exhibiton, was hosted in 1851 at the Crystal Palace in London, designed as a showcase for the innovations of the Industrial Revolution.
Expo 2020 was originally due to run 20 October 2020 to 10 April 2021, but was last year postponed in light of COVID-19 restrictions - though some business has already taken place virtually. The event will place greater emphasis on innovation in sustainable solutions through the Sustainability District, blending technology and culture. It is expected that around 70 per cent of the 25 million attendees will be international visitors.