Covid-crisis and the impact on supply chains


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At the start of lockdown, headlines were full of stories about PPE shortages and empty shelves in supermarkets, the pandemic had potentially exposed weaknesses in the UK’s supply chain – and some of its strengths.

However, the pandemic hasn’t just highlighted resilience it has also accelerated existing trends and thinking.

PPE is a very small proportion of the manufacturing market in the UK but lack of supply in the initial weeks of lockdown highlighted a lack of preparedness for a pandemic. The UK Government might be reliant on the private sector to deliver but if there is a positive then it has to be that the private sector largely did succeed. Manufacturers were quick to adapt.

"We have a lot of very bright, innovative, flexible businesses not the old fashioned clunky heavy industry that people normally associate with manufacturing. The industry has shown itself to be incredibly adaptable through Covid-19," says Fiona Thomson, Partner at Trowers & Hamlins.

Empty shelves in supermarkets were the result of exceptional buying trends. Using data supermarkets can normally accurately predict what stock is needed but Covid-19 sparked unprecedented bulk buying.  Speed of delivering new stock to stores was also hampered by social distancing restrictions and staff sickness resulting in gaps on the shelves.

But that didn’t just affect food supplies. There will be few who, when shopping online, didn’t see a ‘delivery times may be slower than usual’ notice. And again suppliers and logistics companies have been quick to adapt.

Outside of the pandemic, any number of things can affect supply chains from trade politics to natural disasters. What the Covid-19 crisis has highlighted are the risks of being reliant on one or two supply chains, ‘just in time’ deliveries and the distance supplies travel. 

Having different supply sources is naturally better when there are disruptions particularly if you are operating on a ‘just in time’ model. ‘Just in case’ is safer but not as efficient.

"If you're are going to have inbuilt redundancy and latency in the system then that duality comes at a cost," says Neil Biswas, Partner at Trowers & Hamlins.

"But I think if you have a digital, data-driven and flexible supply network that is managed properly it is less costly. We are witnessing the inexorable rise in the digital supply network."

Technology and data will continue to be a huge driver of efficiency in manufacturing and logistics which could help with on-shoring and near-shoring supply chains. Lockdown has shifted the focus more firmly on our neighbourhoods and where goods are sourced.

Criticism of globalisation has grown in recent years – look at the nationalist policies of President Trump.  Will technology and automation make supply chains closer to home more viable if cheaper labour is less of a draw? Perhaps.

But the Covid-crisis has also accelerated environmental concerns. Businesses are more aware of their carbon footprint and where materials and goods come from. Consumers too are becoming much more conscious of the environmental impact of what they buy.

"If you can reduce the length of the supply chain, if you don’t have to ship things from halfway across the world, there will be carbon and financial benefits," says Biswas.

A more localised supply chain is arguably easier to manage but it isn’t necessarily that simple. Manufacturers, no doubt will be asking if they can operate entirely from sources closer to home but the business case still has to stack up.

Without Covid-19, the focus for the UK’s manufacturing and logistics businesses would no doubt have been taken up with Brexit. The potential for disruption from our EU departure has not gone away. There is still much uncertainty about what trade with Europe will look like and what paperwork will be required.

Nonetheless, there is confidence in the UK’s industrial sector as investment activity in real estate demonstrates.

"We've got 18 listed real estate companies who have raised over £3 billion in additional capital since the pandemic started of which industrial and logistics REIT SEGRO raised over, £680 million.

"Clearly there are a lot of people who have decided that it is a sector that is worth investing in," says Biswas.

And it is a similar story for international investors, particularly from the US, looking to add to their portfolio.

"The UK has become a really good place to put money because of the returns that can be generated and long may that continue," says Thomson.

The Covid-crisis has been hugely disruptive but it has also accelerated the change in direction for manufacturing and logistics.

Lockdown localism and manufacturing
 
Lockdown has led to a level of localism that could not have been foreseen. Not just the rediscovery of local shops but also life without a commute. This could lead to a more permanent change in expectations and behaviour once this crisis has passed.

Whether that is working from home more to reduce the number of days commuting or working closer to home. The latter is a longer-term shift, businesses can’t just up-sticks and move overnight but it has raised questions about where businesses – including manufacturers – should locate in the future.

There has been a lot of talk since the Covid-19 crisis began about the 15-minute city, having more complete neighbourhoods that mitigate the need to travel. Does manufacturing have a place in the 15-minute city?

It always was part of the urban landscape but when workforces became more mobile, it was relegated to out of town and edge of town locations taking its noise and pollution with it.

But manufacturing isn’t necessarily the noisy, air-polluting use-type that it once was. Advances in technology such as AI, robotics, 3D printing and more, are making it quieter and cleaner. Could urban manufacturing become a part of the mix once again?

"We've all experienced to a point the benefits or otherwise of living and working closer to home and some of that is going to reinforce regionalisation or localism in the way in which we work and that in turn will extend to industry and manufacturing," says Thomson.

Availability of staff with appropriate skills already drives locational decisions and could also drive a move towards more urban locations.

"Because of the technology being used, manufacturers are looking for a more educated workforce in new, non-traditional locations," says Thomson.

Logistics is going through the same evolution with warehouses increasingly using automated systems and robotics to sort and distribute stock. Demand for digital skills in the sector has been rising for some time.

The fly in the ointment is the availability of land. Cities and towns have given over industrial sites to higher-value uses such as residential. Where existing sites remain, manufacturing might not be economically viable.

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