Chain Reaction

Over six days in March 2021 a real-world drama unfolded as the MV Ever Given was stranded in a narrow section of the Suez Canal just 6km in from the southern entrance. The disruption to supply chains in Europe with goods coming from Asia was estimated at around $10 billion dollars for each day the canal remained closed. The incident demonstrates the reliance placed on the Suez Canal and indeed other waterways that link continents. The gigantic container ships that sail continuously around the globe bringing essential as well as non-essential goods to businesses and consumers are a vital link between producer, supplier and customers. 

Ever Given is one of the longest container ships in service with a gross weight of 220,000 tonnes and a dead weight around 200,000 tonnes, powered by a low speed two-stroke diesel engine. The fully laden draft of the ship is under 15 metres. It has an all Indian crew establishment of twenty-five. In addition to the crew there were two Egyptian Pilots helping guide the ship through the canal from the Suez Canal Company when it ran aground on Tuesday 23rd March 2021 in heavy 40 knot winds and a sandstorm.  You can listen to my story about six days that closed the canal and disrupted global supply chains in this edition.
 
 Eight tugs tried to dislodge the ship on Thursday 25th March but without success. The next attempt tried removed 30,000 cubic metres of sand and mud from underneath the grounded ship. On Sunday 28th March with fourteen tugs and dredging taking place a small amount of water was said to be moving under the ship. Consideration was being given to removing some or all of the containers to lighten the load but this is no easy task and there is no handling equipment nearby to achieve that. On Monday 29th the ship was finally freed from its lodged position across the narrow stretch and it was moved to the Great Lake Area of the Suez Canal where at the time of writing it remains undergoing inspection. On Tuesday 30th March ships stuck in the canal began to get underway to their own destinations after a long delay.  The repercussions from the disruptive event are likely to last weeks if not months. It is likely ships will be delayed entering the destination port with delays likely to cause congestion. There is also the knock on effect of delays for goods stacking up at Asian ports for future deliveries and a shortage of containers given they will be delayed on their return journeys. Freight costs may well increase adding to prices paid by customers.
 
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President Biden issued a policy statement which put supply chain resilience at the heart of the US Economy. An extract from the policy statement states:

“The United States needs resilient, diverse, and secure supply chains to ensure our economic prosperity and national security. Pandemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition, and other conditions can reduce critical manufacturing capacity and the availability and integrity of critical goods, products, and services. Resilient American supply chains will revitalize and rebuild domestic manufacturing capacity, maintain America’s competitive edge in research and development, and create well-paying jobs. They will also support small businesses, promote prosperity, advance the fight against climate change, and encourage economic growth in communities of color and economically distressed areas.”

So this made me think more about what all organizations can do to make their own supply chains resilient when faced with external threats, disruptions and volatility within their own supply chains. In this episode I discuss some key ideas about supply chain risk and how supply chains can become resilient. Identifying vulnerabilities and assessing the risk is the first step to designing resilient supply chain strategies.

In this episode of Chain Reaction attention is on the post-Brexit supply chain evaluating the impact of leaving the EU for firms in three industry sectors in the United Kingdom, services, food and fisheries. We know that promises made by government ministers about taking back control, doing great trade deals with the rest of the world and life outside of the EU being less bureaucratic have not yet materialised.

The UK officially exited the European Union on 31st December 2020. UK Government statistics show trade with the EU approaching 52 per cent for exports and 48 per cent for imports. Both in volume and value the EU is the UK’s principal trading partner. Having left the customs union means that tariffs and quotas are possible on either side when trade is conducted.

In the twelve month period leading to the UK exit from the EU Customs Union concerns were raised by many hauliers that the previous roll-on roll-off ferries could be disrupted at UK ports if trucks had to que to access ships while export documentation was checked. There were press reports about the M25 becoming a lorry park. The government’s commitment to build additional lorry parks approaching ports has reduced the impact but whether or not this is a long-term solution to the problem when trade increases remains a question-mark.

Summary of immediate impacts:

Services:There were few, if any arrangements for services as part of the Prime Minister’s deal concluded at the eleventh hour. In any commercial setting critics might be asking serious questions if they left the negotiations with a major trading partner to the last minute, It emerged in press reports in February that Amsterdam has become the major financial services centre in the EU taking over from the City of London. This was widely trailered during the period between the Brexit vote and leaving but little was done to remedy the threat posed after the UK left the EU. Financial services alone are worth £126,000 million to the UK Economy (ONS, 2019).

Food:The UK food and drink supply chain is worth £120 billion with £23 billion of that exported to 220 countries all over the world. It is the biggest manufacturing employer in the UK larger than automotive and aerospace together (FDF, 2020). During 2020 many food retailers had raised concerns about cross-channel trade and highlighted that delays would cause shortages and empty shelves in supermarkets. Retailers moved swiftly to stress test their food supply chains in an attempt to make them resilient in the face of this threat. Nevertheless, Ian Wright CEO of the Food and Drinks Federation has said that food exports to the EU fell by 60 per cent in January 2021. The Road Haulage Association estimated that exports through UK ports was down by around 68 per cent in January 2021.

Fisheries:During the November 2020 in the run up to the December 31st Brexit deadline Fisheries became a sticking point of the deal. Fish represent a very small percentage of the total trade between the two parties (UK-EU i.e. 0.2%). Regaining control of fishing rights was a key part of the rhetoric in the ‘Leave Campaign’ The time would have been better spent thrashing out the Services part of the economy. Time added to a supply chain through delay is always problematic for a supplier but for perishable goods it is disastrous. One exporter of lobster, crab and prawns said his consignment of £50,000 worth of goods was delayed over 30 hours at the port. The Fishing Industry is valued at £437 million (ONS,2019).

Supply chains are service systems creating and delivering value to customers. In this episode Tony Hines discusses value, customers and service. Attention is focused on what value means to customers in the supply chain and how consumers perceive value received from brands in consumer markets. This informs what happens inside supply chains and guides strategic choices.

Value and the value based consumer. Brands spend a great deal of money reaching out to consumers. Consumers seek value from price, service and how the brand compares to competitor offerings. Brands need to be ethical, sustainable and fulfil the promise in delivery. Structures, policies and strategies need to be clear and they expect transparency, consistency and reliability.

In the early part of the twentieth century scale was the key source of competitive advantage. By the latter part of the twentieth century expertise in supply chain management was needed. Nowadays, it is critical to focus on the needs of the customer. Value is created by understanding customers and what drives value for particular customers (c.f. 7V’s). Serving customers effectively and efficiently are the twin objectives of supply chain leaders. Effectively giving consumers what they want when they want it on time and complete. Efficiency is about achieving higher value added through process management keeping input costs low and output values high. Service is necessary to add value and retain customers. Whether this is created through flexible manufacturing systems, faster response times, reduced lead times it is paramount for supply chains to be agile, lean and adaptable. Supply chain leaders need to understand the value drivers to pull the right leavers. Value is not created until all costs are covered by revenue. Value is created through service to customers.

In this episode Tony Hines discusses recent changes in the macro environment as well as in society at large and the risk and uncertainty that plays out in the supply chain. Complexity and Disruption provide a focus for the discussion. Supply chains are discussed as complex systems. Disruptions emerge as the complexity of the system increases. Visibility is key to understanding the changes and the risks involved. Recent changes in the global economy give rise to further complexities and key trends are identified.

Tony Hines developed his 7V model to identify value drivers in supply chains. These Vs were validated in his research studies of international supply chains. Value is created within the supply chain by lowering cost and increasing value for customers. This often results in saving time and speeding up throughput. If Supply Chain cycle times can be reduced you lower cost and people get paid faster. Each of the V’s has a unique role to perform. The 7V’s comprise: Volume, volatility, velocity, variety, variability, virtuality and visibility. Each is explained briefly in the podcast.

There are two ways to create supply chain advantage: reducing cost or increasing profit. There is one method – customer focused supply chain strategy.