This exposes the fatal flaw in modern societys economic system that leave hundreds of millions of people totally vulnerable IF THEY DONT PREP.
https://www.telegraph.co.uk/busines...is-exposes-risk-low-cost-supply-chains-criss/
As factories across Europe shut down as coronavirus tore through industry, the weakness of global supply chains was exposed on a huge scale.
The past week’s stoppages had been signalled in advance. Globalisation that has seen companies source components from China – the low-cost workshop of the world – meant alarms sounded as companies faced supply difficulties. Ralf Speth, chief executive of Jaguar Land Rover, spelled out the risks last month.
“We have flown parts in suitcases from China to the UK to make sure we have the right parts,” he said, explaining how stocks of key fobs containing the electrics that allow drivers to remotely unlock cars were running out.
The car industry is the embodiment of globalisation. Automotive companies source parts from around the world, which are brought together in what most see as car factories. This is a misnomer. The huge sites turning out new vehicles are assembly plants. They don’t form raw pieces of metal, plastic and other materials – rather they bolt, rivet and glue together parts that have been fashioned elsewhere.
These parts are often made many thousands of miles away, at the lowest possible price, before facing long sea voyages to smaller plants where they are built up into sub-assemblies. These sub-assemblies move back and forth between suppliers many times before going for final assembly.
An industry anecdote describes the travels of crankshafts for Minis rolling out of the BMW-owned plant in Oxford. The crankshaft goes on a 2,000-mile journey before going into the finished car, with the raw cast metal made in France, then travelling to BMW’s plant near Birmingham for drilling and milling, then on to Munich where it is put into an engine, before returning to the UK for final assembly.
Vicky Redwood, economist at Capital Economics, says moving production – so often to Asia – has been driven by cheaper transport, lower labour costs and richer countries joining the global trade system.
The scourge of high inflation globally has been tamed not only by central bank action but China “exporting deflation” through lower priced goods. A lid has been kept on prices by cheap supply and some products, most notably electronics and clothing, have seen costs tumble.
“This crisis has rammed home that you can have a good thing produced with pieces from umpteen places, but if one of those bits goes wrong that halts your entire production,” she says.
As manufacturers have stripped out costs – and passed them down their supply chain – they have also stopped holding stocks of parts, relying on “just-in-time” manufacturing, where items arrive for assembly just hours before being put together to become the finished product.
Ian Henry, from AutoAnalysis, said current disruption to supply chains and just-in-time production is not the first time their vulnerabilities have been highlighted. “The 2004 tsunami exposed it but coronavirus is by far the most serious,” he says. “There’s going to be a fundamental rethink. Companies have outsourced to keep costs down but it has risks.”
Matthew Woodcock, a director of logistics solutions business Llamasoft, says the manufacturing crisis “reignites the globalisation argument”.
“You can focus production of parts in one place where they specialise in that thing and do it at scale to lower the price, but the counter is your risk level goes up,” he says. “It’s a balance.”
Long supply chains are fine under normal conditions but when a major event occurs, so can problems. Woodcock describes just in time as something of a fallacy. “The Toyota plant near me might have parts arriving hours before assembly but there’ll be a warehouse somewhere with stocks of seats or whatever,” he says.
“Just because manufacturers don’t have the parts on site doesn’t mean someone isn’t holding them.” The problem is that they might only hold a week or two’s worth. “Coronavirus is unprecedented in scale but for most problems, a week or two of disruption can be handled. But if it’s months, that’s a problem.”
Another concern is single sourcing of parts. If manufacturers can get lower prices by getting one supplier to produce components in bulk then many will, though this creates another weakness.
However, dual or even triple-sourcing is expensive and needs to be done carefully. Going to different suppliers who have factories next door to each other means nothing if one catches fire, taking the other with it. Coronavirus is taking not just towns or even regions out of action, but whole countries and continents.
Just under 90pc of supply chain managers have been impacted by Covid-19 and half are already finding alternative suppliers or are planning to move away from single sourcing, according to a survey by the Chartered Institute of Procurement & Supply.
Stephen May, a supply chain expert at PA Consulting, warns the problem is even more difficult with the sub-assemblies found in modern manufacturing. “You might buy a sub-assembly and you know who you are paying but do you know where they are getting their supplies from?” he says. “You might think there’s safety in double-sourcing but what if each of your suppliers relies on the same company for one critical piece?”
The current crisis will mean a fresh focus on companies trying to build resilience. Both May and Woodcock think this will mean a much closer examination of supply chains, not just looking at first-tier suppliers, but their suppliers’ suppliers.
“Toyota was famous for sending people deep down into its supply chain to take out costs, now we could see them being sent down to find weaknesses,” says Woodcock. Another way to build resilience is shortening supply chains by “reshoring”. Local production means inventory is not tied up on ships making long journeys, nor does it come with the expense of air cargo.
But these costs have to be balanced against production costs, which are generally higher than in China and its satellite manufacturing nations, even though these areas have become more expensive recently.
One company considering such a change is Sheffield-based Tinsley Bridge. Mark Webber, managing director of the engineering firm, is looking at swapping from China to a UK business to supply parts for a rail contract.
“When we looked at the UK originally the volumes were too small, but now we’re under pressure from our customer to look locally,” says Webber. “It would mean a four-week lead time instead of 20 weeks because of shipping. But the question is will the customer demand a Chinese price and a four-week lead time?”
His dilemma illustrates how globalised supply chains are probably here to stay.
Shorter, tougher ones mean greater costs and there are doubts whether consumers will be willing to pay the price that they entail.
“These systems have been important to getting costs down. If companies have to build up six months stock then costs are going to rise,” says Henry. “Are people going to accept that things will cost more for that?”
And if companies try to prepare for a similar crisis to the one they face today, they may not be successful.
“The next crisis won’t be the same as the one before,” says Woodcock. “You can build up general resilience and that will help, who knows what the next trigger will be? Who would have thought that what at first looked like flu in most people could have got us here?”
Its simple, if you dont ever want to be a victim of a fatally flawed logistics and supply system you need to adapt and PREP
https://www.telegraph.co.uk/busines...is-exposes-risk-low-cost-supply-chains-criss/
As factories across Europe shut down as coronavirus tore through industry, the weakness of global supply chains was exposed on a huge scale.
The past week’s stoppages had been signalled in advance. Globalisation that has seen companies source components from China – the low-cost workshop of the world – meant alarms sounded as companies faced supply difficulties. Ralf Speth, chief executive of Jaguar Land Rover, spelled out the risks last month.
“We have flown parts in suitcases from China to the UK to make sure we have the right parts,” he said, explaining how stocks of key fobs containing the electrics that allow drivers to remotely unlock cars were running out.
The car industry is the embodiment of globalisation. Automotive companies source parts from around the world, which are brought together in what most see as car factories. This is a misnomer. The huge sites turning out new vehicles are assembly plants. They don’t form raw pieces of metal, plastic and other materials – rather they bolt, rivet and glue together parts that have been fashioned elsewhere.
These parts are often made many thousands of miles away, at the lowest possible price, before facing long sea voyages to smaller plants where they are built up into sub-assemblies. These sub-assemblies move back and forth between suppliers many times before going for final assembly.
An industry anecdote describes the travels of crankshafts for Minis rolling out of the BMW-owned plant in Oxford. The crankshaft goes on a 2,000-mile journey before going into the finished car, with the raw cast metal made in France, then travelling to BMW’s plant near Birmingham for drilling and milling, then on to Munich where it is put into an engine, before returning to the UK for final assembly.
Vicky Redwood, economist at Capital Economics, says moving production – so often to Asia – has been driven by cheaper transport, lower labour costs and richer countries joining the global trade system.
The scourge of high inflation globally has been tamed not only by central bank action but China “exporting deflation” through lower priced goods. A lid has been kept on prices by cheap supply and some products, most notably electronics and clothing, have seen costs tumble.
“This crisis has rammed home that you can have a good thing produced with pieces from umpteen places, but if one of those bits goes wrong that halts your entire production,” she says.
As manufacturers have stripped out costs – and passed them down their supply chain – they have also stopped holding stocks of parts, relying on “just-in-time” manufacturing, where items arrive for assembly just hours before being put together to become the finished product.
Ian Henry, from AutoAnalysis, said current disruption to supply chains and just-in-time production is not the first time their vulnerabilities have been highlighted. “The 2004 tsunami exposed it but coronavirus is by far the most serious,” he says. “There’s going to be a fundamental rethink. Companies have outsourced to keep costs down but it has risks.”
Matthew Woodcock, a director of logistics solutions business Llamasoft, says the manufacturing crisis “reignites the globalisation argument”.
“You can focus production of parts in one place where they specialise in that thing and do it at scale to lower the price, but the counter is your risk level goes up,” he says. “It’s a balance.”
Long supply chains are fine under normal conditions but when a major event occurs, so can problems. Woodcock describes just in time as something of a fallacy. “The Toyota plant near me might have parts arriving hours before assembly but there’ll be a warehouse somewhere with stocks of seats or whatever,” he says.
“Just because manufacturers don’t have the parts on site doesn’t mean someone isn’t holding them.” The problem is that they might only hold a week or two’s worth. “Coronavirus is unprecedented in scale but for most problems, a week or two of disruption can be handled. But if it’s months, that’s a problem.”
Another concern is single sourcing of parts. If manufacturers can get lower prices by getting one supplier to produce components in bulk then many will, though this creates another weakness.
However, dual or even triple-sourcing is expensive and needs to be done carefully. Going to different suppliers who have factories next door to each other means nothing if one catches fire, taking the other with it. Coronavirus is taking not just towns or even regions out of action, but whole countries and continents.
Just under 90pc of supply chain managers have been impacted by Covid-19 and half are already finding alternative suppliers or are planning to move away from single sourcing, according to a survey by the Chartered Institute of Procurement & Supply.
Stephen May, a supply chain expert at PA Consulting, warns the problem is even more difficult with the sub-assemblies found in modern manufacturing. “You might buy a sub-assembly and you know who you are paying but do you know where they are getting their supplies from?” he says. “You might think there’s safety in double-sourcing but what if each of your suppliers relies on the same company for one critical piece?”
The current crisis will mean a fresh focus on companies trying to build resilience. Both May and Woodcock think this will mean a much closer examination of supply chains, not just looking at first-tier suppliers, but their suppliers’ suppliers.
“Toyota was famous for sending people deep down into its supply chain to take out costs, now we could see them being sent down to find weaknesses,” says Woodcock. Another way to build resilience is shortening supply chains by “reshoring”. Local production means inventory is not tied up on ships making long journeys, nor does it come with the expense of air cargo.
But these costs have to be balanced against production costs, which are generally higher than in China and its satellite manufacturing nations, even though these areas have become more expensive recently.
One company considering such a change is Sheffield-based Tinsley Bridge. Mark Webber, managing director of the engineering firm, is looking at swapping from China to a UK business to supply parts for a rail contract.
“When we looked at the UK originally the volumes were too small, but now we’re under pressure from our customer to look locally,” says Webber. “It would mean a four-week lead time instead of 20 weeks because of shipping. But the question is will the customer demand a Chinese price and a four-week lead time?”
His dilemma illustrates how globalised supply chains are probably here to stay.
Shorter, tougher ones mean greater costs and there are doubts whether consumers will be willing to pay the price that they entail.
“These systems have been important to getting costs down. If companies have to build up six months stock then costs are going to rise,” says Henry. “Are people going to accept that things will cost more for that?”
And if companies try to prepare for a similar crisis to the one they face today, they may not be successful.
“The next crisis won’t be the same as the one before,” says Woodcock. “You can build up general resilience and that will help, who knows what the next trigger will be? Who would have thought that what at first looked like flu in most people could have got us here?”
Its simple, if you dont ever want to be a victim of a fatally flawed logistics and supply system you need to adapt and PREP
