How businesses can build supply chain resilience
From the rise in ecommerce, with the likes of Amazon reporting profit increases of nearly 220% in less than a year from the first lockdown, to more recently, soaring prices of oil and gas, supply chains have faced unprecedented pressure in the last few years.
Fleet providers are facing a particularly challenging time as they must keep up with the transport requirements of the booming ecommerce industry, whilst navigating the rising operational costs due to soaring fuel prices.
These disruptions are predicted to be long term issues as the pandemic has left a lasting legacy on both consumer and retailer habits, and the crisis in Ukraine is unfortunately showing no imminent end. To deal with ongoing supply chain issues, businesses must assess supply chain risk and develop resilience programmes to ensure they are prepared for any future challenges.
When attempting to mitigate the effect of global events on supply chains it is essential to create a holistic strategy that considers all aspects of the supply chain.
Assessing supply chain risk
Modelling and assessing supply chain risk are essential to building resilience and reliability throughout the network.
A supply chain risk assessment needs to examine the chain from suppliers to consumers. The goal is to identify critical points that have an over reliance on a specific supplier, geography, or technology, which have the potential to make it more prone to collapse should a disruption along the chain occur.
Once the risks to the supply chain network have been adequately assessed it allows businesses to see where strategies need to be put in place to mitigate any potential risks.
Switching to alternative fuels
In the case of fleet providers, one key issue may be vehicles being reliant on petrol or diesel. As evidenced since the Ukraine crisis, having a reliance on traditional fuel sources leaves businesses vulnerable to changing market dynamics. With petrol prices hitting up to 189.4p/litre in some areas of the UK, using petrol alone is no longer a financially viable option. Fleet providers should be considering using renewable energy to power fleets to avoid falling victim to fuel prices that are showing no sign of slowing down.
Businesses around the world are making the transition to electric vehicles (EVs), as highlighted by research predicting that by 2025, 30% of all vehicle sales will be hybrid or electric. However, there are currently barriers to electric HGVs being a viable option in the UK, including lacking infrastructure and charging capabilities.
At our recent annual supply chain debate, David Cebon, Director at Centre for Road Freight Sustainability, and Professor of mechanical engineering at Cambridge University, explained that an Electric Road System (ERS) would be the best way for electric HGVs to be a feasible option for fleets.
An ERS, referring to an electric motorway whereby the trucks would charge their vehicle via overhead cables as they travel, would cost £20bn in investment. However, this would significantly reduce both battery sizes and the scale of the charging infrastructure required to make electric HGVs a possibility.
There are already some companies using electric trucks for short-distance journeys. Waitrose has developed a fleet of EVs with wireless charging technology. This move from the retailer is a promising step towards both greener supply chains and reducing the UK’s dependence on expensive fossil fuels.
Nearshoring is also an effective method of reducing risks within the supply chain. This can be particularly attractive to fleet companies, as it involves reducing the distance vehicles need to travel between aspects of the chain, whilst reducing operational costs, and minimising geographic dependencies.
Another issue facing fleet providers is the cost of new vehicles. Whilst it has been high for several years due to the pandemic which led to a shortage of semiconductors, the Ukraine crisis has the potential to exacerbate the issue further. The world is largely reliant on Ukraine for manufacturing neon gas, a key material involved in the production of semiconductors. 25-35% of the world’s purified neon gas is supplied by Ukraine alone. As a result, automotive factories have been forced to halt manufacturing, making new vehicles very expensive.
Given the ongoing disruption to the fleet industry, providers will benefit from sourcing from a variety of suppliers and using alternative materials where possible.
Preparing for driver shortages
Driver and general labour shortages have been affecting the logistics industry since Brexit negotiations began. However, the Ukraine crisis has also intensified this issue, logistics companies across Europe have experienced a loss in drivers, as around 105,000 Ukrainian drivers are employed across Europe.
In periods of global disruption, fleet providers must rely on their domestic workforce, something the UK has struggled with in recent years as they have faced ongoing driver shortages. To accommodate for a shortage of foreign drivers, improvements need to be made to recruitment efforts in the UK. This can be done through improving working conditions and pay for drivers, investment in training, and increasing the number of driving tests available.
Putting processes in place that accommodate for long-term supply chain disruption is key to minimising pressure and strain on operators, particularly on fleet providers. It’s important that businesses implement strategies that ensure the entire supply chain network can react quickly to evolving geo-political circumstances. Organisations that can quickly adapt are those that will retain custom and have sustained revenue, despite wider supply chain crises.
Author: Phil Reuben, executive director at SCALA