Dr. Graham Bright Speaks on Supply Chain Diversification: Building Resilience in Global Trade

(0:00) This one we're looking at supply chain diversification. (0:04) So what is supply chain diversification? Well, it's a strategy to spread sourcing, (0:10) production and logistics across multiple suppliers, across multiple regions, (0:16) across multiple transport routes, so businesses are not dependent on any one single point of failure, (0:22) so they can remain responsive, agile and, above all, competitive. (0:28) It strengthens resilience by exposing nothing much. In fact, it reduces exposure to disruption (0:36) because of the current wave of geopolitical tension, natural disasters and, again, (0:42) these bottlenecks that we're experiencing, especially around the Straits of Hormuz (0:46) with the supply chains and how that is breaking up and disrupting global logistics. (0:53) And that trend impacts operations from new regions to actually looking and shifting existing modes (0:59) of transport. So oil tankers, from one point to another, will be complemented with road, (1:06) rail and air if those particular transport methods are safe. Expanding and reimagining (1:14) where manufacturing and distribution needs to take place is very much now, it's raised and (1:20) it's been elevated in where it comes in decision making. And many companies that we've found are (1:26) realigning their whole sourcing strategy, where manufacturing takes place, where distribution (1:33) needs to work. And when those routes are disrupted, especially the effects go all the way across the (1:39) supply chain. What we see? Longer lead times. Inventory planning becomes much harder. Higher (1:46) transport costs, of course, reducing margins for importers and exporters. Shortages arising when (1:53) goods can't reach the manufacturer at the right time or for the consumer. So no sales, no advantage (2:00) to the manufacturer. And business shifting to safer regions, reshaping the whole of the global (2:06) supply network. But businesses can typically diversify in a number of ways. Multi-sourcing, (2:14) not single source. So using more than one supplier for not for the same components from different (2:21) even continents around the world. And geographic diversification that's spreading production to (2:26) different countries or different regions. Or perhaps not just, again, looking at one country (2:33) being the only one capable of production, even though there are some countries which are (2:38) the only sources for critical raw materials, where we see extraction taking place in one country, (2:46) but the actual processing of those goods taking place somewhere else completely. And then routing (2:53) and logistics, the diversification, multiple shipping lines, where you're looking at Costco, (2:58) Meersk and other lines who are now being used by many companies, not just focussing on one, (3:06) but focussing on many companies as well. Again, to make sure that avoids bottlenecks taking place in (3:12) the ports with one provider. We're also seeing near-shoring, so moving production closer to (3:20) the point of extraction. And that again reduces exposure and also any long-term global route (3:27) disruption. And inventory strategies, how companies are making sure they're holding safe (3:34) stock in multiple locations. Again, so they can grab that stock, move it to a production capability (3:40) much quicker in a much safer way in the current climate. Now, each approach is useful in balancing (3:48) the cost, looking at how you can manage complexity and how you manage risk in a different way (3:54) completely. And a recent studies are finding that there are a number of key factors and businesses (4:00) who are surveying how to make that change, to look at the best routes, to look at neighbouring (4:06) countries, to look at not moving goods 5,000 miles across the oceans, but looking at the more (4:12) near-shoring way of working on your production environment. So increasing number of suppliers (4:18) and 55% of all companies expect to make significant changes in their supplier base. (4:25) 62% are making changes to the basic suppliers. So 55% in the past, more than 60% now looking at that. (4:35) 57% are establishing new operations in more than one country. So again, no dependency on one, (4:42) but spreading the risk. Over half of companies are looking at near-shoring as well. Again, (4:49) where is my nearest neighbour who can do what I need? The cost might be slightly higher, but it (4:55) will guarantee that I can get the goods at a still at a competitive cost without moving them halfway (5:02) across the globe. And more than 70% are looking at production much closer to home than they were (5:10) before. Not just getting the goods, but producing and processing goods in a much closer environment. (5:18) They're looking to supplement, but not necessarily replace. So choice is what they're looking for.