Structural Change In Supply Chains

Increased consumer demand and supply chain disruptions remain. This is creating three discussion points on the future structure of supply chains; namely diversification, reshoring and greater inventory holdings. Suppliers compete on a combination of price, quality and service. We are now in a prolonged period of higher prices and disrupted services. 

The Financial Times is reporting “Global delivery times in the manufacturing sector…. have in recent months deteriorated at the fastest pace in more than 23 years of the data being available.” Anecdotally our clients are telling us that both the lead in time for manufacturing and the shipping time has doubled.

Prices continue to remain stubbornly high, highlighted by the cost of shipping. Whether this inflationary pressure subsides in 2022 remains to be seen.

As a result of prolonged volatility of price and service, structural change in the supply chain is being discussed around three themes; diversification, reshoring and greater inventory holdings.

  1. Diversification; this is occurring in sourcing so as not to be over-reliant on one source of supply. Just-in time delivery practice has been put under pressure from the recent logistical upheavals. Brexit has also highlighted the need to reconfigure supply chains.
  2. Reshoring; this has becoming more and more talked about where either the manufacturing or sourcing of goods is closer to home. The most obvious current example is the large-scale investment in semi-conductor capacity in the US. Led by a recent decision by Samsung to invest $17 billion in Texas to be close to its customer base.
  3. Greater inventory holding; periodic shortages of everything from face masks to bricks have encouraged manufacturers and retailers to seek more storage space, to smooth out any disruptions.

All of these changes require businesses to have the right financing products in place, be they short term cash flow requirements or longer-term capital investment requirements. Flexibility remains critical.

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