Johnathan Dudley, Partner and Head of Manufacturing at Crowe and Chair of the Manufacturing Advisory Group shares his thoughts.
A key aspect of successful commerce has always been to identify the supply chain for the goods and services required and secure them at the right price. This would then be a key factor in the ability to produce and sell. In short, the art of good selling is good buying.
The combination of the global pandemic, Brexit and the objective to achieve net zero, however, takes this basic idea and complicates it significantly.
Not only will businesses see (if they haven’t already) an interruption in supply or a price rise, but there is and will continue to be a challenge to look into the efficacy of the supply chain. There will be a number of different factors to take into consideration in future rather than just availability and price, though these will always remain key.
Our Crowe 2020/21 Manufacturing Outlook Survey revealed that 67% of those surveyed said that their profitability had been affected by the cost and availability of raw materials; yet 45% of respondents expected their business to grow in the next 12 months, despite 70% considering that their business will be affected, at least moderately, by Brexit.
As we move into a greener and more globally aware environment, customers will increasingly want and need to know the carbon footprint and ethical source of their supply chain. The potential effect of this has become strikingly evident since January – we have seen big issues at ports of entry and with rules of origin but this is likely to be just the thin end of the wedge in the new post pandemic world. The need to protect our planet is at the forefront of global and political conversations.
The desire to ‘build back better’ after the crisis is much more than just a political strapline.
Subsequent increases in global transport costs and raw materials driven by supply issues during the pandemic have not dampened an optimism within industry for a bounce back in fortunes, as the vaccination programme stimulates movement again.
In the past, consumers have been predominantly price driven; in the future there will be much more emphasis on supply capability and the ethics of the supply chain over, and arguably above, price alone.
In addition, shortage or in some cases, interruption of supply has presented the opportunity for UK businesses to re-enter supply chains that they previously left, having been priced out of the globalised market. There is now a build-up of demand that could drive sustainable change into supply chains and UK manufacturers should seize it.
By applying innovative processes and with the right backing, these opportunities could bring long term value.
It seems that the drive for net zero has suppressed the intent for our government and society to support the UK’s traditional raw material extraction and production industries. Failure to do so risks much more than the jobs of the individuals working in mines, quarries, furnaces and foundries, but also at a strategic level.
Until the UK can find a viable replacement for metals that have to be created by processing ore and using lots of fossil burning fuels in the process, we will still need a supply chain that produces the likes of steel, aluminium, cobalt, lithium, and even coal, to fire the furnaces to refine them. We will need this supply chain and raw material to build the wind turbines, the battery plants and the electric transport systems.
There is much to be considered going forward, as achieving net zero in the UK must not be at the cost of necessitating import of raw materials and power sources from countries and states who do not share this goal. Otherwise we are just moving the environmental problem elsewhere, and we only have one planet.
While the much acclaimed ‘industrial strategy’ has been shelved by politicians, we still need a strategy that supports innovation and drives the UK to be a powerhouse of sustainable and green production. We cannot do this by ‘buying everything in’.
We need a strategy which creates a sustainable and low carbon supply chain for raw materials and power, as well as components to truly achieve net zero. This means that we must progress raw material extraction and production in the UK, rather than buying it ‘cheap’ from the other side of the world.
This will need even better innovation to carry out these processes, in a way that is kind to the environment. But remember, ‘net zero’ isn’t ‘total zero’ and more needs to be done.*The views expressed are the author’s and not ICAEW’s.