The quote ‘An issue ignored is a crisis ensured’ (Register and Larkin, 2005) stresses the importance of Issue Management as a post-crisis discipline and is key to preventing crises from arising.
Despite recent warnings that the global supply chain sector is heading into another potential crisis, most companies that could be affected have not taken action to protect themselves from its impact according to a recent study by Dun and Bradstreet (2024). In their latest quarterly study, 10,000 organisations were surveyed to examine Global Business Optimism Insights. It was discovered that the Index had fallen below 50 in the first quarter of 2024, which indicates a deterioration of optimism among the surveyed businesses. All index values range from 0 to 100. A reading above 50 indicates improvement in optimism and below 50 indicates pessimism among organisations. The survey revealed that:
‘The Global Supply Chain Continuity Index has come down sharply to 47.9 in Q1 2024 from 51.1 in Q4 2023 due to geopolitical tensions in different parts of the world, trade disputes, and climate-induced disruptions in maritime trade causing both higher delivery costs and delayed delivery times.’ (Dun and Bradstreet, 2024, 3).
Global Supply Chain Pressure is Increasing
The global manufacturing sector has faced many challenges in recent years with many unexpected supply chain shocks and disruptions leading to widespread shortages of components. Natural disaster impacts at major manufacturing centres and international crises such as the COVID-19 pandemic, put the sector under immense pressure with reduced production.
During the pandemic, 30% of UK supply chain businesses reported international supply chain disruption, which led to the total value of supply in the UK economy declining by 8.2% (Office for National Statistics, 2021). The supply chain industry is still in the recovery phase after the pandemic yet must respond to further crises.
Geopolitical tensions such as the Red Sea attacks, and other terrorist and cyber-attacks, are increasing raw material prices and economic decline, contributing to global supply chain vulnerabilities. The number of containers shipped through the Red Sea has decreased by half due to recent attacks on cargo ships, with daily shipments dropping from 5,000 in November 2023 to 2,000 in December 2023, severely impacting Global Trade.
Delays occur due to shipping companies now taking a longer route around the Cape of Good Hope which increases costs such as fuel and labour (Kiel Institute for the World Economy, 2024). Further compounding factors to the crisis are the latest Israel-Iran conflict and natural disasters that affect the region such as the drought affecting the Panama Canal which caused a decrease in ship crossings of 36% with potential cost implications of $1bn US.
The Business Continuity Institute (2024) has projected further supply chain disruptions due to global instability such as the trade war between China and the USA, the conflict in Palestine and Israel and the war in Ukraine.
Fragility of the UK Defence Supply Chain Sector
The global supply chain and the defence supply chain are closely interconnected to global commercial and geopolitical events, which made the UK defence sector fragile (Strategic Command Defence Support, 2022). Due to this, the defence industry can suffer reduced productivity, which weakens the competitiveness of existing suppliers and creates high entry barriers for new suppliers entering the market.
Furthermore, a skilled worker shortage could be the next major crisis affecting the entire supply chain industry. A study conducted by Muravska et al. in 2021 identified skill shortages in the defence industry, one of 6 key challenges affecting the sector.
The study stressed that the ‘UK defence supply chains are constrained by shortages in critical defence industrial skills.’ More specifically, STEM (Science, Technology, Engineering, Mathematics), defence acumen and leadership skills are required to enhance competition in the defence sector. The findings were backed up in the ‘Critical Imports and Supply Chain Strategy’ report by the UK Government in January 2024 outlining upskilling workers as a critical national requirement.
The report states that collaborations between businesses, international partners and academia are crucial to tackle supply chain disruption and fill gaps where required (GOV.UK, 2024). The Higher Education sector will be a key source to fill educational gaps in the supply chain sector. Many leading universities are adapting to the changing macro environment by expanding industrial partnerships, focusing on workforce education, and helping students transition into the industry. This is possible by forming partnerships with specialised universities in the form of specifically designed educational programmes for defence companies, short-course delivery, consultancy, and other flexible forms of collaboration.
Some universities have close ties with local and national supply chain companies which can help with research output, innovation, business growth and resilience. Innovation and strategy are key to gaining a competitive advantage, therefore teaming up with specialised universities and upskilling the workforce can help businesses become more resilient to crises.
An issue ignored is a crisis ensured (Register and Larkin, 2005). Risks can become issues and issues can become a full-blown organisational crisis.
Risks are potential issues that may or may not occur; issues are gaps between an organisation’s actions and its stakeholder expectations and crises are issues that have escalated into a critical condition. Defence and supply chain companies must have a holistic approach to risks, issues and crises which should be grounded in their strategic business plan. The implementation of the following basic steps is recommended:
How to implement a holistic approach to supply chain risk
Step 1 = Upskilling Senior Management and the Workforce
Defence and supply chain companies are advised to seek education to upskill the workforce in crisis and resilience capabilities. This can be done via universities, consultancies or simply via self-education research.
Step 2 = Risk Management Team and Crisis Management Team
The best way to manage a crisis is to prevent it, which is the task of Risk Management and Crisis Management Teams (CMT). Both teams have different roles, but both are central to business survival and continuity. The CMT is solely there to develop a crisis management strategy, lead the entire organisation during the crisis management process and respond effectively to a crisis.
Step 3 = Crisis Management Plan and Business Contingency Planning
A crisis management plan is a document that outlines how to respond to potential crises along with strategies for different scenarios and environments. For example, in the case of a supply chain shock, it is necessary to take action to reduce its impact. One way to do this is by diversifying the supply chain base and including close suppliers in the planning process. All plans must be tested.
Conclusion
It is imperative for supply chain companies to plan for crises to enable them to become resilient to any type of supply chain shock, or manufacturing disruption. The crisis management principles (mitigation, preparedness, response, and recovery) must be applied to ensure business continuity and sufficient supplies for the military.
According to the report 'UK Defence Supply Chain Strategy', the Government and the defence sector have important roles to play in ensuring safety and resilience in the industry. However, there is a need for additional education on the topic to achieve these goals; a key task to address.
References
- Business Continuity. Federica Livelli. What does supply chain resilience mean in 2024? Thebci.org. Published 2024. Source »
- Global Business Optimism Insights Q1 2024 Dun & Bradstreet® Source »
- GOV.UK (2024) Policy paper, UK critical imports and supply chains strategy. Source »
- Kiel Institute for the World Economy (2024) International Trade. Source »
- McKinsey (2023) Navigating the new normal: Operations insights for 2024. Source »
- Muravska, J., Knack, A., Lucas, R., Williams, B. (2021) Challenges and barriers that limit the productivity and competitiveness of UK defence supply chains. Santa Monica, CA: RAND Corporation. Source »
- Office for National Statistics (2021) Census 2021. Source »
- Register, M. and Larkin, J. (2005) Risk Issues and Crisis Management: A Casebook of Best Practice (PR In Practice), Institute of Public Relations. Kogan Page: London.
- Strategic Command Defence Support (2022) Defence Supply Chain Strategy. Source »
