In the wake of considerable supply chain disruption over the past year – from the pandemic, Brexit and the Suez Canal blockage – the need for supply chain resilience has never been in sharper focus. Business leaders are increasingly viewing resilience as essential for reducing organisational risk and driving competitive advantage.
Global supply chains have been under significant pressure, leading to problematic supply shortages. While the lack of semiconductors has been widely reported, the shortage of construction materials essential for projects in the logistics automation industry is only just creeping into the news. MiTek Mezzanine Systems, for example, reports that supplies of materials and components essential for building mezzanines – such as steel, timber and bolts – are severely restricted, along with the availability of cement. "For materials that had a 3-day lead-time," says Scott Chambers, Managing Director, "we are now being quoted 17 weeks, and we don't see the situation improving this year."
Much of the steel required by European markets has traditionally been sourced in China and India but capacity in both countries has suffered as a result of the pandemic and China is currently buying in steel from Europe. Unsurprisingly, scarcity has led to price rises. "Steel costs are up by 122% since January," says Keith Aldrich, Contracts & Procurement Director for MiTek Mezzanine Systems, "and timber costs are over 25 times higher than they were in October." Freight cost is proving another major headache for imported materials. "A container from China used to cost around £1000 to transport but now that cost has spiralled to £6500," says Keith.
Partnership before profit
While AMHSA members are working incredibly hard to mitigate the impact of these materials shortages on the delivery of projects, they are having to educate customers about the reality of the supply chain issues, with some introducing advance ordering procedures. "We're using project allocations to manage clients' expectations," says Scott Chambers. "We need to have sight of future projects and commitment from clients so that we can allocate resources and achieve delivery dates that were once taken for granted. Getting projects finished is the biggest challenge right now," he continues. "We're taking a longer term view and working in partnership with our customers to achieve their objectives to the best of our ability, rather than being focused on operating profitably. We are stocking materials that we've never stocked before and having to buy in storage for them too."
Taking a partnership approach with suppliers based on building trust is one of the ways in which companies can reduce supply chain risk. Operational transparency can play a role in this. "As well as working with customers to manage capacity and plan, we are also talking to them about open-book accounting to manage risks better for both parties," says Keith Aldrich. Another risk-limiting strategy being implemented by a number of firms is the reshoring of some supplies – in particular, decoupling from suppliers in more volatile regions of the world.
The disruption of the past year has led many companies to invest more in preventive maintenance. This is a trend noticed by Mike Burke, Operations Director for E&K Automation Ltd: "We've taken two large orders in the automotive industry recently where we've sold maintenance packages that include not only regular preventative maintenance but also fortnightly inspection visits. Customers are more reliant on their automation," continues Mike, "and want the reassurance of regular inspection of their systems to ensure disruptive breakdowns are avoided."
There has also been an increase in spare parts inventories among customers and suppliers in the logistics automation sector. "After the 2008 crash, many manufacturers switched from holding stock to producing to order," explains Mike Burke. "Although standard spares are readily available, more specialist items – such as drive units – may take 6-10 weeks." Vertical lift specialist, Nerak, has taken a risk-averse approach to spares to avoid issues for its customers. "We have increased our spare parts holding in response to both Covid-19 and Brexit," says Simon Musgrave, Sales Director.
Like many firms, Nerak has invested in IT systems to enable virtual working. For Nerak, this extends beyond administration and meetings, however: "We kept our key operations running at our site in Brecon during lockdown," says Simon Musgrave, "but we launched some new virtual services too. We had been trialling remote diagnostics for our vertical conveyor systems before the pandemic but ramped this service up quickly when lockdown happened. Now we offer this service as an option for all new lifts that we supply the controls for." The company also began offering user training sessions via Microsoft Teams and created training videos. "Virtual training is also being used for the technician teams of our integrator customers who service our lifts," he adds.
Technology – including supply chain automation – will increasingly play a key role in managing risk and building resilience. Artificial intelligence and digitalization will continue to roll out, increasing efficiency and enhancing visibility in supply chains. Automated logistics solutions are designed with resilience in mind, with a focus on avoiding single points of failure. Mike Burke cites the example of the Aston Martin factory, where E&K Automation installed an AGV almost 20 years ago, which is still operating today: "We made sure that there was sufficient space for the process handled by the AGV to be performed manually by a forklift truck and four people, if necessary," he says.
Many companies that experienced labour shortages due to positive cases of Covid-19 or the need for staff to self-isolate are interested in introducing logistics automation. Another source of many enquiries for AMHSA members over the past year has been e-com firms that have struggled to meet demand with their manual warehouse operations. "Automated intralogistics systems have really proven their worth in many sectors during the pandemic," says Mike. "A good example is a customer of ours in the dairy industry that struggled to fulfil orders at its manual dairies and consequently diverted work to its automated facility. Despite the additional pressure, the automation just kept on running." Many AMHSA members have seen a significant increase in the level of interest in automation. "We are busier than ever," says Mike, "and, in response, we have doubled our UK headcount over the last year. Our group-wide order book for 2021 was full by May."
Resilience as a differentiator
With the interruptions that have been experienced in recent months, it is clear that business leaders are changing their traditional view of the supply chain as a run-of-the-mill function operating behind the scenes. Increasingly supply chain resilience is being viewed as a means of creating competitive advantage by reducing risk and supporting growth.