Shockproof: How to make sure your supply chain is resilient

The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility. (Shutterstock/File Photo)
The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility. (Shutterstock/File Photo)
Short Url
Updated 05 January 2021

Shockproof: How to make sure your supply chain is resilient

The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility. (Shutterstock/File Photo)
  • The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility

DUBAI: As COVID-19 threw fragile global supply chains into disarray, many companies were stunned by their own vulnerability. The risk of depending on a supply base that is concentrated in one geographic region has been increasing over the past 30 years, but the pandemic quickly demonstrated how much chaos and pain one unexpected event could inflict.

It was a powerful wake-up call. The disruption triggered by COVID-19 has prompted leadership teams to confront a new era of supply chain volatility.

Bracing for an era of increased turbulence, leading multinationals are rethinking their supply chain strategies to lower the risk of disruption. In a recent survey of 200 global manufacturers by Bain & Company and the Digital Supply Chain Institute, executives ranked flexibility and resilience as their top supply chain goals. Only 36 per cent of senior executives ranked cost reduction as a top three goal, down from 63 per cent who saw it as a priority over the past three years.

To improve supply chain resilience, 45 per cent of respondents plan to shift production closer to home markets in the coming years. The good news is that automation has reduced the cost of manufacturing, eroding the labor arbitrage advantage that fueled decades of investment in offshore production. The cost of humanoid robots is comparatively lower now, which means companies with processes capable of being automated such as consumer electronics can opt to move supply chains closer to home without raising costs significantly.

For the past 30 years, manufacturing companies have wrung out supply chain costs by disaggregating the various steps of the value chain, concentrating each step with a limited number of companies and geographies to improve economies of scale. As a result, most leadership teams lack sufficient supply chain visibility to assess their geopolitical and geographical risks. Before investing in a new supply chain strategy, successful leadership teams evaluate their supplier and contract manufacturer risk according to two factors: The country where goods are produced and the location of the supplier’s headquarters.

Once leaders understand their risk exposure, they start building resilience into their value chains in a two-step process. First, they quickly add flexibility to the supply of finished goods and high-risk subcomponents where possible, to limit immediate risks and satisfy customers. Second, they take a strategic approach to rethinking the value chain from end to end. That includes deciding the pace of change and periodically reviewing decisions based on external conditions and internal capabilities. Below are three steps to help companies pioneer the shift to supply chain resilience.

1. Boost flexibility
Supply chain flexibility is becoming an increasingly important concept for gaining competitive advantages. The first priority in making supply chains shockproof is increasing flexibility for supplying finished goods and high-risk subcomponents. This would open the possibility for companies to respond to short-term changes in demand and supply situations as well as structural shifts in the environment of the supply chain on an immediate basis.

Not many countries have the capacity and infrastructure to handle all the volume, so manufacturers often have to piece together a solution across multiple neighboring countries. For many companies, aligning a new production location with demand can deliver significant benefits, particularly in industries where demand is rising even through the downturn, including medtech and certain consumer products.

2. Rethink end-to-end network strategy
For each value chain, leadership teams need to properly balance risk and resilience at the lowest total landed cost. This includes decisions on single versus multiple sourcing, where to manufacture at each stage of assembly, and proximity to customers. They also need to determine whether to produce in-house or outsource, taking into account variables such as national incentives and declining manufacturing costs. Successful companies revisit their value chain choices regularly, especially in turbulent times.

3. Balancing cost and risk
Resilience does not eclipse every consideration. As leadership teams start to understand where they need flexibility, they face important trade-offs on cost. Investing in too much flexibility can render a company uncompetitive. As they look to reshape supply chains for the future, successful companies determine how much resilience they need, where it matters most, and what they can afford.

Resilient and flexible supply chains can be a powerful defensive hedge, but also a source of competitive advantage. Leaders make the most of options such as capacity buffers, digital infrastructure and nimble teams to react faster and more efficiently than their peers.

The investment to build and maintain these capabilities varies, depending on a company’s need for responsiveness and efficiency, as well as the level of industry competition. This is why the roadmap for resilient supply chains must be linked to a company’s long-term business strategy. For example, a high-growth business that has high margins and short product life cycles, and is dependent on components coming from widely distributed sources such as high-end cell phones, will require a different type of supply chain resilience than a hypercompetitive low-margin business, such as clothing or toys, which relies on imported finished goods.

Geopolitical volatility and market turbulence will transform supply chain management in the coming decade. Leadership teams that invest in strategies to increase supply resilience will simultaneously create a new source of competitive advantage.

* Karim Shariff is a partner at Bain & Company Middle East


UK’s Sunak will set out plans to raise income tax by $8.36bn: report

UK’s Sunak will set out plans to raise income tax by $8.36bn: report
Updated 11 min 20 sec ago

UK’s Sunak will set out plans to raise income tax by $8.36bn: report

UK’s Sunak will set out plans to raise income tax by $8.36bn: report
  • The chancellor will say he needs to raise more than 40 billion pounds to tackle the budget deficit, the report said

British finance minister Rishi Sunak will set out plans to raise income tax by 6 billion pounds ($8.36 billion), The Times reported on Sunday.
The chancellor will say he needs to raise more than 40 billion pounds to tackle the budget deficit and protect the economy from rising rates of interest on government borrowing, the report said.
The government on Saturday said Sunak will announce 5 billion pounds of additional grants to help businesses hit hard by pandemic lockdowns, in his budget.
Separately, the government said Sunak is also expected to announce an initial 12 billion pounds of capital and 10 billion pounds of guarantees for the new UK Infrastructure Bank.
A Telegraph report said Sunak is also weighing up bringing back the small profits rate, axed by George Osborne in 2014, to support small to medium-sized companies.


Europe less at risk of inflation and rate fears: analysts

Europe less at risk of inflation and rate fears: analysts
Updated 28 min 25 sec ago

Europe less at risk of inflation and rate fears: analysts

Europe less at risk of inflation and rate fears: analysts
  • Fears that US President Biden’s $1.9 trillion stimulus plan will stoke up the economy too much have unnerved investors in recent weeks

PARIS: Investors are watching inflation carefully, worried that a boiling over of prices will ruin the expected strong pandemic recovery although analysts believe Europe faces much less of a risk than the United States.
Fears that US President Biden’s $1.9 trillion stimulus plan — which was passed by the House of Representatives on Saturday — will stoke up the economy too much have unnerved investors in recent weeks.
A rise in yields on 10-year US Treasury bonds — a key indicator of expectations — shows the markets believe prices are set to rise much more sharply than last year’s gain of 1.4 percent, which could force the US Federal Reserve to hike interest rates earlier than it says it plans to do.
Bond yields have risen elsewhere too, with 10-year French government bonds turning positive on Thursday for the first time in months while the benchmark 10-year German Bund has also risen although it remains negative.
European inflation data for January showed a jump in prices of 0.9 percent compared to a minus 0.3 percent reading in December, as increased costs of raw materials fed through into services and industrial goods.
After having slowed considerably in 2020, inflation is expected to rise this year in Europe as the economy picks up following the relaxation of measures to slow the spread of the Covid-19 pandemic.
But it is not so much a spike in inflation that worries investors but that the Fed would raise interest rates faster than it has communicated.
Federal Reserve Chairman Jerome Powell pledged Tuesday that the US central bank will keep benchmark lending rates low until the economy is at full employment and inflation has risen consistently above its 2.0 percent target.
But bond yields continued to rise, indicating investor concern about a rise in interest rates that would make borrowing and investment more expensive and slow the economy.
However, many analysts are skeptical that Biden’s stimulus program will spark considerable inflation.
“It isn’t clear that Biden’s recovery plan will create lots of inflation,” said Xavier Ragot, head of the French Economic Observatory think tank.
For the European Union, there is no likelihood that its pandemic recovery program would, he believes.
“The amounts of the European recovery plans pose absolutely no inflationary risk,” he said.


The European Commission’s recovery program is worth 750 billion euros ($920 billion), with several EU members also having their own national programs.
“We have a European recovery program... considerably less strong, and a loss of growth that is much greater, so there aren’t the same risks of overheating as in the United States,” said Fabien Tripier, an economist at CEPII, a Paris-based research center on the world economy.
The US economy shrank 3.5 percent last year while the drop for the eurozone was nearly double that.
There is “no risk of overheating or a sustained rise in inflation” in the eurozone, the head of the Banque de France, Francois Villeroy de Galhau, insisted this past week.
The French Economic Observatory’s Ragot also does not believe that if the Fed is pushed by the markets into raising rates that the European Central Bank would be forced to follow suit.
“It doesn’t work like that in macroeconomics,” he said, noting that the monetary policy of the Fed and ECB had diverged considerably at the start of the last decade.
“With loose financial conditions still necessary to support the economy, the ECB is unlikely to react to the coming inflation overshoot,” said Capital Economics economist Jack Allen-Reynolds.
Francois Villeroy de Galhau, who as head of the Banque de France also sits on the ECB’s Governing Council, said the central bank wants to “maintain favorable financing conditions.”
For Fabien Tripier, the ECB needs to send “a strong signal” to the markets against the idea that “just because inflation hits 1.5 percent or 2.2 percent, speculation it will hike rates should begin.”
The ECB issued a reassuring message on Friday as executive board member Isabel Schnabel said it could broaden its support for the economy in case of a sharp rise in interest rates.


Biden urges quick Senate action on huge stimulus package

Biden urges quick Senate action on huge stimulus package
Updated 37 min 39 sec ago

Biden urges quick Senate action on huge stimulus package

Biden urges quick Senate action on huge stimulus package
  • The package passed the House just after 2:00 am (0700 GMT) Saturday, in a 219 to 212 vote

WASHINGTON: President Joe Biden on Saturday welcomed the overnight passage by the US House of Representatives of an enormous, $1.9 trillion coronavirus relief package, saying it moves the country closer to full Covid-19 vaccination and economic recovery.
The package passed the House just after 2:00 am (0700 GMT) Saturday, in a 219 to 212 vote, with not one Republican vote, and moves next week to the Senate.
"I hope it will receive quick action," Biden said in a brief address from the White House.
"We have no time to waste. If we act now, decisively, quickly and boldly, we can finally get ahead of this virus."
The vote in the House meant that "we're one step closer to vaccinating the nation, we are one step closer to putting $1,400 in the pockets of Americans, we're one step closer to extending unemployment benefits for millions of Americans who are shortly going to lose them."
He said the bill -- which would be the second-largest US stimulus ever, after a $2 trillion package approved in March -- would also help schools reopen safely and allow local and state governments to avoid "massive layoffs for essential workers."
The House vote came just days after the Covid-19 death toll surpassed 500,000 in the United States, the world's worst total.
Democrats have called the aid package a critical step in supporting millions of families and businesses devastated by the pandemic. It extends unemployment benefits, set to expire mid-March, by about six months.
But Republicans say it is too expensive, fails to target aid payments to those most in need, and could spur damaging inflation.
The administration appears poised to use a special approach requiring only 51 votes in the 100-seat Senate -- meaning the vote of every Democrat, plus a tie-breaking vote by Vice President Kamala Harris, would be required.
But progressives suffered a major setback when a key Senate official ruled Thursday that the final version of the bill in that chamber could not include a minimum wage hike.
Biden campaigned extensively on raising the federal minimum wage to $15 an hour, from the $7.25 rate that has stood since 2009. Progressives have been pushing the raise as a Democratic priority.
In his remarks Saturday, the president made no mention of the issue, a source of discord within the party.
Most Republicans, and a few Democrats, opposed the higher wage, so having it stripped from the Senate version of the legislation could actually ease its passage.


Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
Updated 28 February 2021

Weekly energy recap: February 26, 2021

Weekly energy recap: February 26, 2021
  • The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas

RIYADH: Oil prices made another big weekly gain, as WTI rose above $60 per barrel and the Brent crude price settled above $65 per barrel, amid a sharp drop in US output due to the weather crisis in Texas. The week closed with Brent crude at $66.13 per barrel and WTI at $61.50.

The market is still assessing the resumption of US crude oil output after the fallout from the big freeze across Texas. The impact on US crude production is still unclear. Some American producers reported production losses of about four million barrels per day (bpd) during the cold blast, but the Energy Information Administration (EIA) reported a drop of only one million bpd.

US commercial crude stocks climbed by 1.28 million barrels to 463.04 million last week as the Texas freeze pushed refinery demand to 12-year lows. Global Platts S&P has reported the total U.S. refinery net crude input plunged 2.59 million bpd to 12.23 million bpd, the lowest since the week ended September 2008, as refinery utilization fell 14.5 percent to 68.6 percent of capacity.

Even before the striking impact of the Texas snowstorm on the US energy industry, output had fallen greatly. The EIA reported that US oil production has decreased to 9.7 million bpd, down 1.1 million from the week before and 3.4 million lower than the US peak of 13.1 million bpd a year ago. Coming in addition to the 8.2 million bpd output cuts from OPEC+ (including Saudi Arabia’s additional 1 million bpd voluntary cut), this has reduced global supplies by about 11.6 million bpd, which has so far kept the market intact and helped oil prices to head for their fourth monthly gain.

There has been bullish talk that prices might reach $100. This is completely false, despite the upcoming spring refineries maintenance season in Asia, where China is getting ready with lower crude oil imports. Continuing fears over the coronavirus may even push Asian refineries to make deeper run cuts until oil prices advance into the $70s in coming months.

Ironically, ahead of the OPEC+ meeting in early March, market participants and major shale oil producers are giving OPEC+ bullish signs to consider a modest production boost. These signals show the declining influence of US shale on OPEC and suggest that the organisation no longer needs to worry about the threat posed by the sector.


UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
Updated 27 February 2021

UK to allocate $17bn for new infrastructure bank

UK to allocate $17bn for new infrastructure bank
  • Sunak to use budget to expand apprenticeships and extra funds for traineeships

LONDON: Britain is to launch a new infrastructure bank with £12 billion ($17 billion) in capital and £10 billion in government guarantees, the treasury said on Saturday, aimed at supporting the economy.

British Finance Minister Rishi Sunak, is expected to announce the initial funding at Wednesday’s budget and the bank will launch in spring, the ministry said.

“Britain’s businesses and the Great British public deserve world-class infrastructure and that is exactly what this new bank will help us deliver for them,” Sunak was quoted as saying.

The bank is set to finance private sector projects in the green economy, focusing on areas such as carbon capture and renewable energy.

It will also provide loans to local authorities at low interest rates to support “complex infrastructure projects.”

The Finance Ministry said the bank would unlock billions more in private finance to support a £40 billion infrastructure investment to “fire up the economy” and help reach commitments on net zero emissions and reducing regional deprivation.

The announcement comes as Britain’s economy has been hit hard by pandemic lockdowns.

Analysts expect unemployment to surge when the UK government’s furlough scheme paying the bulk of wages for millions in the private sector ends — as currently planned — at the end of April.

Sunak last week hinted he would announce further employment support in the coming months.

He first announced the planned bank in November last year, saying its headquarters would be in northern England rather than in the financial hub of London.

Apprenticeships

The minister will also announce more funding for apprenticeships in England.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive £3,000 for each apprentice hired, regardless of age — an increase on current grants of between £1,500 and £2,000 depending on age.

The scheme will be extended by six months until the end of September, the Finance Ministry said.

Sunak will also announce an extra £126 million for traineeships for up to 43,000 placements.

‘Enormous strains’

Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of 1 percentage point across all interest rates was £25 billion a year to the government’s cost of servicing its debt, Sunak told FT.

Additionally, the government will also announce a new £100 million task force to crackdown on COVID-19 fraudsters exploiting government support schemes, it said.