Supply chain: continuing risks, digital solutions and wider societal impact

From key component shortages and Brexit-related disruption to labour disputes and geopolitical turmoil, global manufacturers have faced a perfect storm of challenges in recent years. While developments in digital transformation can help the sector mitigate such risks and strengthen its supply chain resilience, it’s vital that businesses plan carefully to avoid introducing a new set of problems. At the same time, a lack of clear ESG parameters from industry is making it challenging for companies to effectively manage their supply chain governance and make a difference when it comes to their environmental and social impact.

On the evening of Tuesday 14th May, DLA Piper hosted a roundtable, with support from PwC and the West Midlands Growth Company (WMGC). The event brought together decision-makers from across the region’s advanced manufacturing sector to discuss the key threats facing their supply networks, the potential represented by digital transformation and the growing importance of ESG on the industrial agenda.

Carl Perrin, CEO at the Institute for Clean Growth & Future Mobility, kicked off the conversation around supply chain risk by emphasising the need for the West Midlands manufacturing sector to learn lessons from the past in order to improve their resilience:

“Major events like the 2011 Fukushima nuclear disaster provided a powerful reminder of the need to take supply chain risk seriously and make mitigation strategies part of our business-as-usual activity. While companies don’t have a crystal ball, we can predict that major threats will occur at some point, just not exactly what they are or when they’ll happen.”

He also touched on the potential of fast-developing areas of technology, such as AI, warning that while they can provide step changes in a business’ productivity and flexibility, they should not be viewed as a black-box solution. Instead, he emphasised that they should be considered alongside a company’s existing systems.

Attendees then commented that the move towards supply chain globalisation has seen pushback since the pandemic, asking what this means for West Midlands suppliers.

DLA Piper’s Tim Lake made the point that supply chain shocks have affected the sector’s risk appetite, pushing manufacturers to collaborate closely with local suppliers:

“We’re seeing the rise of reshoring and friendshoring as a strategy for mitigating international risks. Increasingly, supply chain decision-making is being driven by more than just cost.”

Satnam Sahota, Legal Director at DLA Piper, then encouraged attendees to discuss the significance of digital transformation and what it means for them:

“In recent years, we’ve seen major advancements in AI. Many of the issues facing industrial supply chains are well-suited to being solved by this technology, which can enhance employee safety, strengthen levels of cybersecurity and enable more effective maintenance of infrastructure.”

However, he also discussed how perceived risk factors, such as AI’s impact on worker morale, legal and ethical issues around its use, and potential PR disasters linked to the threat of injuries, means that many enterprises are still hesitant about its adoption.

Make UK’s Chris Corkan went on to explain that the rollout of AI and digital technology across the region’s manufacturing sector is being driven by a push to “do more with less”, as well as helping to boost productivity levels by improving quality and automating routine processes. Robotics and automation can support a more efficient use of factory space, minimise waste and reduce energy use and safety risks.

Attendees also addressed the common myth around the social threat posed by an increased use of automation and robotics, highlighting that their adoption often enables employees to focus on more creative, “value add” tasks.

However, there was a general consensus that larger corporates have a significant advantage when it comes to investing in digital transformation. Adam Land, Operations Director at Techno Group, commented:

“From experience of Techno Group’s digital transformation journey, I can tell you that it takes a lot of time, training, resources and persistence to effectively embed digital systems, automation and robotics technology in a business. As such, there’s a real risk that SMEs get left behind.”

In this context, Michael Harte, Managing Director at Bridge Cheese, highlighted the benefits of The Made Smarter Adoption Programme, which supports West Midlands SMEs in setting out their own digital transformation roadmap:

“Small and medium-sized companies like us don’t have the time or budget to make mistakes. The Made Smarter programme has proven invaluable in this sense, enabling us to assess what big businesses have done well and approach digital transformation in a way that works for us.”

The final topic of the evening, supply chain sustainability and ESG, was introduced by Becky Clayton, Partner at PwC, who highlighted the fundamental difference between the two terms:

“In principle, all businesses are coming under pressure to operate sustainably and contribute value to society over the long term. However, ESG specifically refers to what regulation in this area requires companies to do and the data that underpins their efforts. At the moment, much of this is focused around decarbonisation.”

She stressed that while Government deadlines around carbon reduction may feel abstract, it would be a big mistake for manufacturers not to plan and act now. As well as focusing on finding carbon “hotspots” in their supply chains, businesses are optimising value by looking at measures which take “cost out and carbon out”.

It’s also important to consider how best to incentivise suppliers to support the business’ sustainability goals, with around 45% of supply chain managers currently doing this, despite facing challenges regarding the availability of data.

Attendees also discussed the industry’s movement towards the “circular economy” and that often, consumers are willing to pay a premium for products perceived to be more sustainable, such as those with a biolabel. Adam Land emphasised that without a clear steer from Government by way of policy, SMEs in particular run the risk of placing ESG objectives on the back burner until times of better understanding and clarity.

However, Becky concluded discussions by making the point that when it comes to securing protection from investors and other stakeholders, taking steps to do something and making a clear record of the business’ efforts will always be better than doing nothing.

While the evening’s discussion raised almost as many questions as solutions around supply chain best practice, attendees all agreed on the importance of big and small manufacturers alike taking time to learn lessons from the past, and from each other. By making the most of the West Midlands’ collaborative manufacturing ecosystem and by tapping into the wide range of support and cross-cutting consultancy available, businesses can build robust, digitally enabled supply chains and better meet their sustainability objectives, whatever obstacles come their way.