2021: the year when 'just in time' supply chains became 'just in case' – and more disruption to come

Mon 20 Dec 2021
Posted by: Noelle McElhatton
Trade News

supply chain

The global supply chain crisis could last another two years according to economist and industry experts, reports the Guardian.

Although there are signs that some bottlenecks are easing, the onset of the Omicron Covid variant could lead to fresh factory and workplace shutdowns, creating new disruption globally.

Thousands of Chinese workers are currently in quarantine under China’s strict zero-Covid policy with workers urged not to travel home “unnecessarily” for lunar new year festival in February.

“Further supply chain disruption is a significant possibility,” economic analysts at Capital Economics said in a note.

Ripple effect

Additional pressure is being created by a lack of shipping capacity, ongoing port congestion and an overreliance on ‘just in time’ supply chains creating a ripple effect around the world.

The FT reports businesses are having to fundamentally rethink supply chain policies that have broken in the face of the pandemic.

“A lot of the operating models in the supply chains we see as broken today, were cemented 20 years ago on what at the time were universal truths, that going after low-cost suppliers . . . made a tonne of sense,” said Brian Higgins, head of KPMG’s US supply chain and operations practice.

Just in case

'Just in time' will be replaced with a ‘just in case’ approach with a greater appreciation of risk and strategies such as increasing inventory held, entering into longer term contracts with key suppliers, and diversifying manufacturing to create regional hubs.

The FT quotes the example of a German industrial group that has shifted from three-month non-binding arrangements with computer chip suppliers to 24-month pay-in-advance commitments.

Chinese energy groups have been rushing to sign liquefied natural gas contracts that are double previous commitment, up to 20 years.

British firms have lost an average of £225,000 through supply chain disruptions and Brexit, reports Business Insider.

Supply chain impacts have included lost customers, having to increase prices, and stock delays, according to a report by online platform Fiverr.

More restrictions?

Meanwhile, the government is considering more lockdown restrictions ahead of Christmas, reports the BBC.

According to the Telegraph three options are on the table, from families being requested to limit social interaction, with no legal enforcement, through to a return to full lockdown.

Ominously, ministers Sajid Javid and Dominic Raab have been touring the TV studios with the message that there are “no guarantees” over a return to lockdown.