Posted at 17 June 2020

When the Covid-19 dust settles, what will the industrial supply chain look like?

Paul Skade
By Richard Ludlam
Marketing Manager

Intrigued by all things engineering, as a youngster I originally looked to understand how things work then, how to make them work better.

After time in eng...

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The threat caused to global supply chains by the COVID-19 pandemic may be receding, but underlying challenges still remain.  As we report in our recent white paper, ‘Is the Manufacturing Supply Chain Model Broken?’ in recent years there have been growing threats to the integrity of extended global supply chains. 

 

These include short term disruption from extremes of weather, for example, Hurricane Irma is estimated to have cost companies in the supply chain around $61 billion in lost revenues, with businesses affected taking an average of 33 weeks to return to normal trading conditions.  Longer term threats include climate change, with increasing frequency of extreme weather, plus trade wars, tariffs, regional political instability and ongoing events such Brexit, which is unlikely to be resolved satisfactorily for some time.

These challenges will remain, even after COVID-19 has faded to a distant memory.

Supply chain fragility

Although the impact of COVID-19 has been exceptionally painful for almost every business, it has shown how easily global supply chains can be disrupted.  In turn, this has prompted OEMs to take rapid action to find alternative sources of supply and, in many instances, to question the nature of the traditional extended supply chain model.

 

For many UK-based OEMs, the process of urgently finding alternative suppliers of critical parts and components invariably started close to home.  Perhaps the major catalyst for this was the Ventilator Challenge, together with the drive to produce growing volumes of PPE.  These initiatives brought together a range of companies from diverse sectors and demonstrated (especially to the media and wider public) the many strengths of the UK manufacturing sector.

Finding the right supply chain partner

The process also underlined the importance for OEMs of finding the right supply chain partners.

The consortium of OEMs that formed part of the Ventilator Challenge identified early on that a range of specialised seals and gaskets would be required.  Although only small components, these were nonetheless critical parts if the ventilators were to function reliably.  Orders were placed with major suppliers that, despite the best of intentions, were unable to meet their initial commitments.  This was due to a combination of factors: these businesses were setup up to service the MRO (maintenance, repair and overhaul market) rather than meet the volume needs of OEMs; they were over-reliant on extended supply chains, so were unable to source quickly or in volume from local stocks; and they had no local or regional manufacturing capability that could be brought onstream at short notice.

This is where ERIKS was able to step in. 

Dedicated supply and contract manufacturing

Uniquely, our business model is based on a diversified supply chain, from multiple sources and multiple geographies, to ensure resilience against supply-side shocks.  This is combined with extensive buffer-stocks of standard industrial parts and components in the UK and Europe, plus, most importantly, a network of specialised local manufacturing facilities to meet short term peaks in demand or to engineer customised solutions. 

 

As a result, for the ventilator challenge we were able to source, bag, label and supply 8,000 standard seals and O-rings in less than 24 hours.  One of the O-rings, however, required specialised materials that would normally involve longer lead-times.  Due to the urgency of the project, this was impractical, which is where our ability to manufacture locally, combined with our knowledge and experience of materials technology, came into play.  Again, we were able to produce tooling, mould, post-cure, de-flash and deliver parts almost overnight to meet our customer’s manufacturing deadlines.

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Where next?

ERIKS is not alone in building new relationships based on extremities of supply during the COVID-19 pandemic.  Many UK companies at the base of the supply chain have found that their products and services have been in demand by a growing number of OEMs and Tier 1/Tier 2 companies in recent months.

A critical question is whether these new relationships forged in the heat of a global crisis can stand the test of time, or whether OEMs will revert to established supply chain practices.

 

The answer will depend on a range of factors: the ability of existing supply chain partners to recover to pre-COVID-19 conditions; the appetite for OEMs to move away from existing supply chain agreements, many of which may have been built up over years; the importance of overseas markets – China, for example, may be a major supplier of parts into the global supply chain but it is also a significant market for western goods; and the ability of UK suppliers to structure their businesses to meet the unique needs of OEM customers.

This is where companies such as ERIKS have an important role to play, with the ability to introduce new levels of flexibility and resilience for OEM customers and to support their business both locally and regionally.

The reality is that in the new post-COVID world, we’re going to see supply chains that combine traditional global models, supplemented by a new level of diversified, local suppliers that have the agility to react quickly to changing demands and the ability to provide specialised goods and services that add value to the supply chain.  

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