What Covid-19 has taught us about supply chain disruption

Dawson Shanahan 19062020
Dawson Shanahan 19062020

As the dust slowly begins to settle following the chaos wrought on manufacturing supply chains by the coronavirus pandemic, many companies are re-evaluating their entire supply chains. PES spoke to Dawson Shanahan to find out more about the benefits, and challenges, of managing extended supply chains and the trend towards near- and reshoring.  

As the dust slowly begins to settle following the chaos wrought on manufacturing supply chains by the coronavirus pandemic, many companies are re-evaluating their entire supply chains. PES spoke to Dawson Shanahan to find out more about the benefits, and challenges, of managing extended supply chains and the trend towards near- and reshoring.

The human coronavirus (Covid-19) pandemic has brought the fragility of extended global supply chains into sharp focus. The overnight closure of production centres in China and other Far Eastern supply centres caused widespread chaos among Western manufacturers. Rather than return to business as usual following the pandemic, concentrating their manufacturing activities in countries where labour is cheap and plentiful, many manufacturers are now looking to establish shorter or localised supply chains.

Specialised Tier 1 and 2 engineering business Dawson Shanahan has been working for some time to make the case for more robust and, where appropriate, localised supply chains: “Our customers include large OEMs in sectors ranging from automotive to power generation and distribution. Increasingly, they are looking for ways to improve the resilience, security and responsiveness of their supply chains,” explains Dawson Shanahan’s commercial director, Jeff Kiernan.

“As a result, we’ve developed a strategy of investing in machine tools and engineering systems that allow us to be extremely agile, with the ability to respond quickly and competitively to changing customer needs.”

The drive to shorten supply chains

Since the 1980s, many western companies have set up centralised manufacturing facilities in low-wage economies where finished goods are assembled cheaply and shipped to higher income markets. Yet, even before the outbreak of the Covid-19 pandemic, there was growing interest among customers from across industry to localise the manufacture of critical components.

For example, the uncertainty generated by the global economic crisis of 2008 forced many companies to re-evaluate this model. More recently, The UK’s decision to leave the European Union (EU) added further fuel to this fire. When the pro-Brexit vote was announced in June 2016, businesses that could afford to do so started to plan for the worst-case scenario and began to invest in new supply chain assets in the UK.

Multinationals such as Nissan, Honda and Jaguar Land Rover (JLR), for instance, have complex supply chains in the EU for most of their parts. Following the Brexit vote, they told British industry that they wanted to buy many more of these parts locally, and quickly.

In order to comply with any free-trade deals that Britain might negotiate with third countries, the companies will have to increase their local content in order to abide by rules of origin regulations. As a result, Nissan wanted to double the share (by value) of parts made in Britain from around 40% to 80%.

The Covid-19 pandemic has only added to the supply chain uncertainty created by Brexit. The pandemic has led to rolling production stoppages across the globe, starting in Asia before moving to Europe, the USA and, more recently, India and South America.

Jeff Kiernan says: "A key difference between Brexit and the Covid-19 pandemic is that companies have had time to plan for Brexit whereas the pandemic has come, more or less, out of the blue. Both events have, however, had seismic impacts on supply chains, from access to labour, delays at ports, increased distribution costs and a shortage of raw materials and subcomponents.”

Significant activity

According to a survey of 262 UK manufacturing companies carried out by WMG at the end of 2016, 70% of respondents claimed to have undertaken some form of shoring activity since 2008. Approximately 40% of these companies offshored, with only 13% of companies directly reshoring (i.e. relocating offshored production capacity back to the UK). However, 52% had indirectly reshored, explicitly deciding to increase capacity closer to their main production operations.

According to a more recent survey of large manufacturers, undertaken by Lloyds Bank in July 2019, more than a third (37%) of firms said they were planning to move manufacturing processes that had previously been offshored to territories such as Asia and Eastern Europe back to the UK.

There are many reasons behind such decisions. According to the WMG survey, better access to qualified personnel, skills, technology, innovation and a reduction in supply chain risk were significant factors. Proximity to main markets was another key consideration, accounting for 38% of direct and 37% indirect reshoring decisions.

Further, the economic arguments for offshoring are not as persuasive as they used to be. According to data from research group Euromonitor International, average wages in China’s manufacturing sector, for instance, have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal, following a decade of breakneck growth that has seen Chinese pay packets treble.

Across China’s labour force as a whole, hourly incomes now exceed those in every major Latin American state apart from Chile and are at around 70% of the level in weaker eurozone countries. Coupled to this is the fact that logistic and shipping costs are not as favourable in foreign labour markets as they once were.

Improving quality

For respondents to the Lloyds Bank Survey, meanwhile, the prime motive for re-shoring – cited by 71% of those with these plans – was to improve quality. As Jeff Kiernan comments: “Why bother producing and shipping-in products from low cost production areas when the quality isn’t deemed as good and it costs more and takes longer to arrive?”

For complex processes, such as CNC machining, these reasons make perfect sense. Mr Kiernan continues: “Using CNC machining can be a major time saver when you have the capabilities close to the main production base. You’re able to create and refine components quickly, and make changes, without having to send parts to geographically remote locations which would create delays and incur unnecessary costs.”

For higher volume production processes, the case for localised manufacturing is also strong: “Every OEM wants to deliver the highest quality at the most competitive cost. One of the advantages of working with local suppliers is their ability, if they are set-up correctly, to deliver both,” Mr Kiernan states.

“For example, we have two automated high speed, 5-axis Triflex milling machines, each with multiple spindles capable of producing high volumes of complex parts up to three times faster than conventional 5-axis CNC mills. Cost per part, when you take into account factors such as shipping and lead-times from extended supply chains, is comparable to offshore suppliers, while quality is considerably better.

“Perhaps as importantly, working with a localised supplier also reduces the challenges of communicating across multiple time zones and cultures.”


Reconfiguring and reducing the length and complexity of global supply chains is not without its challenges as Jeff Kiernan recognises: “Inevitably, short term cost will be a consideration, as well as the ability to recruit new staff with the requisite skills, knowledge and experience and access to suitable funding,” he says.

“Nonetheless, the benefits of shortening supply chains can be considerable, with lower costs, greater security and increased resilience to sources of disruption. Although Covid-19 has brought these into sharp focus, it’s not the only risk to established OEMs: there is the ever present threat caused by extreme weather events, the ongoing trade disputes and tariff wars between major trading nations and political instability in regions that supply vital raw materials, combined with a rise in populism and nationalism around the world.”

McKinsey, the Management consultants, reported that supply chain costs from natural disasters in 2019 amounted to $150 billion, with Hurricane Irma that struck the USA in 2017 costing $61 billion alone. Businesses took an average of 33 weeks to fully recover. McKinsey also found that geopolitical uncertainty and the imposition of tariffs led to an almost overnight increase of 15% to input costs in the last quarter of 2019.

Will current events lead to more localisation or re-shoring/near-shoring? The reality is that while some manufacturers will bring critical elements in their supply chain closer to the centre, others with lower value products will continue to adopt extended supply chain models due to the potential for cost savings.

“Among the deciding factors will be the nature of the components or products being produced, along with market demands for speed of response and the ability to supply custom-engineered solutions with short lead-times,” Jeff Kiernan concludes.

“Ultimately, we’re going to see a combination of the traditional extended chain model with, as time goes on, a greater proportion of businesses establishing short and localised supply chains. The latter will be created in partnership with specialised suppliers that are able to deliver key services or components with the ability to adapt rapidly to changes in market conditions.”

With over 75 years’ experience, Dawson Shanahan is a leading global specialist in the cold forming and machining of high precision, customer specified copper, aluminium, ferrous and assembled components.

Dawson Shanahan www.dawson-shanahan.co.uk


Dawson Shanahan

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