06 July 2022
Pent-up demand after almost two years of global pandemic followed by the Ukrainian war has put enormous strain on the global supply chain. To maintain output and production, organisations must work differently and think of innovative and strategic ways to solve their product supply problems.
What has caused the global supply chain Issues?
China has seen some of the most punitive lockdowns and restrictions on its workforce, with 29% of global manufacturing taking place in China. China is the root cause of many of the global supply chain issues. Whilst the Coronavirus outbreak began in China, it was initially well contained. However, sporadic vaccine rollout and poor vaccines mean China is an unreliable supply chain source. Besides China, across the world, covid lockdowns and self-isolation regulations have meant long periods of factory shutdowns and labour shortages, having a knock-on effect, depleting global component parts stock levels. In addition, with lingering new strains of covid outbreaks, manufacturers have struggled to get back to full production and their own supply chains are impacted.
Now, just when we thought things were getting better, the Ukraine war has robbed many suppliers of raw materials, further impacting the global supply chain.
The UK, of course, has an additional challenge with Brexit. New import requirements have brought delays, with products having to undergo further checks to ensure compliance, delaying many components' entry into the UK. Just-in-time component supply from Europe is now almost impossible, which forces operators to hold large inventories of critical spares.
What issues have arisen from the supply chain conundrum?
It is now not uncommon that what were once "off-the-shelf components" have lead times of over a year. Consequently, businesses must rethink their purchasing strategy by expanding their supply chain to ensure the best lead times.
Many suppliers will not fix a price for long-lead items because they, in turn, cannot get back-to-back price security from their suppliers. In addition, the interdependency of the global supply chain means that as the cost of fuel, energy, labour and goods increase, so do supply chain costs. Furthermore, as the demand grows and shortages remain, the supply and demand curve impact on price becomes more evident.
Covid and Brexit combined have left significant gaps in the labour industry. Ultimately, the Covid outbreak led to long-term sickness and staff being laid off. Most significantly, a substantial percentage of the highly skilled over 50s retired early and never returned to the workplace. In addition, Brexit forced none EU workers to return home, leaving the UK short of skilled workers and professionals.
The supply chain is compounded by a legacy demand, swamping the shipping industry. As a result, the usually well-oiled traditional freight routes are in turmoil, with container freight rates dramatically increasing since the second half of 2020.
How has this affected the Anaerobic Digestion Industry?
With the Anaerobic Digestion industry relying upon a broad spectrum of equipment and electrical components, builders and operators must think differently. For builders, fix price EPC contracts will be unattractive. They will be reluctant to accept a fixed price or liquidated damages when they are vulnerable to an unpredictable supply chain. For the operator, a just-in-time spares strategy is no longer viable for many items. If owners and operators want to keep their plants operating, they must consider significantly increasing their critical spares held on-site.