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Chain reaction: Building resilient supply chains

By Rebecca McCaffry CPFA, FCMA, CGMA, Associate Technical Director — Management Accounting, Association of International Certified Professional Accountants

2020 has brought some unexpected supply chain issues, which are not always as they first appear.  

We’ve seen consumer obsession with toilet rolls likened to Tulipmania, although ‘Loorollmania’ owes more to selfishness than speculation. A rush on bread flour turned out to be a packaging issue, with commercial suppliers unprepared for the overnight rise in demand from domestic bakers. And, despite stories of people panic buying basic household supplies, some dairy farmers are having to pour away thousands of litres of fresh milk. 

This last story highlights a genuine concern for suppliers of perishable goods: What happens when your supply chain logistics break down?  

In a video recorded for the Association, supply chain strategy expert Professor Richard Wilding of Cranfield University reminds us of the importance of managing supply chain relationships, both upstream and downstream, to promote agility and resilience. Supply chains can be strengthened, weakened or even broken by the people within them. Culture, or ‘what people do under pressure, in the absence of instruction’, is key. How are the people in your supply chain responding to the crisis at hand? 

Responses may not necessarily come from traditional sources: maker communities are joining the supply chain, providing much needed personal protective equipment (PPE) to hospitals. There has been an overwhelming response to the UK government’s call for volunteers to support the NHS. 

Professor Wilding’s recent COVID-19 blog highlights the fact that while disruptive events come in all shapes and sizes, from ash clouds to floods, cyberattacks to pandemics, every disruption is a test of risk management processes and resilience in supply chains. Agility and flexibility are crucial to an effective response. 

Online retailers would appear to be one of the few winners in today’s locked down world. The heady mixture of boredom, frustration and the endless consumer potential of the world's smallest (and indeed largest) shop window make retail therapy very appealing.  

As customers, we have become accustomed to over-ordering from online retailers, confident in the knowledge that we can send it all back free of charge if we change our minds. Simple, easy, distracting — the perfect antidote to the quarantine blues.  

But all of this comes at a cost — financial, environmental and even ethical. With delivery drivers considered to be key workers, even retail giants like Amazon are discouraging ‘non-essential’ purchases. 

A long-standing CIMA-funded academic research programme and toolkit exploring supply chain reverse logistics finds that most retailers underestimate the cost of managing returns and employ inadequate processes for dealing with them. The costs of retail returns are complex and extend across supply chain activity. Without sufficient attention to detail, a profitable business can swiftly become unsustainable. 

Out of necessity, many of today’s business relationships are conducted remotely. But monitoring and maintaining relationships with customers, suppliers, logistics providers and each other is more important than ever.  

Resources to guide you 

The Association recognises the importance of supply chain risk management and has several resources to help guide you, including: