Covid-19 exposed the risks in many MRO supply chains but there are other hazards that need attention too
For those professionals responsible for Indirect procurement, one of the biggest challenges since the advent of the coronavirus pandemic has been supply chain disruption. Interruptions have affected 56 percent of those responsible for Maintenance, Repair and Operations (MRO), according to a survey by RS and the Chartered Institute of Procurement and Supply (CIPS).
The extent of disruption has sparked broader concern about potential weaknesses within supply chains. The risks, and how to manage them, were a major topic of discussion during a recent series of virtual roundtables for MRO specialists hosted by RS Components. Other areas of focus include how COVID-19 affected procurement and why value is a more important consideration than cost price alone when making decisions. Here we share the two major supply chain problems that emerged during the discussions and how the procurement profession is attempting to minimise these hazards.
Fraud and fragility
One of the most challenging issues for those working in procurement, particularly during the early months of the pandemic in March 2020, was sourcing Personal Protective Equipment (PPE). Previously cheap and plentiful, suddenly items such as gloves and masks became scarce and when it came to prices, it was a seller’s market.
As Chris Harvey, Senior Category Manager at energy provider SSE, observes, “Coronavirus just showed that you think you’ve got something covered and it’s low risk, low spend, but suddenly a completely different industry is ramping up and the suppliers are flat out,” he says. “If something like that comes along, it can completely throw you out.”
Both unscrupulous suppliers and fraudsters seized this opportunity, meaning those involved in procurement had to be even more alert to risk than usual. “I would note in relation to fraud that the NHS as a whole has worked with all partners tirelessly to ensure that this is managed and that all NHS Trusts follow the existing procurement procedures to ensure that any potential exploitation of the COVID pressures was and is mitigated,” says a manager within the business services arm of the NHS. “In addition, we as a collective are working to improve all future supply streams for all suppliers to the NHS.”
At the same time, as the pandemic led to widespread closure of businesses and borders around the world, the fragility of global supply chains became apparent. “Long supply chains potentially introduce massive risks,” explains Helen Alder, Head of Knowledge at CIPS, and the threat level increases in proportion to distance and travel time. “If you’re going to buy from further afield, that introduces more risk you can’t control,” she adds.
Shortening supply chains, reducing risks
Strategies are already being drawn up in many instances to reduce the threat level going forward. “COVID-19 has created a whole debate about potentially shortening supply chains to source more from local supply,” says Helen Alder, “and bring your lower tiers closer to where you are, with supply chains coming back into the country potentially.”
“COVID-19 has created a whole debate about potentially shortening supply chains to source more from local supply”Helen Alder, Head of Knowledge, Chartered Institute of Procurement & Supply
Roundtable participants note this trend too. “Coronavirus has really shown the heavy reliance on places such as China for goods,” states Brad Stone, UK Commodity Manager for technology giant Siemens, “And I do believe that we will see a decentralisation of some key subcategories.”
Similarly, says Angus Hanney, Category Solutions Director for EMEA at commercial real estate firm CBRE, “Some of our suppliers are looking at diversifying the locations where they’re getting equipment from. A lot are trying to identify manufacturers in Europe so that they’ve got a mix to give them protection.”
Emma Botfield, Managing Director for the UK & Ireland at RS, has also observed this trend. “I’ve seen across a multitude of sectors that businesses are looking to source from multiple locations rather than relying too heavily on one specific country or region,” he says. “Making sure you have continuity of supply on an ongoing basis is crucial.”
It isn’t just suppliers that are looking for ways to reduce their expose to risks within the supply chain. Those responsible for MRO are developing ways to minimise potential threats too. “A backhanded benefit for us has been the realisation of the risk around using unassured supply chains,” says the Head of Procurement a defence technology business. “COVID-19 created a renewed focus on risk management.”
Supporting the ethical agenda
This renewed level of risk management is vital if businesses are to successfully navigate other supply chain hazards. As procurement professionals are aware, COVID-19 is not the only challenge as over recent years, concerns about modern-day slavery and sustainability have moved rapidly up the corporate agenda.
“You need to be sure that this is not just a tick box exercise on the part of a supplier,” says Botfield. “Can they demonstrate that they have the right assurances in place, whether that’s British Standards Institute certification or a commitment to rigorous carbon reduction programmes? If you ask for information about these topics, can they supply it?”
“You need to have confidence that the organisations you work with are actually doing what they say and not simply ticking a box on their website.”
The kind of supply chain oversight demanded by the pandemic can be applied to ethical issues too. For example, it isn’t enough to just assess what happens in-house. As Adam Boulter, Senior Category Manager at construction materials producer Aggregate Industries, comments, “We can control what we’re doing ourselves as a business, but we have a long supply chain, and we need to make sure they’re acting in a sustainable manner too.”
To fulfil this responsibility, Aggregate Industries has created a new audit facility charged with completing an in-depth review of suppliers and establishing how sustainable the supply chain is. A comparable process is underway at flooring and textile manufacturer Milliken Industrials Ltd. Sourcing Manager Linda Fairclough reports “Sustainability is really important, and we also have a comprehensive audit process: slavery, bribery, financials. We go to our main direct suppliers and audit the plants and all the things that they do within them.”
“We need to make sure that the suppliers we are choosing to use are properly assessed and the due diligence on supply chains is done,” says the Head of Procurement from the defence technology company. The risks of not doing so are simply too great. If you haven’t done the due diligence, “It will cost you in the long term,” she continues. “Let’s face it, you’re going to end up on the front page of newspapers, named and shamed as using slaves or unassured goods.”
For more insight into how risks surrounding COVID-19, sustainability and modern-day slavery are shaping MRO today, download the RS and CIPS 2020 Indirect Procurement Report