Cut supply chain costs carefully, report urges

20-Jun-2011 - Last updated on 22-Jun-2011 at 14:17 GMT

Related tags Supply chain costs Supply and demand

Surviving stagnant domestic demand and breaking into lucrative export markets are key challenges for UK manufacturers over the coming year, according to a new study, which also warns that cutting supply chain costs carries potential risks.

But despite continued economic uncertainty, 78% of 100 UK manufacturers surveyed are more positive about the business outlook for the next 12 months compared with a year ago, according to the study from Zurich Insurance.

The firm’s new Hazard Warning Report surveyed senior managers from manufacturers within the £5m-£300m turnover range, where food and drink manufacture accounts for around 15% of UK manufacturing output by value, according to the Food and Drink Federation (FDF).

Supply chain risks

With domestic demand at a standstill, 34% of managers said that economic uncertainty was the top challenge facing them, followed by the need to break into emerging markets and supply chain issues, although Zurich said it was surprised that only 2% of respondents said that a lack of available credit was a problem.

Urging manufacturers to identify key suppliers and the consequences of their potential failure, the report authors said that trimming supply chain costs could mean additional risk: “For example, a decision to source all products from one supplier in one country may look rational, but if that supplier is located in an area subject to either natural or man-made disruptions, there could be a significant business impact.”

Managers identified Chinese, Indian, US and Brazilian export markets in particular as important, with 47% noting the need to direct their own energies into breaking into such lucrative markets, rather than relying on government or regulatory action.

39% of firms said employment and skills were important to growth, with 60% of £100m-£300m turnover firms identifying the issue as a business risk, while there was a high general demand for science, technology, maths and language skills.

1 comment

Manufacturers should heed this warning in respect of recruitment suppliers, too!

Posted by Fred Roberts, 22 June 2011 - 14:51 GMT

I agree whole-heartedly with the report authors' warning about the risks of trimming supply chain costs.

When you then take into account that "39% of firms said employment and skills were important to growth, with 60% [...]identifying the issue as a business risk", it always puzzles me why some food manufacturers are then willing to put all their eggs in one cheap basket when it comes to recruitment.

When it comes to finding the best talent for your organisation, one size does most definitely NOT fit all.

Procurement departments are good at looking at overall costs and getting the best deals based on volume purchasing power, BUT when it comes to recruitment, you're not buying an inanimate raw material, you're dealing with PEOPLE.

It takes skill and specialist knowledge to find the best candidates for any given role, particularly in this challenging skills-shortage market. The cheapest agency is not always going to be the best agency...it might be from time to time, but giving exclusivity to the cheapest agency for all vacancies across an organisation is not the way to source the best talent for each different job function, with its own quirks and requirements.

I would strongly recommend shopping around, not just on the basis of price, but on the basis of what you get for your money.

Hopefully, food manufacturers will see the light and realise that if they want to attract and retain the best talent, they have to invest in recruitment.

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