Infrastructure sector clients need to focus on three key areas to understand supply chains at a much deeper level, says Turner & Townsend’s Gareth Poole.
The UK has fully left the EU, ending 47 years of membership. Images of HGVs queuing at UK ports and anticipated delays have not yet materialised. But freight levels are currently still low, so we may be witnessing the lull before the storm.
Forward-thinking infrastructure clients and contractors spent time in the build up to our departure understanding what measures they needed to have in place for a deal or no deal scenario. Now we have an agreement in place, they still need to keep a close eye on the initial impact of Brexit.
With the global pandemic enduring and the climate emergency looming ever larger, they also need to look beyond Brexit and start to understand supply chains at a much deeper level. There are three areas therefore that should focus clients’ minds in 2021. And they’re all about asking more questions.
First, is the need to measure and fully understand supply chain fragility. The risk of insolvency in the supply chain derailing projects and programmes is very real. Significant debt has been accumulated in the manufacturing and construction sectors and there should be concern about whether some parts of the supply chain will be able to repay loans. For example, 44.3% of manufacturers have resorted to government-backed financing schemes - half of these are construction suppliers - and this is in addition to the Coronavirus Job Retention Scheme.
We need to break away from traditional measurement of supply chain risk that is too focused on past performance. It calls for a new approach to assess financial, demand and capacity fragility. When using our model to look at the current financial fragility of suppliers, we focus on their Covid-19 financial exposure, their levels of bad debt, as well as historic financial performance. In terms of demand fragility, we assess the weaknesses in the supplier’s supply chain as well as looking at whether they are too reliant on a small number of clients. Finally, we help clients map the size of the supplier base to understand how sensitive the sector category is to the loss of a supplier, if it is too reliant on SMEs, and what barriers there are for new suppliers in the market.
This is forensic and it equally applies to my second recommendation - when assessing supply chains, clients need to focus even more on where materials come from. Do this and it could be a green lining of both Covid-19 and Brexit. The transition to net zero demands a greater understanding of carbon reduction – both in terms of understanding the embodied carbon within materials as well as appreciating how decisions materially impact the whole life performance of assets. Aligned to this is a need to focus on responsible sourcing and compliance with the Modern Slavery Act.
Once you’ve assessed the supply chain, how can you mitigate vulnerable suppliers and drive performance and productivity? The answer is the third point - to embrace more progressive, alliance-based projects. Improving partnership between clients and the supply chain is a well-rehearsed call for our sector. But enterprise models for major infrastructure need to come to the fore in 2021 because they are about forging a long relationship between owners, investors, integrators, advisers and suppliers.
Clients need to continually ask themselves - are they being progressive and collaborative or still using an outdated model? Fundamentally, an enterprise model can better respond and adapt to a disruptive market post lockdown 3.0, while also boosting productivity and supporting a more sustainable, innovative and highly skilled industry.
All of these measures will serve to de-risk and help to set up programmes for success as we emerge from Brexit and the age of Covid-19. Asking questions and crucially acting upon the answers is key to forging greater resilience and improved performance for projects and our sector.
Gareth Poole is a director at Turner & Townsend.