Good risk management, buy local4 June 2020
For vital supplies, using local manufacturing is good risk management.
Taking stock after two months of restrictions to slow the spread of Covid-19, this unprecedented time has shown us that we can’t always rely on simple things that we took for granted until recently. From a business perspective, the pandemic has shown the value of thinking through different scenarios. In a time of uncertainty, it’s more important than ever to have contingency plans and backup options so you can react to changes in events.
When my business partners and I started StaySafe masks, our aim was to get supplies quickly and cost-effectively, so naturally the first place we looked to when sourcing the masks was Asia. We were dealing with a commodity product and this type of business is normally driven by prices. Right now, the region has the biggest manufacturing facilities in the world, and we had built up strong business connections there over the years. So it made sense at the time to look at where we could source the product at the lowest cost, to be able to pass on the savings.
But the latest health advice shifted towards recommending widespread use of face masks not just in healthcare settings but for the general public. So global demand has soared, and because everyone has gone to the same source, the supply has become constrained.
In fact, it’s three problems wrapped up into one. With manufacturers coming under huge pressure from all over the world, guarantees of supply are hard to come by. Then, unless you have people on the ground, it can be difficult to stand over the quality of the product. Thirdly, even if you can satisfy both of those criteria, there’s still the logistical challenge of shipping the items back to your home market.
In the past, it might have been possible to spread the load across several commercial flights using their underbelly cargo, but many airlines are grounded because of Covid-19. As a result, the choice is between being the highest bidder to get space on freight aircraft or else chartering a plane. Neither option is cheap.
So what’s the solution? It’s time to diversify your supply chain for critical medical supplies. By working with a manufacturer carrying out some or all production within the EU market, European businesses can spread the risk, this is good risk management.
At StaySafe, we took the decision to invest in new manufacturing capacity located in Ireland, to be able to stand over the quality of production, make firm guarantees about consistent supply, and ensure quick delivery to customers.
We are seeking long-term partnerships with businesses that will need high volumes of masks to protect their employees and visitors in the workplace. This will enable us to continue investing in automation that keeps us as competitive as the traditional manufacturing powerhouses.
The more long-term commitments we can secure from partners in the early stages, the greater our ability to scale and guarantee supply even as demand escalates.
This is a decision for chief executives, MDs, owners, and boards. Cost can’t be the only deciding factor. Think of it this way: now that many businesses can start planning to reopen as the restrictions lift, how much would it cost a company if it had to close doors again because it had run out of face masks and protective equipment for its employees?
I’m not in any way downplaying the model of manufacturing in the Far East. Nor am I arguing in favour of protectionism. As a consumer and a businessman, I’ve benefited greatly from globalisation. Two of my past businesses, TNS distribution and JIVO, sourced most of our products in China.
But I’m also a realist. When there’s a product with high demand that’s likely to continue for some time, it doesn’t make sense to concentrate supply chain risk in the place where it’s most volatile.
This is about prudent risk management. It’s a simple fact that with rising need from every corner of the world, the further we are from the supply chain, the less control we have as a buyer. Working with a local manufacturer makes your supply chain more resilient and less risky. In a time where there’s so much change and uncertainty, what price would you put on being able to feel in control?