Experts are warning that businesses face greater risks from complex service supply arrangements than they may realise. The issue isn’t confined to manufacturing: these days, almost everything from payroll processing to company cars reaches the end-user business at the end of an intricate supply chain.
Everyone wants last-minute ordering and delivery because minimising slack means lower costs, greater flexibility and faster growth.
In the same way that technologies such as Teflon and anti-scratch lens coatings migrated from aerospace applications to everyday life, just-in-time capability has widely infiltrated business expectations.
Even getting your staff to work is a complex, last-minute operation that depends on elaborate public and private transport networks to transport people across cities, counties and regions.
In the 19th century, employers had to build whole towns like Bourneville and Port Sunlight if they wanted to have their workforce on the doorstep at opening time.
But there is also a downside to complex systems with very little slack in them. Small, far-away failures can rapidly escalate into costly problems.
When Iceland’s Eyjafjallajökull volcano erupted in 2010, for example, two factories in Japan were shut down within days because critical Irish-made electronic components were grounded at Dublin airport.
More recently, drivers have seen their car orders cancelled or modified because the only sources of certain paint pigments and electronic parts were destroyed in the Japanese earthquake and tsunami.
While it’s true that no amount of planning and preparation can forestall a catastrophic natural disaster, business advisors including Lloyds and Deloitte have drawn attention to businesses’ growing reliance on technology-driven and energy-hungry supply chains.
Take your car fleet. How do you procure the basic ingredients of the fleet mix: your fuel, finance and cars? Is any redundancy built into your arrangements?
The answer is probably “no”. After all, why would you need it? As long as the world is functioning smoothly, it makes no sense to hold expensive stocks of unused fuel, cash and vehicles against the possibility of a supply disruption.
Even so, many companies suddenly found themselves scrambling to find funds for replacement vehicles following the 2008 financial crash, when a number of major finance suppliers suddenly pulled back from the fleet market.
And last month [June], a report by Deloitte warned about the UK’s growing dependence on oil imports. Road fuels (including electricity) will soon become even more expensive, it said.
High pump prices are already changing behaviours, and not always for the better.
One motoring organisation recently reported that more car owners are skimping on necessary repairs to save money. That has worrying Duty of Care implications for businesses that rely on grey fleet travel to any degree.
It also illustrates how a straightforward cost issue – fuel prices – can quickly feed through to another area – legal liability – which could ultimately end up with a director going to jail.
Today’s almost friction-free supply chains transfer peripheral risks and costs to the centre all-too efficiently. For example, thousands of small bodyshops have gone out of business in recent years, leaving the repair industry increasingly short of capacity.
The result is longer waiting times and more expensive repairs for any fleet that doesn’t have access to specialised systems and expertise to hold down bills and get their vehicles to the front of the queue.
For fleet operators, who are at the top of very long and intricate supply chains, it’s hard to keep an eye on every remote issue that might potentially arrive on their doorstep as a magnified cost or legal risk.
Indeed, how far down the chain should fleet operators have to look? What they want, after all, is for someone to manage peripheral risks while they are still out on the periphery.
One solution that’s increasingly finding favour is to appoint a key fleet management supplier to manage all of their fleet service chains on their behalf.
After all, fuel, vehicles, maintenance, accidents and grey fleet can only be managed successfully if the underlying issues are well understood and continually kept under review.
In today’s highly interconnected fleet marketplace, a fleet management company is usually better-placed to do that than the end user.
Of course, the fleet management firm will depend in turn on its own suppliers and networks. The more resilient those relationships are, the better the fleet management company can serve your business as a whole.
Even the best fleet management company won’t stop an earthquake or a volcanic eruption. But it will allow your business to focus both on its core activities and on managing one key fleet relationship.
And if “unforeseen” problems on the periphery of the fleet market keep arriving at the fleet management company’s doorstep rather than yours, well, that’s their headache and it’s their job to sort them out for you.
In the end, that’s what smart supply chain management is all about.
Matt Sutherland is Chief Operating Officer, of multi-marque car leasing and fleet management company Alphabet.