Supply chain risks: 10 things you need to know

The retail sector has been hit particularly hard by supply chain issues following Brexit, the COVID-19 pandemic, the Russia-Ukraine conflict and inflationary pressures. Risks include issues such as longer delivery times, increased shipping costs and particularly a shortage of goods.

Other less visible issues such as environmental risks like extreme weather events are now on the agenda for risk management strategies. Distribution is, of course, another major factor with the increasing amount of channels available to consumers making the ability to effectively manage supply chains increasingly complex.

Our specialist retail team has a vast amount of experience advising businesses in the sector helping to mitigate risk and manage issues and disputes when they arise. This has included acting for a leading fashion retailer on its European supply chain strategies and a high street retailer in Commercial Court proceedings.

The automotive supply chain is one of the most complex supply chains in the world. It is also rapidly changing as the industry takes a leading role in decarbonisation and the shift away from ICE vehicles, whilst embracing the rise of new mobility solutions and the impact of tech and AI. All industries have been experiencing challenging circumstances since the lockdowns in response to COVID-19 began, which has created various obstacles to overcome, but the automotive industry was particularly hard-hit (especially following the impact of Brexit, and the subsequent effect of the war in Ukraine).

Changes in the manufacturing process, consumer demands and disruptive trends in the manufacturing landscape (including those highlighted above) have all had a compounding effect on the challenges being faced in the automotive supply chain. Areas of impact include manufacturing plants' ability to operate, source raw materials and key components (e.g. microchips) and delivery times.

Understanding your supply chain (or your place in the supply chain), the pressure points, and your options in times of stress are fundamental to maintaining and advancing business in a time when there are industry-wide, irreversible changes taking place.

Housebuilders are also being affected by supply chain issues. From January 2020, housebuilders and their supply chains have felt the significant effects of Brexit. The new rules and fees imposed as a result of the UK leaving the EU have caused shipment delays and encouraged EU companies to look elsewhere for trade. The impact of Brexit is particularly significant for housebuilders, as 80% of softwood used for building projects comes from Europe, which increases to 90% for new builds. In addition, residential development supply chains have been hit by labour shortages (including a lack of HGV drivers and construction workers) which has impacted the delivery of housing projects.

As the UK emerged from the initial lockdowns, there was pent up demand from people looking to move home. House prices grew by 7.4% in 2020, followed by a further 10.8% rise in 2021. This all had a knock-on effect to the residential building industry as housebuilders tried to meet the demand.

During the lockdowns, many factories and builders merchants had to furlough staff and halt production. This meant that building supplies such as roof tiles, bricks and window glass quickly became scarce as the country opened back up and 'normal' life was able to resume. Housebuilders then had to compete with other companies to get hold of the limited stock that was available. For example, housebuilders have had to compete with projects such as HS2 and Hinkley Point C for concrete supplies. This again slowed down the production of homes, increased the demand and saw many businesses unable to fulfil the needs of their customers.

Supply chains issues within the aviation and aerospace sectors can be particularly complex. Typically, parties contract with the same suppliers across different aircraft platforms on long term contracts, which in good times can lead to collaborative relationships that are mutually beneficial, enabling technological development (in particular regarding weight gains) and shared cost savings.

However, when the supply chain subsequently begins to creak, be that through changes to market conditions, customer demands, safety issues, insolvency or other reasons, the same parties then, if unprepared, sometimes find themselves in an almost impossible position: they cannot continue with their existing supply, and/or cannot afford to - and yet also cannot adequately replace that supply within the relevant timeframe.

Furthermore, owing to parallel commercial commitments, they also typically cannot afford to fall out with their long term contractual counterparty either – and even if they could, they would then face a myriad of issues in relation to tooling, IP rights, continuing maintenance and spare part commitments, TUPE commitments etc.

Furthermore, in these sectors such issues are arising comparatively commonly. The pandemic has played its part here, alongside a materials shortage, and the rate of the industry's post-COVID rebound is now stretching capability. The drive for greater sustainability, and associated need for efficiencies is also having an impact, and will continue to do so.

Our Aviation, Aerospace and Defence team has a proven track record of working with a wide array of businesses within the industry to manage and mitigate disputes and issues arising from supply chains. These range from disputes involving customers and OEMs to issues with tier one and tier two suppliers.