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UK is the latest to develop a ‘Critical Supply Chain Strategy’

Following the example of the US, the UK government has established a ‘New Critical Imports and Supply Chains Strategy’ which it says is designed to safeguard the economy from global supply chain shocks. It is hoped that a variety of initiatives will help UK companies and institutions build strong and resilient supply chains and avoid dependence on protectionist or ‘coercive’ states. The strategy comes in response to increased geopolitical disruption and other recent challenges such as the Covid pandemic, Russia’s invasion of Ukraine and environmental disasters.

The government defines ‘critical’ supply chains as those which, if disrupted, would cause a high likelihood of a ‘moderate to catastrophic’ impact on:

  • essential services

  • life (including medicines and delivery of patient care)

  • a strategic economic sector or the economy as a whole, including those sectors critical for reaching net zero and

  • national security, including the functioning of the state and public order.

The strategy has major parts which involve:

  1. Making the UK government a centre of excellence for supply chain analysis and risk assessment by better understanding broader supply chain systems, including transport routes and infrastructure.

  2. Removing critical import barriers to support the UK’s ‘business-friendly’ environment.

  3. Building the UK’s response to global supply chain shocks by expanding the capability to forecast and respond to external events, from extreme weather to geopolitical incidents.

  4. Ensuring the UK can adapt to long-term trends, building resilience and working in successive G7s to bring international partners together.

  5. Expanding collaboration between government, business and academia.

It is very welcome that the UK government has recognised the vulnerability of the economy to disruptions in global supply chains and is prioritising a response. Even so, the role which government can play in creating resilience is limited, given that private businesses are the ones responsible for making the majority of supply chain decisions. However, given the importance of trade policy to frictionless movements of goods around the world, a commitment to more free trade agreements will have a positive impact on the free flow of goods. Its other aspirations for more resilient supply chains in critical goods are dependent on creating an innovative environment in which new technologies can support decision making - artificial intelligence (AI), for instance. This will not only aid companies in assessing real time threats but will also allow them to drill down deeper into lower supply chain tiers to identify dependency on single sources of supply.

The government is also committed to supporting specific home-grown industries which will reduce reliance on suppliers based in other, potentially hostile, countries. Technology is one such example. However, unlike other governments, it will not commit huge subsidies, probably a good thing given the risky nature of such bets. Trying to build out a semiconductor chip ecosystem, as is the policy in the EU and the US, in order to reduce reliance on China-threatened Taiwan, is likely to be a costly and futile exercise.

Visibility is important, of course, and the UK government aspires to be a world leader in supply chain analysis by:

  • enhancing an understanding of current and future flows of critical goods imports into the UK and future domestic and international demand for these goods.

  • enhancing analytical capability to better understand shocks that occur and anticipate the impact on critical goods.

There is another dimension to the strategy. The government is not just a facilitator of trade but also an active supply chain partner, for example in defence and health procurement. In both cases government departments are taking steps to increase supply chain resilience.

  • The Ministry of Defence is developing what it calls a ‘supply chain illumination capability’ to monitor specific supply chains and flag up alerts using predictive analytics.

  • The National Health Service has already developed a National Supply Disruption Response to ensure that the UK maintains essential supplies. It is also responsible for stockpiling medicines in the UK and has an Express Freight Service contract in place to provide emergency logistics. In the future, the response will include developing multiple supplier framework agreements to mitigate risks of dependence on a single supplier or geography.

Increasing supply chain resilience relies on a strong public-private partnership and this is recognised within the strategic plan. Governments can reduce the friction of international trade and build links between trusted partners; invest in transport infrastructure; protect ICT networks from cyber-attacks; protect shipping from physical attacks as well as providing education and training. However, the majority of supply chain risk is rightly borne by the private sector. Support by the government will certainly be useful but supply chain visibility should always remain a competitive commercial advantage.

One of the criticisms of President Biden’s Council on Supply Chain Resilience in the US is that its members are senior government members and that there are no representatives from the business community. With engagement from ports, airports, the automotive, pharmaceutical and critical minerals industries as well as 100 top manufacturers, the UK government seems determined not to make the same mistake. As Minister of State at the Department for Business and Trade, Nusrat Ghani said: “The strategy sets out the actions we are already taking and our next phase of work to enable the efficient and reliable flow of critical imports. It is informed by two principles: our belief in the benefits of free trade; and the belief that it is first and foremost for businesses to manage their supply chains, with government intervention reserved for those areas where it is necessary, such as in cases of market failure. It also makes clear our commitment to putting joint working with the businesses at the centre of our approach.”

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