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Oliver Chapman, CEO of supply chain specialists OCI, the No.1 fastest-growing company in the UK 2022, comments on the supply chain implications of recent banking challenges and higher interest rates.
Mr Chapman says: “Despite the crises at Credit Suisse, Silicon Valley Bank, Signature Bank, First Republic Bank and rumours circulating concerning Deutsche Bank, central banks have recently increased interest rates. “Thanks to demographic pressures creating labour shortages, some inflationary pressure is likely to remain a threat, meaning interest rates are likely to remain permanently higher than pre-Covid levels. “There are important implications of higher interest rates when some banks are simultaneously in crisis for the supply chain. “The era of cheap and plentiful cash appears to be over. Under such circumstances, organisations must ensure their supply chain supports cash flow as much as possible. “The greater importance of cash flow to the supply chain means organisations are likely to put much greater emphasis on trying to restrict the geographical spread of the supply chain. “When products are being transported, cash is tied up, and if they are shipped over long distances, cash flow can be enormously disrupted. During the period when interest rates were close to zero and credit was plentiful, the above issues were important but not as important as they are in an era of higher rates. “As a consequence, we expect organisations to put greater emphasis on sourcing or manufacturing products in regions as close as possible to where the main market lies. “The new emphasis on local manufacturing is an opportunity for countries like Mexico, manufacturing products for the US market, and Poland, manufacturing products for the Western European market. Simultaneously, advances in automation technologies mean that the cost of labour is likely less important a factor than before, and we may see a shift in manufacturing to within the US and centres in Western Europe. “And although labour shortages will mitigate the shift in manufacturing, automation technologies mean this barrier is not likely to be prohibitive.”
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