The critical imports and supply chains strategy

Emma Rowland, the IoD’s Trade Policy Advisor, was invited to join Business Minister Nusrat Ghani MP at yesterday’s launch event at Heathrow. The Strategy seeks to build the UK’s supply chain resilience; it defines actions that will ensure the reliable flow of critical imports.

What are critical imports?

The government defines critical imports as those critical to the UK’s security and prosperity. If supply disruption were to occur, there would be a high likelihood of a moderate to catastrophic detrimental impact on UK essential services, health, the economy or national security. Sectors classified as Critical National Infrastructure include, among others, chemical, defence, energy, food, transport and water.

What does the strategy say?

The government’s strategy is a five-pronged approach, built around supply chain analysis, removing barriers to imports, responding to supply shocks and cross-industry collaboration:

1. Making the UK government a centre of excellence for supply chain analysis and risk assessment

The government is committed to enhancing their understanding of the flow of critical imports into the UK, publishing more analysis and making better use of techniques to map future supply chain scenarios.

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

This will allow businesses to report barriers to imports that government can then work to resolve. It will also mean businesses will be able to access the tools they need to source new suppliers and better access finance schemes.

3. Building the UK’s response to global supply chain shocks

The government is aiming to be able to better forecast disruptive events and develop crisis response measures. They plan to do this by publishing regular updates on specific risks and expanding existing programmes of stress testing.

4. Ensuring the UK can adapt to long-term trends

Next steps in this area make up the largest bulk of the government’s strategy. The idea is that being proactive is more effective than reactively putting out fires, and will ultimately build much stronger resilience. For example, the government will help businesses to diversify their suppliers and strengthen the UK’s domestic capability to produce critical goods. They will also make us of our international bilateral partnerships to solve evolving supply challenges.

5. Expanding collaboration between government, business and academia

The government will launch a new Critical Imports Council, bringing together government and businesses in critical and growth sectors. They will also enhance their advice and guidance offerings.

Why is a strategy important?

Global ripples such as geopolitical tensions, extreme weather events, protectionist measures and technological advancements which alter the nature of goods can result in significant supply chain disruption. The COVID-19 pandemic and the Russian invasion of Ukraine are enough to demonstrate the impact that supply disruptions have on the UK economy.

The IoD’s own data shows how businesses are already looking at reorienting supply chains away from countries perceived to be ‘high risk’ to the UK’s security, in particular China. Ultimately, firms are pursuing long-term stability in their supply chains, so they can provide certainty to their own end customers. They want to know they can rely on their international business partners long-term and not be hampered by sudden disruptions.

Anecdotally, members have told us that while they are ultimately motivated to create a supply chain that is reliable and reduces risk with suppliers they can trust, they have had to make sacrifices to achieve this, the main challenge being higher costs. Thinking specifically about those which have already diversified their supply chain away from China have found local suppliers to be more expensive, and have had to invest in moving operations, a process that takes months, sometimes years, to see through. At the same time, they have found there is a more limited choice of vendors outside China. They have therefore had to factor in a slight reduction of capacity while implementing the changes.

Of those which are considering diversifying their supply chain, many say they would expect to see a 10%-20% increase in costs, also related to the process of moving operations and finding the right suppliers for their product. Members have had to consider what is the right balance between cost and quality of supply.

It seems that, as the strategy is implemented in its early stages, much of the focus within government will be on building the knowledge and skills necessary to understanding supply patterns and how to use data to forecast potential shocks.

However, the bulk of the strategy is about ensuring businesses can rely on their overseas partners, have access to the tools they need to source critical goods as well as being prepared against sudden disruptions, which, in the context of supply constraints, is welcome.

The government’s aim is that the strategy will be very much an ongoing project across Whitehall, business groups and the Critical Imports Council. They will publish progress and monitor the implementation of the action points the strategy commits to. The IoD will keenly follow this policy area as it develops.