One of the significant impacts of COVID-19 across the globe is the ongoing disruption of supply chains. The pandemic has highlighted the fragility of existing lines of supply with Australia finding itself particularly vulnerable due to heavy reliance on imports as well as geographical location and prolonged border closures.
Production and inventories are down, with some goods predicted to be in short supply until 2023. This, combined with expected increased spending as consumers head out of restrictions straight into the holiday period, is creating a significant amount of pressure on SMEs.
Key industries; retail and construction as well as groceries and onshore manufacturing have been extensively affected. SMEs are struggling with long delays on imported goods and raw materials from offshore along with warehousing, logistics and working capital limitations. Large projects delayed by lockdowns are now being resurrected creating a surge of activity. These factors combined with the expectation that the SME sector will again be responsible for kickstarting the economy, makes overcoming supply chain limitations a critical challenge for business and government alike.
Another direct result of COVID-19 lockdowns has been the exponential growth of eCommerce. Customer behaviours have changed with Australians spending $50.46 billion online (up from $32.1 billion in 2019) with Australia Post reporting online shopping has grown 57% year on year. Businesses moving their goods and services online has more than doubled since the start of 2020 and locked down consumers with nowhere to travel have upped their retail consumption online, creating a huge delay between demand and supply. This is causing frustrations for the customers waiting for goods, as well as the businesses trying to fulfil orders.
Where are the bottlenecks?
Inbound sea freight
The ocean-going cargo industry is currently facing a wide range of hindrances that are disrupting the travel of goods worldwide. A shortage of containers, ships to move them and rises in costs, combined with the impact of COVID-19 outbreaks at ports and at sea have caused unparalleled global disruption.
Warehouse and stevedoring
As businesses scramble to protect their pipeline and inventories the cost of warehousing is increasing. Additionally, union disputes with staff over pay and working conditions have led to strikes and shutdowns. Retailers are competing for space (especially large players like Amazon), leaving fewer options at much higher costs for smaller operators.
Freight and logistics
State border closures have hampered road and rail freight since the start of the pandemic. Direct to consumer shipments have increased substantially and COVID-19 outbreaks at distribution centres have forced staff to isolate and led to labour shortages. Postal and courier services have at times been unable to keep up with demand.
Many businesses have spent the last two years being creative, putting out fires, adapting any way they can to survive uncertainty and continuing to meet their obligations. The entire structure of conventional supply chain management has been upended. A ‘just in time approach’ for example, can no longer be relied upon to guarantee products can be distributed according to demand. The rapidly escalating costs of importing, warehousing, distribution and operational costs have left many SMEs on the brink of collapse as they try to absorb price rises and stay afloat.
How can businesses remodel the supply chain to weather volatility and meet demand?
Businesses of all sizes are remodelling their traditional approach to the supply chain. The focus is on surviving the short term and planning ahead to mitigate future disruptions for example;
• Creating a supply chain with end to end visibility. A clear picture gives businesses the opportunity to plan and have the foresight to navigate the disruptive dynamics at play and work out ways to address them.
• Investing in data and technology. Integrated data systems, intelligent technologies that integrate the virtual and the physical environment, AI and smart object automation can pave the way to a highly functional end to end supply chain.
• Reviewing the existing supply chain and spreading demand. Each link in the chain should be assessed for feasibility with suppliers replaced and added where needed – ideally spreading the demand across multiple suppliers (considering onshore suppliers too).
• Building longer-term relationships. Suppliers often prioritise the accounts of those that are seen to be a long-term partner with a solid pipeline over a one-off or transactional deal.
• Reviewing supplier contracts. As well as contracts with freight and warehousing stakeholders and renegotiating as required (it is unlikely that pre-COVID terms are sufficient to mitigate todays’ challenges).
• Considering alternatives. Air freight, while traditionally a more expensive transport mode may help businesses prioritise and deliver critical inventory to gain a competitive advantage.
• Thinking local. Consider onshore supply partners to avoid importation delays. Partner with regional and local carriers for distribution to minimise risk and delays when national carriers are slowed by demand.
• Forecasting and planning. Where possible, ensure stock is acquired ahead of time to meet expected spikes in demand or align with sales objectives.
• Maintaining good cash flow. Access to reliable cash flow ensures businesses can act quickly, adapt and invest to meet demand.
Supply chain disruptions are likely to continue well in 2022 and businesses should ensure that plans are laid now to fortify and prepare for the future. Visibility and careful planning are critical to ensure that supply chains are underpinned by trust, transparency and diversification of supply. Businesses should take opportunities to invest in digital technology, automation and analysis tools to deliver an end to end view of the supply chain. Creative thinking, outside traditional structures and having strong cash flow and working capital to act will also be a key enabler. Supply chains are no longer an abstract concept sitting in the background, there is a global opportunity to reinvent and improve, creating more resilient and sustainable solutions.
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