When the COVID-19 pandemic struck unexpectedly a year ago, it exposed many vulnerabilities in our supply chains, with companies unable to keep up with demand for goods as simple as toilet paper and hand sanitiser.
Greg Duncan, client service manager at FM Global Australia, says the pandemic crisis had important lessons on keeping robust supply chains.
Other goods were also affected, particularly by the lockdown at the epicentre of the outbreak in China’s Wuhan, which is a major car components hub.
The supply squeezes have largely passed but many Australian organisations are now rethinking their supply chain resilience in the wake of the crisis.
“One of the major lessons was, of course, sourcing fragility, particularly for those businesses who are heavy importers. Coupled with this was the disruption to capacity and availability of freight services, particularly air and sea freight,” says Rob O’Byrne, CEO of the Logistics Bureau management consultancy.
“The speed and magnitude of change within the supply chain also came as a major shock wave to many businesses. Some saw massive sales growth, others rapid decline. But coupled with the demand fluctuations came big swings in customer buying behaviours, with some businesses for example seeing 100 to 200 per cent growth in online sales and home deliveries.”
Many large distribution centres are now being designed with a much greater degree of flexibility in how they can be used, so that changes in product profiles and demand patterns can more easily be catered for, he says.
For Greg Duncan, client service manager at FM Global Australia, a key lesson was the need for updates on risks in the supply chain based on change in the business environment.
“If you have a particularly complicated supply chain, the risk is changing all the time,” he says.
Along with risks inherent to each individual supplier, FM Global encourages companies to consider several risk factors when considering their supply chain resilience: how risky it is to do business in a particular country including political and corruption risk, the quality of its infrastructure and how susceptible it is to natural disasters.
FM Global publishes the annual FM Global Resilience Index, which compares risk factors across more than 130 different countries.
“When companies are making decisions about where they’re choosing to do business either directly or where they’re choosing to do business as part of their supply chain, they’re armed with information to better make choices in terms of what’s going to give them the best outcome when it comes to risk,” Duncan says.
In general, Australian companies did a good job of navigating the supply chain disruptions from COVID-19 because they had already worked their way through similar disruptions in the past, for instance, the Japan earthquake and Fukushima nuclear reactor failure in 2011, Duncan says.
Good supply chain risk management comes down to understanding where different exposures lie and taking action to ensure these risks are proactively mitigated to the best extent possible. This doesn’t always involve a cost.
“An example would be that if I’ve got a supplier in Thailand manufacturing a particular widget and I understand that there’s an exposure to that supplier, that I have a strategy in place but if that supplier is disrupted I can then move to something else. The dual source supply or the alternative supply would be a typical example of what that looks like,” Duncan says.
Another one would be inventory management. There are working capital and logistics costs to holding inventory, but this has to be balanced against providing a buffer against disruptions from a major supplier, says Duncan.
While there have been suggestions that companies bring manufacturing back on shore in the wake of the coronavirus supply chain disruptions, Duncan warns against knee-jerk reactions. A factory in Australia or New Zealand could just as easily suffer supply chain disruptions as one in Wuhan, he says.
“It doesn’t necessarily matter where your supply is coming from. You just need to understand what those exposures are and then take the correct steps in managing those risks, so if there is a disruption then it’s going to minimise the impact on your business,” he says.
In a business impact analysis, companies assess their exposures to particular suppliers and particular regions so they can understand both the likelihood that something will go wrong and the consequence if it does.
O’Byrne says visibility of supply chain information remains an area of vulnerability for many businesses. “The ability to see in real time where inbound products are, how sales are tracking and where local inventory is deployed, along with accurate cost management, is more important than ever. So systems upgrades and greater reliance on AI tools are inevitable,” he says.
“On a positive note, we have seen supply chain managers and their teams really step up to the plate over the last 12 months and pull off some amazing solutions in rapid time - pop-up warehouses and collaboration over the use of transport assets being examples,” he says.
This article first appeared in The Australian Financial Review