The bumpy ride of the supply chain

While demand for traded goods has rebounded strongly in 2021, continued disruptions on the transportation or supply side necessitate a major rethink of trade support strategies going forward.

“A company’s ability to predict or foresight would be greatly aided by digitizing business processes throughout the supply chain.”

Global trade requires resilient supply chain strategies in the aftermath of the pandemic for what could be considered the “new normal”. Unprecedented factors on both the demand and supply side of the chains have contributed to the current turmoil disrupting global trade.

Supply chains in the new normal must possess adaptive resilience. This system should be digitally integrated and technically supported and based on three distinct but interdependent capabilities of prediction, response and recovery in the event of disturbances.

Companies can never 100% eliminate supply chain risk. Therefore, instead of looking for solutions to completely prevent possible risks, companies should invest in mapping risk scenarios and managing these potential risks in an adaptive and resilient way.

The ability to predict will require a business to anticipate what can go wrong; when, where and how it will happen; and why it might happen. This is essential for businesses as it allows them to predict issues and their transmission mechanism that may affect normal operations. And then plan an effective and efficient response.

To develop this capability, companies need to map their supply chains and have full visibility into their suppliers and their suppliers’ suppliers and their locations, their customers and customers’ customers and their locations, other logistics players involved and how product and information flows are exchanged. between these players.

Crucial step

The company’s ability to predict or foresight would be greatly aided by the digitization of business processes throughout the supply chain. Digital technologies play a vital role in supply chain management today.

A digital supply chain would allow actors to share real-time or near-real-time information, collaborate and coordinate efficiently through digital platforms. Thanks to this, potential risks can be detected earlier and appropriate preparation can be made accordingly through an ecosystem of partnerships.

Once potential risks have been identified, businesses must prepare for and respond to potential disruptions that may be caused by those risks. This requires the analysis and assessment of risks to understand their likelihood and potential impacts, and then rank their priority for treatment. After that, risk treatment strategies – such as retention, transfer (e.g. via insurance), minimization and avoidance by stopping a trade or taking out insurance contracts – can be designed and implemented. implemented accordingly.

In the context of overall supply chain management, companies have several options to minimize risk. One of the traditional methods is to build up inventories and reserves of capacity to increase operational flexibility. Of course, this requires additional resources that not all small and medium businesses can afford. Horizontal integration or collaboration between companies in the same industry (for example, manufacturers of the same products) can help spread the investment burden.

Companies can consider a variety of other risk pooling (hedging) strategies in an effort to increase diversification. This should be designed and implemented on multiple fronts, from procurement, through productions/operations and transportation, to last mile delivery.

When it comes to procurement, companies should adopt a multi-sourcing strategy and avoid having a single source of supply. This is to avoid possible disruption caused by socio-economic factors such as pandemics or hitches in bilateral diplomatic relations (such as between Australia and China).

For example, the current shortage of the diesel additive AdBlue in Australia may require a multi-pronged approach. This would include building domestic AdBlue production capabilities, building the country’s ability to supply hydrogen vehicles as an alternative, and diversifying the international supply chain by importing imports from other countries and regions rather than from China.

Diversifying the manufacturing or operating network is also necessary to protect businesses from unforeseen disruptions due to factors that may adversely affect production or operations in a geographic area, such as natural disasters or labor strikes.

Thanks to the mapping of their supply chain, companies will be able to assess the criticality of key components, on which an onshoring or nearshoring strategy could be applied. There will, of course, be pros and cons when companies shift their procurement and production/operations from overseas to domestic or regional settings and decisions should be made after taking into account trade-off considerations.

Flexibility in supply chain operations must also be designed and implemented in the order management, transportation and last mile delivery aspects of a business, and multiple order and delivery channels with arrangements and alternative transport contracts must be in place. Again, digitization can be the catalyst for change.

Regardless of risk minimization strategies, companies should develop and maintain a business continuity management plan. It is futile to wonder whether a risk will arise or not. However, it is important to know the response process in order to return to normal activity as quickly as possible in the event of a problem.

Following a disruption, businesses also need to keep track of the path to recovery. In other words, once the incident has occurred and the company has implemented a series of response measures, the effectiveness of these measures must be evaluated, lessons must be learned and the configurations of the supply chain should be adjusted accordingly so that when a similar incident occurs in the future, better recovery will be possible. This is called closing the loop in the PDCA (Plan-Do-Check-Act) cycle.

Possibility of diversification

Diversification to improve system flexibility and capacity in all aspects of supply chain management is essential to manage disruptions effectively and efficiently. Many diversification strategies require the reconfiguration of supply chain networks and systems, and one of the considerations for supply chain redesign is where the supply and manufacturing markets should be. /production/operations.

From the perspective of Australian businesses, Southeast Asian countries should be considered as destinations for supply chain diversification. There are several strategic considerations for this.

Besides China, these countries manufacture, produce and export many household products, including food and white goods, and other inputs for the production and operations of many industries in Australia. In terms of shipping distance, there is a clear advantage for Australia as faster response is associated with shorter shipping time in the event of a disruption.

Australian businesses can also take advantage of the benefits offered by several multilateral free trade agreements in the region, such as the ASEAN-Australia-New Zealand Free Trade Areathe Comprehensive and Progressive Trans-Pacific Partnership Agreementand the Regional Comprehensive Economic Partnership of which many Southeast Asian countries are members. There are other more bilateral agreements such as the Australia-Vietnam Enhanced Economic Engagement Strategy.

Enhanced collaboration with regional trading partners, empowered by preferential tariff regimes, will enable Australian companies to favorably deploy diversification strategies such as multi-sourcing and close relocation, both from a supply chain time perspective. supply than cost.

Southeast Asian countries are uniquely positioned to be considered destinations for Australian business supply chain diversification. As the saying goes in many of these countries, “water afar will not quench a fire near”. Thus, the inclusion of these neighboring countries in the diversification portfolio of Australian companies will help build the resilience capacity of their supply chain.

The path to follow

Managing supply chain disruptions is not a one-time job, but rather a journey. Indeed, the latest quite different issues in the supply chain, such as the shortage of infant formula in the United States and the shortage of chicken in singapore demonstrate that businesses will need to be well versed in building their resilience capacity and using supply chain improvement strategies to support continued international trade.

And that should apply to all businesses, big or small. Sometimes, due to limited resources, small businesses may not put much effort into risk management and some managers believe that risks do not appear often. This is an unsustainable course of action.

In the context where supply chains are so widely interconnected today, an event occurring thousands of miles away can affect all kinds of businesses if they do not have a prepared action plan.

Vinh Thai is Asia Society Australia Supply Chain Fellow and Associate Professor at the School of Accounting, Information Systems and Supply Chain, RMIT University

This article was originally published by the Asian society

Comments are closed.