Innovation key to resilient supply chains

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THE past two years have been a perfect storm for global supply chains – over 300% rise in shipping costs, blocked Suez Canal, COVID-19, geopolitical tensions, are putting pressure on businesses to innovate and increasingly turn to onshoring to build resilient supply networks that can deliver goods to consumers quicker.

An Asialink Business report supported by Toll Group, analyses the structural pressures on supply chains and argues that technology, innovation, and e-commerce will be key to building sustainable and resilient supply networks.

The report said the global network is facing unprecedented disruption and strain, businesses in Australia and Asia need to rapidly transition to equip their supply chains for current and future challenges.

Recent data from independent maritime research consultancy Drewry shows the World Container Index has surpassed US$10,000 to US$10,083.84 per 40ft container – a 309% increased from 2020.

This is the 21st consecutive week of increases.

In some of the world’s most popular routes, for example from Shanghai to New York, the cost has jumped from US$2,500 in 2019 to US$15,124.

Source: Drewry Supply Chain Advisors

In Australia, the Australian Competition and Consumer Commission chairman Rod Sims has launched an investigation into alleged price gouging by operators. Its annual stevedoring report is due to be released in November.

The strain on supply networks is due largely to demand for goods fuelled by online retailing as consumers expect their goods delivered more quickly and reliably than ever. According to Asialink, the Asia Pacific region accounted for 62% of all e-commerce sales globally in 2020.

The report said businesses across Australia and Asia need to invest in building resilient supply chains that can keep pace with the explosion of e-commerce and changing consumer expectations around sustainability.

It found that supply chain uncertainty is hitting small business hardest with 32% of small businesses saying restrictions on business could threaten their operations, compared to 15% of medium-sized businesses and 8% of large businesses.

“The COVID-19 pandemic, rising geopolitical tensions and extreme weather events have put supply chains globally under strain. To remain competitive in our increasingly competitive region, business will have to invest more in resilient and sustainable supply chains to meet the shifting needs of customers in Australia and internationally,” said Peter Varghese, chair of Asialink.

To equip for future challenges, businesses need to understand and respond to this trend.

Varghese said businesses that invest now in new technologies, such as automation, smart sensors, and data analytics, will be better prepared to integrate with rapidly evolving regional distribution networks.

The report said adoption of new technology – such as the Internet of Things, data analytics, artificial intelligence (AI) and Machine Learning – are critical to supply chain transformation.

However, Australian business needs to accelerate the uptake of technologies that impact their supply chain or risk being left behind. This is particularly acute for small/medium business. The survey revealed that 27% of medium business, and just 13% of small business are investing in AI for supply chains, compared with 42% of big business.

Furthermore, evolving consumer expectations around environmental sustainability and social impact will continue to change how businesses engage suppliers in the region. Over 70% of surveyed businesses identified both modern slavery and reducing carbon emissions as significant concerns for their customers.

The report also recommends stronger partnership with government, to support business to develop resilient and sustainable supply chains that meet the needs of citizens in Australia and across the region.

Positively, many businesses are already taking steps to adapt, a point recognised by Toll Group.

Toll managing director Thomas Knudsen said businesses face a challenge to transform legacy supply chains for the future.

“But we also have a unique window of opportunity to reorganise and become more adaptive and inter-operable with partners in the region. With supply chains across Asia fundamental to businesses in Australia and beyond, agile planning is critical to future business success,”

Meanwhile technology is not the only tool, businesses are turning towards moving production back home (onshoring) or into nearby countries to build resilient supply chains by diversifying suppliers across the Asia-Pacific region and boosting inventory.

Onshoring is particularly appealing to small business, with 30% of those surveyed considering it as an option to improve their resilience, which is higher than 15% of medium size businesses and 8% of large businesses.

However, the report said onshoring will only be a viable solution for certain industries in limited circumstances where the domestic manufacturing capability exists.

An example, the Australian and New Zealand printed circuit board (PCB) industry, which has suffered disruptions since moving towards offshore production in the last decade. PCBs are needed for every industrial product, from toasters to rocket ships. In 2000, there were 14 significant plants producing PCBs in 2000 in Australia and New Zealand but the industry had been nearly entirely offshored 10 years later.

Around this time, Circuit Labs in Auckland began operations and has gradually expanded its manufacturing capacity to serve customers in Australia and New Zealand.

Although Circuit Labs cannot compete on cost with Asian suppliers, it has been able to grow by offering fast turnaround of prototypes and small manufacturing runs that can be delivered quickly.

The company was well-placed to pick up a spike in orders when COVID-19 disrupted Chinese supply in early 2020 and was allowed to operate during New Zealand’s lockdown to support the development of ventilators.

It is now partnering with Melbourne-based contract electronics manufacturer Alfatron to commence PCB production in Australia in late 2021.

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