Date posted: 4/02/2021 5 min read

Desperately seeking supply-chain security

Last year’s COVID-19 lockdowns exposed supply-chain weaknesses for both goods and services, and also changed attitudes.

In Brief

  • COVID-19 border lockdowns disrupted existing supply chains and outsourcing arrangements.
  • Locally made consumer products have been given a chance to shine as cheaper imports have not been available.
  • The growth of online shopping during lockdowns has also put a focus on reducing the environmental footprint of products and supply chains.

By Ben Hurley

When lockdowns were imposed in March 2020 to curtail the spread of COVID-19, thousands of businesses saw their long-functioning supply chains for both goods and services overturned in a matter of weeks.

Business continuity plans were put through a trial by fire that, while stressful in the short term, revealed inefficiencies and pointed the way for improvements towards more streamlined, more resilient supply chains.

COVID-19 may have been ‘unprecedented’, but supply-chain experts had been warning about the problems it exposed for years, says Peter Liddell CA, partner at KPMG Australia and ASPAC head of supply chain.

Existing supply chain inefficiencies

Almost 30 years of growth had created flabby supply chains geared towards getting products and services out as fast as possible, hiding inefficiencies and excessive working capital in the network.

“To use a sporting analogy, supply chains in Australia were not playing fit,” Liddell says.

“To use a sporting analogy, supply chains in Australia were not playing fit.”
Peter Liddell CA, KPMG

“When times are good, businesses just get on with the delivery regardless of cost, as it’s all about securing growth. But with the pandemic that nobody saw coming, as volumes came down quickly, they’ve been exposed to the supply-chain inefficiencies that were left unaddressed for years.”

Retailers have long tolerated inefficiencies in their delivery networks, particularly their last mile delivery, Liddell says, which has made their growth less profitable than it could be.

Businesses that relied on sourcing raw materials and key components from overseas have been hit by a plunge in air and sea freight. Outbound exporters of commodities and agricultural products have been equally hard hit.

“For a number of years, we have been telling clients they have got to have alternative supply-chain strategies, various sources of supply and alternative market opportunities, and stop being overly reliant on one key market segment, such as China.

“China may pay 25% above any other price you can get domestically or in other markets, but all it takes is for freight access to be diminished or export markets to shut down and you are really exposed.”

How data and predictive analysis help supply chains

Certainly, those who weren’t listening before COVID-19 are listening now, and plans are in place to make supply chains more advanced. Some are using data and predictive analysis to sense and pre-emptively respond to variations in supply and demand.

“We’ve all known for years that Amazon is using AI, strong algorithms and models to predict what you’re going to buy before you buy it,” says Liddell.

“More businesses will use big data to sense challenges to inbound supply chains or to sense demand from key markets opening and slowing down and use that information to make proactive adjustments rather than waiting for disruptions to happen. We are already seeing uptake on that type of technology.”

Dated infrastructure on domestic and regional supply chains is being refreshed to create more agile networks. Start-ups such as Instatruck in Perth are creating platforms to ‘Uberise’ freight transport by letting businesses fill empty space in freight trucks.

“You might find businesses will have 70% or 80% of their logistics needs locked in but will be more flexible on how and when to source that remaining 20% or 30%, allowing them to be more responsive to demand variability and not exposed to fixed logistics costs they won’t use,” says Liddell.

The big appeal of locally made products

One of the resounding changes to come out of the pandemic is renewed interest in reducing the miles on supply chains.

With greater responsiveness and shorter lead times, a focus on local manufacturing for critical items such as respirators, gowns and masks could be here to stay – with a strong role for automation and smart manufacturing.

Locally made consumer products have also been given a chance to shine while cheaper imports have not been available.

“As imported products stopped arriving, people started saying: ‘Hang on, this local brand is cheaper than I remember and it’s just as good, if not better’,” says Liddell.

“We are seeing a lot of Australian brands starting to take off and grow as local consumers buy more Australian-made products, which, of course, is great for our economy.”

“We are seeing a lot of Australian brands starting to take off and grow as local consumers buy more Australian-made products.”
Peter Liddell CA, KPMG

Global manufacturers are also simplifying their supply chains, delivering large quantities but leaving final assembly such as packaging, labelling and bundling to local partners, which lets them be more responsive to local demand. This has been happening in other countries for years but has been accelerated in Australia only recently, according to Liddell.

3D printing is also an area of huge potential for supply chains, particularly in health care. Instead of having multiple sizes of knee replacements on hand for an operation, for example, surgeons are now printing them to fit the patient exactly, and the timeframes are likely to come down as the technology improves.

Shrinking the environmental footprint

The shift to online shopping, due to movement restrictions and social distancing, has also cast a light on the environmental footprint of supply chains and led to a push for less waste.

Accustomed to purchasing goods from the supermarket, already removed from freight packaging, consumers are now receiving goods at home and witnessing the enormous amount of waste involved – not to mention the increase in carbon emissions caused by frequent small deliveries.

“You are finding consumers becoming more aware of it, especially as they receive home deliveries covered in excess plastic and cardboard packaging, and corporate executives are well aware of it,” Liddell says.

“We are starting to get a lot of inquiries around how to consider ESG [environmental, social and governance] as businesses reshape their logistics requirements to support future customer demand.”

This includes companies looking at creating circular economies to fulfil a delivery and pick up the packaging waste on the same journey, delving more into recyclable packaging, and other initiatives to make supply chains more environmentally sustainable.

Changing attitudes on supply chains and outsourcing

Cormac Denton CA, former CFO at Kāpura hospitality group in Wellington (now finance director at PAE), who lost his job due to the impact of COVID-19 on the hospitality sector, believes the biggest reflection to come out of COVID-19 will be how complacent businesses have become around the movement of people and goods.

Whether it’s bringing in overseas workers to harvest honey or pick fruit off trees, shipping pine to China to have it treated before it is sent back again, or outsourcing services overseas, the enormous miles on supply chains will come under greater scrutiny.

“Companies have had this race to the bottom, race to profitability, and haven’t really looked at that long term. People have been willing to poach off each other or look to outsource, whereas that outsourcing model is not available if borders close,” he says.

“Companies have had this race to the bottom, race to profitability, and haven’t really looked at that long term.”
Cormac Denton CA

“I suspect in the longer term we will see companies invest more in training, especially for jobs people have seen as low skilled. That’s an area, long-term, that will see systemic changes.”

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