Article by latest.insure
While the pandemic has spotlighted supply chain disruption, other factors are coming into play. These include climate change, skills and labour shortages, Australia’s shrinking sovereign manufacturing capability and greater political uncertainty in the Indo-Pacific region. (The latter centres on dynamics around China).
Industries such as automobile manufacturing, home building, as well as equipment repairs and others are feeling the shocks of extended delays.
A stop-gap solution has been shorter isolation periods for close contacts of COVID-19 cases and asymptomatic cases for those employees categorised as working in essential industries.
But what can your business do to foster a more agile and sustainable supply chain? This article focuses on the impact of supply chain issues on three sectors and shows how they’re being tackled.
Adding time and cost to automobile manufacturing
The computer microchip shortage since 2020 has stung automotive manufacturers as dwindling chip supplies have gone to those making smaller electronic goods instead. Carmakers stopped production and some began hoarding chips, creating even more hiccups. The chip delay cost automakers more than AU $291 billion globally in 2021.
Consequently, delays in new vehicles rolling out of factories or ships from overseas will continue until late this year, according to The Australian Financial Review. It’s ‘build to order’ rather than ‘buy from stock’ mode for the retail automotive sector. As well, fleet managers have been holding onto their vehicles for longer than the standard turnover period, and second-hand sellers have enjoyed an up to 36% increase in used-car sale prices since pre-pandemic times, according to carexpert.com.au.
Materials shortage adding to the housing crisis
Meanwhile, prices have skyrocketed in the residential housing sector with the continued shortage of raw building materials, including timber, steel and aluminium. Since the pandemic started, closed international and state borders, heftier costs for shipping containers (if you could find one), plus the boom in building and home renovation has created supply chain angst in this sector.
Builders have sought to manage their shrinking margins by offering a cost-plus (profit) contract or a fixed-contract price. Often, they’ve needed to renegotiate constantly with clients as material prices rise out of control. However, they may have little room to move with fixed-price contracts, as in the Federal Government’s HomeBuilder Grant program. In the NSW scheme, for example, the price cap for new builds is $950,000. Applications closed in mid-April last year and the builds must be completed within 18 months of contract signing.
The increasing costs of equipment and machinery breakdown parts
As well, Australian businesses across the board are suffering from the scarcity of components, including computer chips. The reason for the holdups includes port bottlenecks, the Suez Canal blockage, new international regulations and the impact of the pandemic.
It’s affected manufacturers and suppliers of Australian goods spanning electronic devices, smart home technology, medical devices, and manufacturing equipment. Distributors, installers, repairers, and others have all suffered from the flow on effect of the shortages. Potentially, producers in these industries will also be hit:
- Food and beverage
- Textiles, clothing
- Wood, paper, petrol, coal and chemical products.
That’s why manufacturers are optimising their equipment and parts by factoring in predictive maintenance. They’re on the lookout for issues before breakdowns happen. Meanwhile, resilient supply chains integrate sales and operations planning (S&OP) with their enterprise resource planning (ERP) systems. Take a deep dive here into how to beef up your S&OP processes.
Foster a more agile supply chain
Experts in supply chain management point to the need for governments working with consumers, businesses and industry to ensure it’s fit for purpose.
The Productivity Commission, in its August 2021 report, said supply chains can be long, complex, opaque, with data hard to find and businesses possibly biased in deciding to invest in risk management. But it does encourage diverse strategies to help businesses foster agile supply chains, with approaches including:
- Taking no action as you accept the residual risk
- Diversifying suppliers and markets
- Engaging in contingent contracting
- Developing domestic capability.
Some businesses stockpile items to mitigate their risk of shortages. This gives manufacturers and suppliers an exaggerated and inaccurate idea about demand, so they may boost production, inadvertently leading to some oversupplies. That could mean lower prices, a surprising twist.
Another option is to seek out funding to manage your risks. The Federal Government has just closed two rounds of business grants under its Supply Chain Resilience. But there’s scant info on the new Office of the Supply Chain Resilience, part of the Prime Minister and Cabinet’s office.
As well, the Supply Chain Dive website offers these three:
- Boost visibility and information. This then flows across functions in your entire organisation, allowing for earlier planning for complex orders,
- Develop systems to spot and sort issues quickly, such as by using proactive apps offering an organisation-wide dashboard to manage orders, inventory and engineering
- Unite and activate your data so they are in a supply chain control tower – a central hub.
In short, you’re developing an eye for embedded and potential vulnerabilities in your supply chain.
As part of your diversified strategic approach, have a chat with McKenzie Ross Business Insurance Brokers for insights into better managing your supply chain risk, such as with customised insurance coverage.