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07. From the desk of Dave Christie - Strategic Supply Chain Advisor
From the desk of Dave Christie
- Strategic Supply Chain Advisor
SUPPLY CHAIN – THE NEW STRATEGIC IMPERATIVE
Only two years ago in a pre-pandemic world, businesses could focus on revenue generating activities - growing markets, customers and products, without having to worry about the global supply chain.
This was predominantly because there was surplus capacity throughout the supply chain – especially in sea and air freight. However, with the pandemic-lead restrictions to travel, people spent most of their time at home and their discretionary income was spent online buying products and goods, rather than services and tourism. This drove a significant increase in demand for the movement of ‘stuff’ around the globe. With most airfreight carried in the belly of passenger planes but no-one flying, there was effectively no air freight capacity at all.
Global sea freight capacity was also compromised, with the demand higher than available sea freight capacity. Shipping lines were saying every vessel that could be in service was – as long as they could find the resources to crew it.
SO, WHAT HAS THE GLOBAL SUPPLY CHAIN GOT TO DO WITH NEW ZEALAND BUSINESSES?
Supply chains relate to the network of businesses and entities involved in creating and moving a good or service from its original source, all the way down to the end consumer. As a large commodity exporting country, many of New Zealand’s businesses grow produce or animals on our land and send the finished goods (beef, lamb, milk powder, fruit, wool, wood) to customers in offshore markets.
Yet, many of the inputs to making these goods are imported from overseas (ingredients, animal feed, fertiliser, farm machinery, packaging). This reliance on imported inputs is even greater in consumer goods and technology products. Most New Zealand businesses, even if they only sell in the domestic market, are interconnected and exposed to the global supply chain disruptions.
ARE NEW ZEALAND BUSINESSES MORE EXPOSED TO GLOBAL SUPPLY CHAIN DISRUPTION?
Simply put – yes! New Zealand’s remoteness and small-scale volumes mean we are very small fish in a big pond.
Yet, because of the interconnectedness of the global supply chain, when there is a disruption somewhere offshore, like the ship getting stuck in the Suez Canal, the Ukrainian war, or the severe lockdowns in Shanghai, it has a pronounced impact on the flow of goods into and out of New Zealand.
IMPACTS ON NEW ZEALAND BUSINESSES
The most immediate and direct impact from the global supply chain disruptions has been the inability to secure transport capacity, and the relative cost of moving goods into or out of New Zealand, especially for SMEs.
However, this isn’t the only impact. We are in a period of high inflation. This will drive significant increases to the costs of doing business, especially in areas of:
• sourcing raw materials, ingredients, component parts, goods and packaging • producing the finished goods • moving these goods to market and customers • inventory holding costs
Prior to Covid – cost was the #1 priority across supply chains. Now, securing the necessary transport and supply capacities and ensuring reliable delivery performance (in from suppliers and out to customers) are taking a higher priority. Stated another way, Reliability and resilience (i.e., having the right stock at the right place and being able to get it to the customer in the right quantity, right quality and at the right time to meet their expectations) is also becoming more strategically important for businesses, in order to deliver on their customer commitments and support their sales growth strategies.
THE OUTLOOK
The pressures and disruptions across the global supply chain are projected to remain relatively consistent for the remainder of this year. There may be some easing of air/sea freight capacity constraints and costs as people start travelling again. However, given the significant backlog of goods that need to be moved through the global supply chain, it could take 6-12 months to clear.
This, coupled with a more challenging economic outlook in New Zealand, will drive heightened levels of cost, uncertainty and risk across businesses’ supply chains through 2022.
A recent McKinsey article predicted that there will be a significant disruption to the global supply chain every three to four years.
TIME TO THROW OUT THE RULEBOOK?
There are many strategies, tactics and actions businesses can take to simplify their supply chains, minimise cost increases, mitigate their key risks and ultimately deliver on their customers’ expectations. However to identify, work through and validate the right approach, requires significant supply chain experience, skills and capability. Capability many businesses, especially SMEs’ don’t have.
The normal management maxim is ‘strategy before structure’, but if a business doesn’t really understand their supply chain and how it can enable their business performance and growth, how can they develop the right supply chain strategy?
At pivotal historical moments such as these, maybe it’s time to throw out the book and rapidly adapt to the market pressures by hiring or engaging supply chain expertise - across the business, within the executive team and around the board table. Then figure out how best to redesign your business supply chain, so you can compete and win, not just in New Zealand, but on the global stage.
