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Global Supply Chain Recovery
From disruption to optimisation, how to navigate the recovery of global supply chains
The past two years have seen disruptions to on-shelf availability for countless products as a result of the COVID-19 pandemic, leaving businesses to navigate the changing landscape with little certainty. Unpredictable and continuous disruptions have fuelled worldwide supply chain issues, from pre-covid geopolitical tensions and ongoing trade disputes to the Suez Canal, floods causing network disruptions in Western Australia, panic buying, and labour shortages from ongoing variants; the uncertainty is high. As some disruptions ease, it’s evident others are worsening. In a recent article on the semiconductor chip shortage, it was highlighted that today’s shortages aren’t a once-off, in the coming decade it’s a near certainty there will be another combination of events that could inherently lead to disruptions and shortages. So, what are organisations doing today? Currently, there is a shift from traditionally focusing on cost, to focusing on resilience. Organisations are holding more inventory, simplifying their range of products, and adopting onshore suppliers where possible. This approach highlights today’s global business environment where organisations adopted this as a means of business survival.
Long Term Outlook
The long-term outlook remains complex as large businesses look to onshore capability, move to alternative hubs outside of China, and rebuild local stockpiles. For example, Asia-Pacific produces 60% of the raw materials used in PPE and exports 93% of the worlds PPE – highlighting dependence for certain products in single regions. This creates a persistent risk as the world continues to balance the presence of Covid.
International freight which once utilised unused cargo space in passenger flights, is still heavily impacted by reduced air traffic. While passenger flights are returning to the skies, organisation must look to dedicated air freight, which comes at a premium.
As a result, global freight lead times have increased by a factor of 4 on average. According to the Drewery WCI index shipping container costs are up 500% since the start of the Covid pandemic, which is directly impacting supplier’s product costs, driving up prices, and contributing to the inflation seen in many developed economies.
Designing Supply Chains for the next phase of Covid recovery
Businesses will continue to experience disruptions throughout their supply chain as the global network continues to recover. In Deloitte’s view this provides an imperative for organisations to be able to better manage likely ongoing disruptions.
Mapping the supply chain
Many global businesses have complex multi-tier supply chains but do not understand them in sufficient detail to proactively manage and mitigate disruptions. Mapping the supply chain in detail and consistently monitoring identifies critical points along the network, supplier and logistics dependencies at each point, and the availability of data to support accurate and timely decision-making in a changing landscape.
Identifying alternative sources of supply
We recommend organisations that produce, distribute, or source from suppliers impacted by ongoing disruptions, should have business continuity plans in play to support diversification and strengthening of the supply chain. These planned actions which may include identifying alternate sources of supply, improved demand forecasting and planning, and inventory management, can help to combat persistent issues sourcing raw materials, manufacturing, and freight disruptions.
Building strong demand and supply strategies
Strengthening demand and supply strategies requires a strict data driven process to support organisations navigating an uncertain and complex landscape. In our experience, organisations that invest in advanced forecasting methodologies, integrate market insights, and conduct regular strategy reviews as the market evolves, are best placed to recover and thrive off the back of these persistent challenges.
Identification of strategic partnership
We recommend that suppliers look to identify strategic partnerships and work collaboratively on demand planning, understanding current and potential gaps and challenges, and information sharing, to improve supply chain certainty, sharing and mitigating of risk, and in some cases building local capability. For example, a joint venture between 3M and the governments of Canada and the Province of Ontario, resulted in a new onshore facility being opened to provide 55 million N95 respirators per year (3M Science Centre 2022). These partnerships are not limited to private and government bodies, joint ventures between private businesses are equally well placed to support improvements and meet shared objectives between customer and supplier.
Integrate artificial intelligence to supply chains
New tools and technologies can provide more accurate insights for network decision-making, but we find a lack of willingness to invest in these advancing technologies can compromise costs, reliability, and certainty in downstream activity. In a recent Deloitte article, we identified that by utilising the benefits of AI or machine learning, organisations can optimise decision making, a potentially key strategic advantage for an organisation in a competitive market.
To find out how Deloitte can help your business respond to challenges you’re experiencing in your supply chain or to ensure future continuity, please contact:
APAC Sourcing & Procurement
Leader, Partner, Sydney
Supply Chain & Procurement