Supply chain challenges resulting from the COVID-19 pandemic have shifted from logistics to cost of living, according to RMIT Professor Vinh Thai.
Thai, who covers accounting, information systems and supply chains, said the retail industry is cycling past pressures.
During lockdown, people stayed at home, received monetary support from the Government, and shopped online. They bought a lot in spite of demand, according to Thai.
As supply chains became more strained, they then had to catch up with demand, which contributed to rising costs.
“Then, starting from the middle of last year, we have seen a lot of easing of restrictions. People are getting back to normal, people are getting back to work physically, and therefore, the demand has been cooling down as we see it.
“At the same time as demand going down, people are spending less, and due to some other economic constraints, we have seen inflation and costs going up.
“Therefore, due to the situation that we are seeing now, where inflation is now rising, as well as the cost of living - which is measured by a basket of several key commodities; fuel price contributing quite a big percentage into that - and due to earlier disruptions in the supply chain - the cost of everything is at a high level.
“Don't forget the war in Ukraine as well, which has an impact on the price of crude oil, and this would lead to the increased price of everything else.”
Adding to this, Thai said the Australian economy is very trade dependent, stating that any movement in the international arena, including economies and supply chains, would have an impact in Australia.
“As a matter of fact, the Australian Bureau of Statistics have done some estimates that in the most recent financial year our export/import contributed roughly 21% and 22% respectively into the GDP.
“The way I see it, [the supply chain challenge] is still ongoing, and it will be very unpredictable, at least for this year.”
Building supply chain resilience in three steps
To tackle these ongoing challenges, Thai said businesses need to build supply chain resilience, offering a three-part approach.
The first is to develop the capability in predicting what’s going to happen, where, when and how across a company’s supply chain. Thai said this must include mapping one’s supply chain.
“People always say nowadays that digitalising their supply chain would be a very good starting point, in order to enhance their prediction capability,” he said. “Because when you have your supplier and yourself and other players or partners in the supply chain interconnected via a digital platform, you can easily exchange information, share information and collaborate.”
Thai said it is important for Australian businesses to have a clear picture of who their suppliers are, and the suppliers of their suppliers, so they know exactly what kind of impact they can expect if something goes wrong, and can then tackle the next two steps.
He said this is particularly important as a majority of businesses in Australia, including retail, have a high level of internationalisation in their supply chains.
The second step is to develop the capability to respond, which Thai explained as the ability to know what to do in order to minimise the negative impact and return to normal operation.
And the third is the capability to recover: “Part of that would be about your capability to learn from what you have done, what happened in the past, whether or not what you have done is effective and efficient, and what needs to be done moving forward.
“For example, changing the practices of how you do things, or changing the configuration of your core supply chain if you're operating in a business of network businesses.”
Meanwhile, on the macro level, Thai is calling on the government to implement a national supply chain resilience strategy. He said that the government has already enacted a National Frieght and Supply Chain Strategy in August 2019, but he has not seen a policy or program around resilience.
“The government would need to interfere by developing or building or enhancing the infrastructure and the superstructure supply chain resilience capability,” Thai said. “We have to make sure that we basically have resilient supply chain infrastructure.
“And for key logistic infrastructure - like the seaport, the airport - they need to be efficient, they need to be effective, and at the same time they have to be resilient.”
Thai said supply chain resilience strategies on the government level should follow the capabilities of prediction, response and recovery.
“This is about the digital connection, the digital capability, and the skill set of the people who are operating in those key infrastructures.”
Thai said the easing of cost of living pressures through building supply chain resilience will take some time, even as these measures become implemented. It will also require initial investment, particularly for businesses, in assuring supply chain resilience.
“The initial capital investment into those will be high. However, it will pay back in the long run, meaning that the cost will be reducing over time, and you get less mistakes.
“In the context of resilience, for example, you are in a very proactive position where when something is likely happening, you know in advance, and then you've got the preparation ready. And when something does really happen, the likely negative impact on you will be minimised.
“Compared to the situation where you do not conduct those kinds of measures, the negative impact will highly likely be very high.”
Supply chain predictions for 2023
Thai warned that as well as the ongoing Ukraine/Russia war, there are current reported tensions between China and Taiwan. Despite these geopolitical issues, he is already seeing movement from a government level on reducing Australia’s reliance on imported crude oil as fuel, which he indicated is a major contributing factor in the rising costs of living.
Thai said the Australian Government is rolling out hydrogen hubs across regional Australia, with hydrogen being an alternative to crude oil as fuel.
In October 2022, the CSIRO said the Government is investing $526 million in support of the development of eight regional hydrogen hubs across Australia, as well as nine design and development studies.
As well as movement within Australia, Thai said even RMIT university is jumping on board.
“In three weeks time, for example, we are going to run a workshop to formulate RMIT capability in terms of hydrogen, of everything from production to policy to supply chain.
“The key message I'm trying to imply here is that things are moving in a positive manner. From the government perspective, from the business perspective, people are much more aware about the role or the importance of logistics supply chain. And lots of measures have been taken so far in order to enhance to build up the capability for resilience.
“Now, having hydrogen hub and hydrogen capability in the country is good, but again, it takes time. So we can't have everything ready within a very short period of time - for example, within 2023. We are building our capability for long term.”