Paul Soong outlines the factors businesses must take into account in order to successfully navigate supply chain uncertainties in 2023.
In the past three years, supply chains have had to deal with a variety of complex obstacles. ‘Disruption’ is an understatement for what the supply chain is still experiencing, from extreme weather and natural disasters obstructing access to resources, port or border congestion delaying transit, to ongoing war and political unrest leading to inflation and escalating costs.
Even if businesses do not directly experience disruptions due to natural disasters, they can still be impacted by what is happening in neighbouring regions. A good example of this is the 2022 floods in New South Wales, which affected food exports to New Zealand. New Zealand imports $11 million worth of fresh, chilled or frozen pork, $220 million worth of wheat, $11 million worth of grapes and $36 million worth of beef and veal from Australia, so the impact of the floods in Australia greatly affected New Zealand’s food import.
Now more than ever, the supply chain industry needs to re-evaluate and develop resilient strategies to keep up with the ever-growing complexities and challenges to stay on top.
There are a few factors that businesses must consider when planning, to help them navigate through uncertainty in the year ahead.
Protectionist trade policies and geopolitical posturing
Companies will continue to change their country-sourcing strategies resulting in issues with capacity, prices, labour and transportation. Supply chain leaders must take proactive measures to protect supply networks as the new normal in global trade policy will continue to be highly unpredictable.
It is evident from the rising costs of commodities and supply disruptions that protectionist trade policies have a significant impact on businesses, which poses a threat in the foreseeable future. As we enter a new reality that is amid bifurcation of the global system, businesses must be ready to counter new challenges brought on by the shifting geopolitical landscape. Businesses can do this by mapping out short-term actions to tackle immediate crises, identifying potential risks and from there, build out a long-term plan to assess the changing environment and take the right course of action.
Up-to-date international trade knowledge
It has become crucial to stay up to date on global international trade knowledge because trade policies around the world are still changing – making it difficult to predict how changes in trade policies will affect specific businesses and products, and how much supply chain reconfiguaration is required both physically and financially.
For example, China’s stringent COVID-19 rules and the food and energy shortages as a result of the Ukraine war has caused uncertainties on supply chains in different regions. These new stressors placed on national and global supply chains have depicted that businesses will have to ‘strengthen resilience without undermining the benefits of rules-based international trade’. When the elements of international trade governance are incorporated into the value chain, it helps businesses stay on track on other important policies that coincide with trade policies like geopolitical risks and environmental standards that need to be adhered to.
Understanding the impact of transportation-related factors
The Scope 3 (extended value chain) emissions analysis and reduction will remain a challenge given the importance of greenhouse gas emissions and carbon taxes in ESG metrics. To accurately report their carbon footprint, make wise trade-offs to minimise it, and ensure business continuity, companies and their partners will need to analyse and understand the impact of transportation-related factors, including emissions, on the broader supply chain.
Businesses need to be mindful of all emissions driven by operations and, in particular, must ensure they are adhering to their corporate commitment on emissions. Business continuity can be ensured by understanding product demands and developing strategies to obtain suppliers, make products efficiently and reliably and then move all the components and finished products to the market in a way that saves time and costs in a carbon-effective way. Businesses should take advantage of the extra time to source low-carbon carriers and avoid potential delays by anticipating the transportation demands early.
Rising costs of storage rental space
Industrial rents across New Zealand are increasing, with Christchurch going up to 3.8% and South Auckland witnessing up to 5.6%. Together with issues surrounding sustainability strategies, New Zealand’s supply chains require larger warehouses in a hot property market which continues to be a persisting challenge.
E-commerce, third party logistics providers, food manufacturers and other warehouse-dependent sectors are all competing for the same spaces, and landlords are naming their price. To reduce costs would mean looking into alternatives like automation of movement of inventory throughout.
Increase in cybersecurity risks
Cybersecurity and risk management have always been crucial to the operation of any firm. However, given its current state, the global supply chain is much more susceptible to attacks which can result in serious damages. Depending on how interconnected the relevant suppliers and businesses are, interruptions to their IT infrastructures have threatened to have cascading effects for affected organisations as supply chains have grown more sophisticated, digitised, and interdependent.
A good consumer example is the recent attack on Mercury IT which has not only impacted the New Zealand government but other multiple businesses within the country. This is a wake-up call for organisations within the supply chain to take an active, focused approach to cybersecurity to avoid crime-related delays, data breaches, and financial losses.
Rising fuel prices
Fuel costs have risen and will remain unpredictable in 2023 as there is no end in sight to the war in Ukraine. Consumers will suffer partially from these expenses, but carriers will bear the majority and will need to find methods to cut operational costs in other areas where technology may be able to help.
Building a resilient supply chain
Having a holistic, end-to-end view of the supply chain provided by an end-to-end platform will become more increasingly significant, but businesses will not be successful unless they have a well-thought-out strategy and a clear understanding of the problems they’re trying to solve, like reducing lead time and lowering operational costs.
For businesses to swiftly detect problems and work with partners to find solutions, they will need to invest in technology that gives them access to data that is in near real-time and connectivity to all the interdependent organisations. Businesses can link to data systems and create supply chain information by putting in place a digital control tower, minimising the impact of delays. This can be particularly useful for supply chains navigating natural disasters or weather disruptions and to identify solutions to prevent further costly disruptions.
2023 will be the year of strengthening reliable systems, procedures, and technology that will protect businesses from risk, enabling them to expand into new markets, broaden their consumer bases, and promote sustainable business operations.
Remaining cautious and alert to ongoing threats by being equipped with the right teams, strategy, insightful data, and using the most innovative technology to minimise impact and mitigate costs, means businesses will be able to create a resilient supply chain in an increasingly disruptive world.
Paul Soong is Regional Director ANZ for e2open.
