It has become routine to read headlines warning of the severities of the supply chain shock that coronavirus has unleashed. The problem is compounded in those sectors that rely on global supply chains. However, although coronavirus may threaten global supply chains on an unprecedented scale, many were already gearing up to respond to systemic shocks, writes John Young, APAC director at automation parts supplier EU Automation.
Investment in digitalisation is one of the vital ingredients in improving supply chain resilience and flexibility. While some media talk of digitalisation may contain overstatements, there is undoubtedly good evidence to suggest that digitalisation offers real benefits and real costs-savings to those who make the leap. In fact, a recent survey by PWC Global showed that those ‘Digital Champions’, the companies who were furthest ahead in the digitalisation of their supply chains, reported a 6.8 per cent reduction in supply chain costs and a 7.7 per cent increase in revenue for the last year.
Digitalisation for supply chains is enabling transparency across the entire value chain. This means visibility all the way from product origin to the customer and product lifecycle. Alongside this data, the use of artificial intelligence is allowing businesses to spot relevant patterns and adopt a more proactive approach to managing risk.
For example, one way this can be achieved is through the creation of a digital twin. Having a virtual replica of your supply chain allows you to carry out accurate testing of different scenarios, such as how switching a supplier might help you mitigate the possible impact of a global pandemic. This simulation enables risk free testing.
For smaller and medium sized enterprises, whose adoption of digitalisation and Industry 4.0 technologies is likely to be slower and phased, there are still plenty of sound ways to improve supply chain resilience. A sensible strategy would be to diversify supply, both in terms of company and location.
There is talk of the need to grow the Australian manufacturing sector to reduce the risk that stems from an overreliance on imports. However, at just under six percent of GDP, the manufacturing sector in Australia, as a percentage of the overall economy, is about a fifth of the size it was in the middle of the last century. That will not change overnight.
In the meantime, many manufacturers will continue to reply on global supply chains, whether that is for tier one or tier two suppliers. The risk of this reliance on imports can be mitigated, in part, through building the right kind of relationships with suppliers. Manufacturers should consider looking for alternative sources of supply for key materials and components, but they should also look to work with suppliers who can offer collaborative partnerships.
This goes back to the point about transparency. If manufacturers are to develop more effective supply chain risk management strategies, they need transparency across the entire value chain, including tier one and tier two suppliers. Manufacturers should challenge their suppliers to provide reliable information and data on future supply and demand and they should look to work together to mitigate risks.
Many manufacturers will be assessing the ways they can strengthen their supply chains in the wake of the disruption caused by coronavirus. Yet this is not just about firefighting during a crisis period. It is essential that businesses emerge from this phase better prepared for the next shock to the system. Investing in digitalisation, diversifying supply and building collaborative relationships with suppliers are three key ways that goal can be achieved. That is the opportunity.