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What the coronavirus revealed about the state of our supply chains

Image of cargo ship
Image of cargo ship
Photo by Cameron Venti on Unsplash

For the last 15 years, many Australian retailers have been focusing on creating lean supply chains to reduce costs, however the spread of COVID-19 has greatly disrupted these once efficient operations.

In the last couple of months, the disruption to supply chains has raised issues around inventory levels, sourcing and online fulfilment strategies.

At the outbreak of COVID-19 when factories in China closed, Australian supply chains reliant on Chinese manufacturing experienced an eight-week disruption that is now beginning to ease.

The usual optimal level of operating inventory became a barrier for retailers experiencing panic buying during the height of the pandemic in Australia. During this time, supermarkets had to place purchase limits on an array of categories, including rice, flour and toilet paper, due to overall capacity constraints of their supply chains from warehousing operations to transport.

Although COVID-19 has accelerated the growth of online retail and other essential retail distribution in Australia, many current operational models are unable to cope with these volumes. At a time of social distancing, many retailers are having to increase the number of people in their warehouses, as it’s the only way they can manage the increase in volumes through their current operational design. This puts their staff at a higher risk of a COVID-19 outbreak, potentially resulting in the closure of their operations.

While it’s clear that supply chains across the board currently face significant challenges, the lessons from this pandemic will drive the next generation of supply chain transformations.

Flexible warehouse design

The new panic buying frenzy that captivated Australian consumers, but also consumers around the world, will lead to organisations creating more flexible operating models. Some organisations will require a rebalancing of inventory which can be managed through flexible storage solutions in their operations or partnerships with other operators during short term volume peaks.

Automated online fulfilment strategies

The uptake of online retail has skyrocketed during the COVID-19 pandemic, with some of our clients reporting a 100 per cent or more increase in online sales. While the growth in online retail will steady, the new normal in online sales will be significantly higher than before.

This will force more organisations to start thinking about their online fulfilment strategies, which will require specialised operations, such as micro-fulfilment facilities. Micro-fulfilment centres are solely focused on fulfilling online orders in a short timeframe, which is generally achieved through automation solutions. Automation increases operational efficiencies and provides greater ability to deal with spikes in sales demand, without adding operating costs.

The onset of COVID-19 and its consequences will likely result in the rise of micro-fulfilment centres in Australia. With the significant uptake of online retail during the pandemic and social distancing likely to become the norm, this could lead to further deterioration of bricks and mortar retail stores. This opens the opportunity to convert underutilised retail spaces in populated areas into micro-fulfilments centres. Retailers will need to assess whether repurposing a retail store for online fulfilment aligns with their total operations and transport requirements or commit to new sites.

The grocery retail players around the world are already heading in this direction and the acceleration of online retail on the back of COVID-19 will require other retailers to follow suit.

Greater sourcing diversification

While there weren’t major delays in Australian supply chains, the reliance on China as a sole source for manufacturing has proved to be an expensive risk. It has raised the need for more businesses to diversify where they source their products to mitigate these challenges in the future. We will likely see companies take their operations to growing economies in South-East Asia such as Vietnam, Malaysia and Thailand.

In conclusion, the current issues supply chains face are extensive and the solutions to these challenges will take time, however they will spur on the next generation of supply chains. From COVID-19 we will see more diverse supply chains and smarter, more automated warehouses that empower retailer’s online capabilities, rather than hinder them.

Tom Fitz-Walter is director at TM Insight and has led supply chain transformations for some Australia’s biggest brands.

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