2022 boom to be impacted by severe supply chain bottlenecks

With the re-opening of the Australian economy and a forecasted boom in 2022, Australian businesses and consumers are now ready to start spending. The problem is that they are likely to experience the challenges of finding enough of what they want to buy this festive season as well as getting what they do purchase delivered in time.

The global economy is moving into uncharted territory and signs of insufficient supply to meet demand are showing no signs of easing across many sectors. There are already signs that supply bottlenecks are resulting in customer disappointment, which could upset the post-pandemic recovery if demand outstrips supply.

Supply chain bottlenecks hinder recovery

The post-pandemic recovery is causing two types of bottlenecks to occur and unsurprisingly the first relates to supply chains. The shortages of so many goods and raw materials is one issue but also the cost of shipping goods from China to the USA, for example, has tripled. The impact is that businesses here in Australia have reported the worst supplier delays in decades because a lot of them are trying to go from 0 to 60 to capitalise on the boom in demand and that’s obviously not going to work.

The most high-profile supply problem is the global electronic component shortage, fed by a surge in demand for tech products as millions of people moved to work from home. This has impacted industries like car manufacturing, with this industry now so dependent on technology.

Shipping container shortages, freak weather events, fires in silicon fabrication plants, the blockage of the Suez Canal, high electric vehicle demand, port bottlenecks, not to mention supply and demand issues caused by the pandemic, have all led to shortages of electronic components, cars, timber and fuel.

In the past two years in many countries, industry investment in supply chain digitalisation technology has slowed. Moves to implement smart technologies such as AI and automated warehousing have been put on the backburner, while many businesses were in crisis mode. This is now having a flow-on effect as many of them are experiencing serious supplier bottlenecks that they have no visibility of, or control over.

The supply bottlenecks in Australia during the early phase of the pandemic in 2020 cleared reasonably quickly as those initial lockdowns were shorter than in the rest of the world, except for Victoria of course.

However, there is no guarantee the backlogs will clear as quickly this time around. The even more deadly Delta variant further jolted supply chains that were still recovering from 2020. The long lockdowns experienced in Australia in 2021 and the long international border closure has made getting goods into the country by air almost impossible, so everything has had to arrive in a very scarce number of expensive shipping containers.

Labour bottlenecks in Australia

The second kind of bottleneck is in the labour markets. As the two major Australian States emerge from their seemingly endless economic hibernation, labour shortages are surfacing across a range of industries, including manufacturing and logistics. Economists have blamed the generous unemployment benefits given to Australian people during the recent lockdowns, which they say were a reason not to look for work.

A combination of advances in technology and the tumultuous impact of the pandemic have changed the manufacturing workplace for good and now there is an urgent need for more advanced skills. There is a real opportunity for existing workers to upskill and new employees to acquire the highly specialised technical skills required for the manufacturing sector of today and tomorrow.

Inflationary pressures

Despite the raft of positive headlines around soaring consumer demand and lower unemployment, all the disruptions have led to a rise in costs for companies in industries from furniture manufacturing to food production. This could lead to a surge in inflation if passed on to consumers.

China’s factory-gate prices hit a 26-year high in October as coal prices soared amid a power crunch in the country's industrial heartland, further squeezing profit margins for producers and heightening ‘stagflation’ concerns.

Supply chain visibility and agility

Supply chain problems have been unfolding throughout the pandemic, as people radically shifted what they bought, convenience foods instead of gourmet meals, activewear instead of suits, sports shoes instead of stilettos, toppling the normally efficient order of global supply chains.

The companies that had full visibility over their supply chains through their Enterprise Resource Planning (ERP) systems, could better manage production schedules with what they had available.

Companies that had implemented accurate demand forecasting, resource management and supply chain management all fully integrated into their ERP system fared better leveraging the capability of ERP to be more resilient to the spikes experienced in both production supply as well as demand.

Rob Stummer is Asia-Pacific CEO at Syspro.