The recent Covid-19 variants have caused supply chain disruption, bottlenecks, and general chaos across the world in major industries. Some companies are looking for a sustainable supply chain strategy as shipping industries have doubled their waiting lines to the point that delays are expected to last until next year.

 

Not only has this been a rude awakening during the Christmas season with regards to the duopoly structure of supermarkets in ANZ. But it also put a spotlight on our need to vary up centralised distribution centres, the lack of automated transportation logistics, and inventory management.

 

 

Ever since the outburst of the pandemic, we have seen supply and demand equilibrium go out of control all over the world. The horrors of people clamouring to empty supermarket shelves for toilet paper, alcohol, groceries will remain one of the awkward highlights of 2020. 

 

So, how can a country cope with a sudden and unexpected crisis like the Covid-19 pandemic? What are the challenges that hold supply chains back? And what entails the so-called international alliances? Is it really every nation for itself?

 

In this article, we’ll discuss the US manufacturing industry and draw out key aspects and learning that are critical for Australian manufacturing. Should factories and manufacturers centralise all of their processes and materials? Or should they offshore and outsource other tasks? 

 

We also ask what are the ways that Australian manufacturers can speed up production to prepare for scenarios like the Covid-19 pandemic? We argue that companies that plan ahead, while being assisted by local governments, help manage issues with supply chain, transportation logistics, and inventory management.

 

Case Study: A lack of sustainable and customer-centric supply chain strategy in the US Manufacturing Industry

 

Today, we’ll take on the example of the US manufacturing industry. It has been virally documented how the US like Australia and many other nations’ population were short on masks, PPE (personal protective equipment), over-the-counter medicines, and other basic necessities.

 

So, why is a first-world country unable to address its abrupt supply and demand issues right away? They’re rather slow in manufacturing products that have a sudden surge in demand during crises.

 

The US is a major manufacturing source in its global supply network despite the global supply chain crisis for food, medical equipment, personal care items, gadgets and devices like smartphones and computers.

 

Electronics

 

Take, for example, product specialisation steps for LED lights, precision devices, cellphones, and hospital equipment. They all need microcircuits and modern tools.

 

Now, the technology needed in the sudden rise of demand for healthcare equipment is not as simple as we may think. Manufacturers shifted towards subcontractors and specialists who also have to depend on others, eventually.

 

Some computer brands, for instance, rely on overseas manufacturing in Asia. And their job is to assemble the computer’s original design. But even if they specialise in this area, they still have to rely on other subsystem manufacturers.

 

The display panel, for example, is made of multiple parts from factories that usually cost billions. And the panel manufacturers can’t finish production without other prerequisite raw materials like circuit connectors, memory and driver chips, glass sheets, hard drive, and so on.

 

Major Suppliers are Overseas

 

China, Thailand, and Malaysia are the three overseas specialists in manufacturing. While some computer brands create their own microprocessors, others send it overseas for packaging.

 

The technological capabilities and skills that are required are now different compared to previous decades. And the upside to this is how the labour workforce is able to use the latest and relevant technologies at a lower cost more than ever.

 

The downside though, is how smaller businesses may face higher costs because some manufacturers may exploit scale economies in the design and production process. This is when the production rate becomes efficient at much lower costs. 

 

On the other hand, well-known electronic brands can’t produce or manufacture without major suppliers overseas which mostly come from Asia – namely Japan, China, and South Korea. 

 

Likewise, pharmaceutical industries in India that need active ingredients depend on suppliers from China. While laboratory industries may source their supply from Denmark. Similarly, Switzerland, Italy, Germany are the top suppliers for precision equipment and tools.

 

Macro Shot of Water Drops on Leaf

 

A Sustainable and Customer-centric Supply Chain Strategy: Interdependency

 

The Covid-19 pandemic has shown that the interdependency of the supply chain and lack of its management has become obvious. First-tier suppliers are dependent on second-tier suppliers as they rely on a third-tier supplier, and so on. 

 

As automakers like General Motors stepped in to produce ventilators, the U.S. government put Defense Production Act in place to control the public from hoarding supplies. The DPA also limited the country’s export of critical items like medical supplies, PPE, masks, and other basic necessities – increasing the production rate at the same time.

 

The pandemic has revealed the interdependency of supplier relationships. N95 masks for instance in the US whose manufacturer 3M, shows in its label that it sources its materials globally. But is the reliance on other countries for supplies really the problem? Should brands be reshoring their production?

 

Analysts say it’s actually the lack of planning from governments in emergency situations such as the pandemic. The “just in time” approach to inventory, logistics, and supply chains have to shift to “just in case” attitude.

 

In Australia

 

On the other hand, Australia’s manufacturing scenario makes up 6% of its GDP, providing 862,000 jobs besides contributing to the country’s exports. 

 

But the trend of sheltered production is shifting to specialised production. This happens as more buyers demand products and services that are customised to their problems and value drivers. But Australia has yet to realise a more value-added manufacturing process. 

 

An increasing production calls for specialised skills which can help establish a sustainable and customer-centric supply chain strategy

 

With the clusters of factories in Factory Europe, Factory Asia, and Factory North America, is it really every nation for itself? Or is there truly a fulfilment of international alliances as promised? 

 

Offshoring production such as setting up all the required raw materials, design, and assembly using the right tools call for specialised skills. 

 

Aside from that, companies have to consider testing procedures with the appropriate equipment. They also need to apply quality control while maintaining talent, resources, and proper handling of materials.

 

Nowadays, when an emergency happens like a pandemic or other crisis, most US companies are unable to scale up to meet the surge in demand. To make things worse, managing operations have become very much related to procurement transactions.

 

 

Setting up a customer-centric supply chain strategy by maximising the use of equipment and factories 

 

Managers should oversee the efficiency of their operational processes and consider it a priority. By using metrics to measure performance, manufacturers mitigate the risks of any surplus activity. They get to monitor and track operations by minimising the costs of surplus.

 

Another key area to look at is how effective the pieces of equipment are. For instance, Overall Equipment Effectiveness measures the time that a plant or factory is maximising its productivity.

 

This metric is scored by percentage. So, 100% means that the production rate is maximised. It also means that production materials have no defects. 

 

Most companies though have a score of 85% because it takes time to do maintenance checks, upgrading of new systems or technology, and diversifying, if not shifting to producing other new materials.

 

The role of Capital Investment in fixing a customer-centric- supply chain strategy

 

How much capital you’ve put in also matters to shareholders. Some companies subcontract production processes. They choose to outsource other tasks instead. 

 

Then, the contracted suppliers combine demand streams through pooling demand. This distributes the workload and shortens waiting time, allowing them to operate at lower costs.

 

Most companies prioritise setting up factories that are devoted to their services only. As a result, this constrains the production capacity. It also eliminates the flexibility of manufacturing to meet the sudden surge in demand during a crisis.

 

Bottomline

 

The economic damage of the supply and demand shock that Covid-19 brought may have set off a sense of economic nationalism.

 

As restrictions revealed vulnerabilities in health industries and international trade wars become increasingly political. More businesses are rethinking the structure of their production and manufacturing capacities.

 

More countries are ramping up their domestic production rate to reduce interdependency and mitigate complex supply disruptions. And more companies are planning their sustainable supply chain strategy and inventory risk management better as global competition heightens.

 

In times like these, businesses need to be flexible in finding ways to keep their staff and operations mobilised. Most business leaders who acted quickly by shifting to automated transactions have coped better than their competitors. They were able to increase tracking activities and visibility on their end-to-end supply chain flow.

 

To be able to manage better, a company has to cooperate with its partners and clients in finding solutions such as recruiting backup suppliers – or listing down a couple of them, just in case. There should also be a frequent review of incoming and outgoing activities too.

 

Which solutions worked best and why? This enables companies to be more flexible and transparent in their response to what their clients need. Otherwise, those who haven’t invested in relevant technologies in speeding up their operations will be left at least 5 years behind, as economists have repeatedly warned quite recently.

 

For a comprehensive view on building a best-in-class pricing capability in margin constrained industries.

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