How diversification builds a resilient, adaptive supply chain

Effective supply chain management in 2022 requires resilience and agility through diversification, innovation, and technology, writes Paul Soong.

Almost every New Zealand business was impacted by supply chain chaos in 2021. This year seems no different, with most companies not expecting the situation to improve until 2023.

As of January 1, 2022, it takes a company an average of 73 days to deliver goods to truck or rail carriers after booking with an ocean carrier and completing the cross-ocean journey, according to E2open’s Ocean Shipping Index. This is 15 days longer than the same quarter last year and an additional five days than the previous quarter.

The delays are attributed to supply chain issues at every stage – from the time of booking transport to gate in at the port as well as ocean transit time of shipping containers. And companies at every point of this chain have inflated prices to mitigate these impacts. Additionally, the cost of shipping freight has more than doubled and global freight rates have increased tenfold since the start of the pandemic. 

Until now, New Zealand businesses have been absorbing the rising costs of supply chain pressures. This is very quickly becoming unsustainable. It is fair to say these additional costs will ultimately be passed onto the customer.

With rising shipping costs and geostrategic tensions and challenges against increasing economic uncertainty, it creates real risks for businesses reliant on distant suppliers and generates an incentive to change the way they do business, to avoid over-dependency on countries or regions, especially those where trade or diplomatic tensions exist.

Changing consumer behaviour and confidence impacts stock management

Following record sales of $248.2m in New Zealand over Black Friday and $1.8 billion spend over the Christmas holiday period it appeared consumer demand would remain high despite COVID-19. Yet this took an unexpected turn in the new year, as the effects of the Omicron ‘shadow lockdown’ gained momentum.

Consumers are looking to take back control this year. Rising costs and increasing uncertainty due to COVID-19 variants are impacting New Zealanders’ appetite to spend. Consumer confidence dropped 3.6 points to 99.1 in the Westpac Bank-McDermott Miller Consumer Confidence Survey (December quarter). An index below 100 indicates more consumers are pessimistic, rather than optimistic about the economy. The historical average index is 110.6.

This loss in confidence is forcing businesses to pull back on their newly established transport and stock operations and adjust to expected reduced demand.

In addition, household living costs are soaring for New Zealanders, with a sharp increase in inflation. The Consumers Price Index figures released by StatsNZ reveals the biggest annual inflation rise in three decades, at a new record-high of 5.9 percent, up from 4.9 percent the previous quarter.

These conflicting factors have resulted in most businesses not being able to achieve the right balance of stock. Coupled with the rapid turnover of e-commerce, businesses either can’t keep up with, or are confused about, stock levels, and realise that supply and speed of delivery are more crucial than ever before.

Brand loyalty no longer driving consumer purchasing decisions

For many consumer-facing companies in New Zealand, their unpredictable and inaccurate stock levels as well as lack of clear customer communication is causing people to lose trust in their go-to brands and opt for places that simply have their products in stock.

The trend is towards products from multiple brands and businesses when delivered in a more transparent and streamlined service, despite additional fees.

New Zealanders, especially millennials, are willing to pay a premium for expedited same-day or immediate delivery. Alternative/challenger providers such as the ’10-minute dash start-ups’ are aiming to build a cult-like following of early adopters. And it seems to be working.

Supply chain diversification enabled by technology will be the differentiator

While lingering impacts from the pandemic continue to be a challenge for supply chains, they are also at their strongest in terms of utilising technology to find innovative solutions to supply chain issues.

According to E2open’s latest Supply Chain Innovation Report, the top action that organisations foresee to create a more resilient supply chain is diversifying their supplier base (40%). This will help businesses adapt to continuous disruption.

Technology, such as integrated cloud-based platforms of applications with connected networks and data, will help to improve supply chain performance. Communication tools like order tracking, cloud-based shipping and ordering, and radio frequency identification (RFID) chips, enable real-time visibility into orders, shipments, and inventory, narrower timeframes, and business intelligence to optimise the customer experience.

One platform collecting and analysing data for the entire supply chain helps to achieve better visibility and transparency within the system and provides early warning signs that customers’ demands are changing, or another issue has occurred that may impact your supply chain. The use of blockchain will continue to aid in supply chain diversification, particularly in terms of traceability and removing friction.

Sustainability is critical for the future

Globally, sustainability is rated as an important purchase criterion for New Zealanders. The Global Sustainability Study 2021 (Simon Kucher & Partners) of more than 10,000 people across 17 countries, identified 85 percent of people have shifted their purchasing behaviour to being more sustainable over the past five years. Thirty-two percent of Millennials significantly changed their behaviour towards being more sustainable and one third are choosing a sustainable alternative when available. Millennials are also willing to pay more for sustainable items, even if it means buying international products.

It’s clear that companies who don’t incorporate sustainability as part of their core value proposition will feel the impacts in terms of both reputation and revenue in the future.

The good news is, 78 percent (two-thirds) of organisations identify themselves as an innovator/early adopter when it comes to having a sustainable supply chain, and it is a defined and measured objective within their organisation.

Be ready for the new world

With continuous supply chain disruption and conflicting factors at play including economic uncertainty, fluctuating supply and demand, ever-changing consumer behaviour and purchasing patterns, the message is clear for New Zealand businesses – diversify your supply chain in 2022.

Diversify your markets, pathways, and partners, and work together to avoid future build ups and delays.

Utilising the right technology partner to achieve greater trade velocity, transform your supply chain economics for disruptive advantage and to optimise your future in the global economy will be the key to success.

Paul Soong (below) is Regional Director of E2open (formerly BluJay).