Has the pandemic added to supply chain disruptions?

Highlights

• The lack of immigrants and shipping bottlenecks presented obstructions in economic activity during the pandemic.
• Pent-up demand created pressure on reduced supply, leading to higher freight costs and large delays in shipping.
• Businesses are revamping their existing supply chains to better fit the current environment.

2021 has not only been a challenging year but also a year of great reckoning and learning. One of the most important teachings from the pandemic during the past year revolved around the significance of becoming self-reliant. As international borders remained shut, the lack of immigrants and shipping bottlenecks presented obstructions in economic activity during the pandemic. This provoked major questions about the independence of the nation in extreme situations that require exclusion from the rest of the world.

The argument for international trade states that an open economy is associated with more efficient production processes, with local businesses developing global competency standards to match the imported goods. In the COVID-19 era, restrictions on international trade brought into perspective the dependence of the Australian economy on foreign trade.

Findings from 2021 indicate that the domestic supply chain is in dire need of an upgrade. The existing supply chains have worked well in the pre-pandemic environment. However, with improvisation becoming the new norm during the pandemic, domestic businesses are compelled to rethink present strategies.

Rising costs due to supply constraints

The Australian economy has steered ahead during the pandemic on the back of a bunch of additional factors, like fiscal stimulus and monetary easing. However, the economy also faced supply constraints, which stemmed from the transportation delays in the UK and the lack of adequate energy production in Europe. In a way, drastic events on the global front have resulted in changing scenarios domestically.

                                                                                 Image Source: © 2021 Kalkine Media®

The problem became more pressing as pent-up demand created additional pressure on supply to match it. Ultimately, restricted supply led to higher freight costs and large delays in shipping. In response, countries started to ship larger amounts to make up for all the delays. However, since the supply was already battered, placing larger orders worsened the situation. Meanwhile, air freight rates skyrocketed, making air transportation of goods extremely expensive.

Revamping existing notions

The pandemic has prompted a radical change in the supply chain dynamics across the globe. Producers are now exploring the concept of nearshoring, under which external companies provide services specific to a region relatively close to the company’s area.

Image Source: Pixabay

More importantly, a strategic shift can be seen among major producers across the globe. Existing supply chains were built with cost minimisation as the objective, paying little or no heed to potential risks. However, the pandemic has taught businesses to make their supply chains more secure and better prepared for disasters. This entails building larger inventories and establishing long-term contracts with suppliers of businesses.

The dynamic changes that have occurred in supply chain strategies are all adding up in the form of rising costs of transportation, and ultimately rising costs of goods and services. Therefore, small changes are going to add up and eventually lead to a larger shift in the supply chain strategies of businesses. Moreover, increased focus has also been brought on developing a better skillset among the domestic population, allowing for further self-reliance in extreme circumstances.

Bottom Line

With a new set of challenges, producers are brainstorming in the most efficient way possible. Posed with a new problem, suppliers are utilising their problem-solving skills to come up with a new strategy that better fits the current environment. Ultimately, each roadblock is emerging a learning lesson that can strengthen their existing operations.