Time To Stop Waiting For A Return To Normal To Fix Supply Chain Issues
While optimism grows that the Omicron wave may signal a diminishing public health impact of COVID-19, a swift return to pre-pandemic normality for New Zealand’s supply chains remains far from certain as global conflict and rising inflation threaten to further weaken its already damaged links.
From farmed produce to building supplies, consumers here have seen prices and availability trend rapidly in opposite directions. As a small country that relies heavily on importing manufactured goods, JLL NZ Supply Chain Director, Mike DeDera, says New Zealand’s current challenges are largely due to the ‘butterfly effect’ of global supply.
“Global labour issues induced by the pandemic first created the initial shortfall and then the ongoing deficit in the raw goods at the beginning of the supply chain, resulting in smaller manufacturing runs and fewer products for distribution. Then, with the cost and priority of freight indexed to volume, this initial shortage has impacted on shipping and ultimately created insufficient supply to meet demand here at the far end of the distribution network.”
DeDera says that although we can’t control what happens at the start of the chain, there are changes that we can look to make at our end that can ensure we’re better prepared to respond to the challenge of global events.
“Like most countries around the world, New Zealand has operated on a ‘Just-in-time’ inventory model, whereby businesses save on storage and running costs by operating lean stock levels in small warehouses. This model relies on all links in the supply chain running harmoniously. Therefore, given the ongoing disruption, businesses around the world are increasingly moving towards a new model known as ‘Just-in-case.’”
The Just-in-case model is a way for businesses to reduce their exposure to international shipping price increases and delays by increasing their inventory through larger, but fewer shipments.
“In a market where ocean shipping prices have risen more than 10 times over, there is plenty of incentive for businesses to change model,” says DeDera.
“While this will mean finding greater storage space within an already tight industrial property market, the additional warehouse rental expense can often be underwritten by the tens of thousands in savings made from an improved logistics network.”
In reviewing their current operating strategy, business today shouldn’t be using the opportunity to just make their supply chain more efficient, but more energy-efficient too, says DeDera.
“Questions business leaders should be asking themselves right now include: Are we working with green carriers and suppliers who use sustainable vehicles for deliveries? Do we know what our carriers’ and suppliers’ sustainability strategies are and do they correlate with our own? Do we use electric forklifts instead of gas? Are our warehouses optimised for sustainability? And if not, should we retrofit or consider moving?”
“And instead of asking ‘when will things go back to normal?’, businesses should be asking themselves ‘how prepared are we if things stay this way for another two years?’”
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JLL (NYSE: JLL) is a leading professional services firm that specialises in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.6 billion, operations in over 80 countries and a global workforce of more than 91,000 as of 31 December 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.