May 17, 2022

How business is taking on today’s supply chain challenges

The global pandemic upended every aspect of trading business operations, including supply chains. In the first of NAB’s three-part series of roundtables, NAB’s Michael Saadie speaks to two industry insiders about how supply chains have been impacted and what Australia’s traders are doing to adapt and capitalise on ever-increasing consumer demand.

In the early days of COVID-19, along with images of empty shelves and supermarket trolleys piled high, we saw many businesses reliant on the supply chain make significant changes to how they operate.

And they have had to keep adapting – for example, due to the high case numbers of Omicron that forced many of their employees out of the workforce. Then there have been further threats to the global supply chain from the war in Ukraine; while at home, the eastern states in particular experienced consumer cost and supply implications from the recent floods.

Michael Saadie, NAB Executive Business Banking Metro Australia, speaks to two industry insiders about how supply chains have adapted and what Australia’s traders are doing to capitalise on ever-increasing consumer demand.

Q&A participants:

  • Host: Michael Saadie, Executive Business Banking Metro at NAB
  • Speaker: Marcus Carmont, Chief Customer Officer at supply chain consultancy TMX
  • Speaker: Jackie Cooper, Executive, Trade & Working Capital Business & Private Banking at NAB

Michael Saadie: It’s been an extraordinary couple of years and one thing I think has shifted is Australians’ perceptions of supply chains – and that’s both businesses and the broader population. Can you talk us through some of the ongoing impacts and responses?

Marcus Carmont: Supply chains have become a matter of national interest – because seeing repeated empty supermarket shelves had a big impact on people mentally.

The pandemic and disruptions to supply chains came at the same time as a big shift in consumer behaviour – people were inside their houses and spending money on goods rather than services. Australia’s supply chains traditionally haven’t been geared to handle direct-to-home shopping without a retailer in the middle. Usually, consumer behaviour is predictable, but when you have changing behaviour, manufacturing drying up and panic stockpiling of goods, then everything changes. For example, rather than importing to a distribution centre then forwarding on to a supermarket, you might be sending the stock straight to the supermarket.

For a long time, businesses have been making their supply chains as lean as possible. What the pandemic showed was how much inflexibility was created by this low-cost operating model. For example, many businesses had been holding only small amounts of inventory and working capital, so when manufacturing dried up, they struggled to cope with demand. It was those who were less lean who were better able to pivot and take advantage of opportunities.

Jackie Cooper: We have definitely become more aware of the importance of our supply chain. If we think back, we have experienced: a global pandemic, a container ship obstructing the Suez Canal, the many COVID flow-on effects to the manufacture and distribution of goods, exponential rise in shipping costs, lockdowns and border closures across the globe, changed consumer behaviour, labour shortages, inflationary pressures and now, the war in Ukraine. It is crazy to think that all this has occurred in the space of two years!

Supply chain issues and labour shortages from the last two years are still prevalent for our clients. However, many have been forced to adapt their operations and assess how they can manage in this ever-changing environment. A good example of this is a shift in the way businesses have traditionally sourced and distributed goods. We have seen clients having to move away from the once-loved, just-in-time inventory model – that was efficient and didn’t tie up capital for too long – to a just-in-case model, due to the unpredictability of both the global and our local supply chains.

While we expect supply chains to remain tight for at least the next six to 12 months, going through this process has put SMEs in an excellent position – they’ve been forced to adjust their operations, automate, seek new suppliers and business partners and reduce debt. This means they’re more resilient and in a good position to be able to handle future disruptions.

Another way we’ve seen businesses respond to delays in the supply chain is to order stock more frequently. This in turn means they need to increase their trade and working capital and extend their financing facilities for longer periods. They’ve also been looking at their balance sheets – a lazy balance sheet can often provide ways to release working capital by re-leveraging and borrowing against assets.

Michael Saadie: Financing has definitely been a pivotal issue, and we’ve seen customers looking at different pricing models to manage cost escalation. So rather than leaving themselves open to price escalating between order and delivery, they might negotiate something like cost plus 15 per cent. We’ve also seen key relationships take on fresh importance – for example, choosing a logistics provider because of the service they provide rather than whoever has the cheapest price.

What are some of the ways you’ve seen trading businesses adapt their models to better respond to opportunities?

Marcus Carmont: There’s been a shift towards making businesses more agile – we’re realising that it’s no good having efficient, low-cost supply chains if you can’t cope with change. Businesses now have greater visibility over all aspects of their supply chain, so they can plan out potential scenarios and adapt to opportunities as they arise.

At the same time, consumer behaviour has changed forever. Every category of e-commerce continues to grow, and consumer expectations are increasing due to the advent of different categories, direct-to-consumer ordering and rapid fulfillment of orders.

This has accelerated the maturity of e-commerce in Australia – we went through five years of progress in about six months. However, we’re still far behind markets like the US and UK, and about two years away from being able to fully meet demand.

Michael Saadie: There is always room to make operations cleaner, and one way is through technology like automation. What new technologies are helping improve supply chains?

Jackie Cooper: Supply chain disruptions have certainly forced customers to look at their end-to-end processes and adapt or innovate. To help manage the delays and unpredictability of supply chains, customers are now holding higher inventory levels and even choosing to import by the container load to guarantee supply.

Innovation is no different. Businesses are investing in technology, like barcoding to improve logistics and warehousing processes, and we have seen a huge uplift in automation. The impact of closed borders has exacerbated labour shortages, and our business customers are really struggling to find staff. With unemployment now at record lows, many of our business customers have had no choice but to automate more of their operation.

But of course larger orders, longer cash conversion cycles and increased automation all has to be funded. Many customers are making use of the government’s instant asset write-off, which helps make investing in new technology worthwhile. We have also seen customers increase their use of our working capital and trade finance solutions, especially to import new equipment and machinery.

Ultimately, the past two years have shown that investing in the right technology, and the right relationships in general, with a focus on forward planning, is the safest course for trading businesses.

Michael Saadie: It’s been a tough time for many, but it’s exciting to see so many thinking differently about how they can succeed now and in the future. Despite all the supply chain challenges that have been thrown at businesses focused on exporting, importing and wholesale trading, trade finance to these companies from NAB is up 35 per cent over the past year.

Businesses have been resilient – they have been resourceful, found new routes to market and gotten creative when it comes to getting their product in the hands of their customers.

Thanks Marcus and Jackie for your time.