​The butterfly effect

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Can even small supply chain issues make a big impact on the shelves of Australian retail businesses? Anyone who understands the nature of the worldwide supply chain will realise the answer to that question is a resounding yes!

Anna Nagurney, an operations management expert at the University of Massachusetts, estimates some ships can hold "156 million pairs of shoes, 300 million tablet computers, or, one of my favourite statistics, 900 million cans of baked beans … It's mind boggling." When you realise that the hold up of one ship can delay 156 million pairs of shoes to local retail stores, the effect of even one event becomes clearer.

The supply chain is not just one link in a system which starts with raw materials and eventually gets goods to the shelves of retail stores. It is not a stand-alone link. It is integral to every part of the 'delicately balanced' global economy and small changes cause butterfly effects throughout the whole system.

Supply chain issues are predicted to cause shortages of consumer goods and price rises in Australian retail stores.

The perfect storm. What is causing all the issues?

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“Our supply chains are under incredible pressure at the moment and there’s a myriad of issues at play here that are creating the perfect storm for retailers and consumers.” Paul Zahra, chief executive of the Australian Retailers Association.

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Covid 19 effects to the supply chain are well known but what are the specific factors contributing to the supply chain disruptions?

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Fluctuations in demand

Since the beginning of the pandemic, demand for consumer goods have gone through unexpected changes. Initially, assumptions were made that demand would decrease. Everyone was aware of uncertainty hanging over jobs and predictions of economic depressions. Retailers decreased their orders for goods in anticipation.

To everyone's surprise, demand for consumer goods skyrocketed. It wasn't just toilet paper and other essential goods. People were at home, unable to buy experiences or services. They had unused consumer dollars, along with stimulus payments. So, they used them for things like home office setups, home gyms, and electronic goods.

Shortages caused by increased demand have had a flow on effect, putting pressure on demand for raw materials and components. Retailers worried about continued demand are ordering more stock, earlier. This is putting pressure on transport systems and storage facilities when goods are available.

"Jonathan Savoir [CEO of supply chain technology firm Quincus] said the situation of retailers overstocking is causing a bigger crunch on capacity and leading to what he called a “bullwhip effect.” That’s a term describing how small changes in demand at the retail level can progressively cause larger movements in demand to impact wholesalers, distributors and manufacturers. The supplier of raw materials will feel the biggest impact." CNBC

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Erratic Production

As waves of the virus have moved through the world factories have closed. Production has been erratic, and the production of many goods has been very limited. There have been lockdowns, strict policies around social distancing and cleaning regimes, limited workforces, and shortages in raw materials. There has been no certainty around production timelines.

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Transport issues

Demand fluctuations and pressure on turn-around times have all affected shipping. Issues have included port closures, shortages of workers, and downtimes due to new cases and deep cleaning. These have all led to ships at a standstill outside ports and shortages of shipping containers. Ships move on quickly, not taking empty containers back to be refilled. Limited flights worldwide have also affected transport options. As the backlog of goods makes it through, a shortage of wharf workers and truck drivers to deal with those goods has led to bottlenecks.

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How have these issues affected the Logistics sector?

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It may seem like retailers and consumers are the ones who are most affected by these issues. Anyone in the logistics industry understands the intense pressure uncertainty and changeability is creating for businesses at all stages of the supply chain.

• The logistics industry has had to deal with:

• Unpredictable demand for raw materials and finished products

• Shortages in raw materials

• Increases in the prices of raw materials and components

• Unpredictability of demand for and availability of transport

• Fluctuations in demand for storage

• Uncertainty around future demand for all aspects of the logistics sector

• Fluctuations in the need for labour in all areas of the supply chain

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How can businesses best equip themselves to deal with the uncertainties and fluctuations of supply chain disruptions?

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Local businesses in the Manufacturing, Warehousing and Logistics industries have very little control over factories, ports, and shipping companies in other parts of the world. They also have very little control over the behaviour and demand of consumers. They can only try to predict trends and hope those predictions are right. Some commentators are predicting ongoing shortages into 2023. Others are talking about the supply chain and consumer demand 'normalising' again.

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Businesses can control their access to labour

"...while technology makes things happen, its people that make it possible and supply chain and logistics is still fundamentally a people business. Australia’s future supply chain performance will rely on the sector’s ability to attract, manage, and motivate those with the capabilities this fast-changing environment requires. It is one of the biggest challenges facing supply chain CEOs and key government policymakers." Workforce challenges in supply chain and logistics (Wayfinder)

As the supply chain disruptions decrease, demand for labour will increase and businesses need to be ready. However, a decrease in labour demand will also be a reality, when consumers finally slow down, and backlogs are worked through.

How do you prepare for possible increases in demand for labour while also preparing for potential decreases?

First, you make sure your current workforce is functioning within an environment designed to keep them.

Next, you make sure you have a robust relationship with a recruiting agency like MTC Recruitment. An agency that knows your business well and who understands your needs. By establishing a relationship like this early, you can increase your workforce in times of higher demand without fear of over employment when demand decreases.

Because MTC works with short term and casual hires regularly we can support you with expertise and experience through the fluctuations supply chain disruptions are bringing.

Companies within the logistics sector are facing a lot of uncertainty today. Wouldn't it be nice to think that there was one area you could meet confidently, no matter which way demand goes?

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If you want to be confident about meeting your future labour demands efficiently and without pressure on your current labour force, no matter what supply chain disruptions may bring, contact MTC Recruitment today.

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