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How The Global Supply Chain Crisis Affects You

Jun 16, 2023

How The Global Supply Chain Crisis Affects You

The advent of the COVID-19 pandemic has had a huge impact on businesses globally. Organisations were forced to adapt overnight to the way they operate to respond to the evolving and dynamic demand and supply requirements. In Asia alone, various lockdowns across the region have caused the closure of businesses, stoppage of factory outputs, and disruption to manufacturing industries and their supply networks.

As globalisation gradually sweeps across the continents, an increasing number of businesses, particularly small and medium-sized enterprises (SMEs) in ASEAN, participated in the global supply chains, usually at the middle and final assembly stages.  ASEAN’s export-centric open trade policies have contributed to the birth of these value chains and the accompanying high economic growth.

Nonetheless, these intricate supply chains are very much vulnerable to external shocks and disruption. To top it off, the region’s vulnerability to climate change, disasters, and diseases means that building resilience is a business continuity issue for every company along the supply chain.

This pandemic means that Asia’s supply chains are being put to the test, where companies need to revaluate their corporate risks and build resilience. Coupled with the financial impact of a global economic downturn, supply chain resilience is vital if many individual companies want to survive.

Short-Term Measures

The short-term goal of safeguarding business operations while working with governments towards the long-term goal of building resilient economies can be achieved with a good resilience strategy. Many of the natural disaster events in the last two decades have caused short-term supply shocks but they have not decreased the firm’s operational capacity, and exports bounced back more quickly than expected.

Those crises have not reversed the patterns of globalisation but accelerated two long-term trends in the global supply chain. First, leading firms used the crisis to consolidate their supply base further by institutionalising Business Continuity Plans (BCP), a corporate strategy that promotes a strategic buyer-seller relationship, to ensure continuity of operations with minimal service outage and to act as a source of resilience.

Second, when demand rebounds after a crisis, the growth of intra-regional trade creates opportunities for new firms to upgrade to global value chains. While firms are responsible for addressing supply and demand shocks with appropriate corporate insurance mechanisms, a multi-stakeholder approach of adopting BCPs that involves government support for early warning systems, information sharing, capacity building, and technical support are important approaches to enhance supply chain resilience.

Recovery, Resilience And Competitiveness

During the 2008 global financial crisis, the fall in global demand was accompanied by a drop in demand for intermediate goods destined for assembly in China, Korea, and Japan. Due to heavy reliance on imported inputs from Singapore, Malaysia, Indonesia, Thailand, and Vietnam, they effectively transferred a large portion of their negative export demand shocks to their ASEAN partners.

Although export-centric economic growth has largely been a story of rising Asian companies’ supplier capabilities, there has been growing recognition of the key role that final export markets play in the process.

Companies that sell their products to advanced economies like Japan, the European Union (EU) and the United States (US) ought to be aware of new opportunities for green growth which have been invigorated by the pandemic recovery stimulus packages.  While consumer demand will return slowly, prices will remain an overwhelming consideration in the post-pandemic era.

How Simplot is responding to keep freight costs and delays in check

Even though the international freight landscape has been exceptional, the industry was never unfamiliar with its fair share of volatile conditions. At Simplot, Senior Director Global Logistics Brian Van Ausdle and his logistics team have built up years and years of developing relationships and strategies to ensure the company’s customers get their products on time and at a reasonable cost, no matter what’s happening.

“We’ve taken a portfolio approach to logistics, making sure we have alternative options available when capacity tightens up or weather events hit,” he says.

The measures the company has taken include:

• Identifying and maintaining relationships with the most reliable shippers in the industry.
“We make sure it’s a win-win scenario for both parties, even if that means paying a little more. It’s worth it over the long run,” he says. “We’re not interested in perpetuating transactional relationships with our carrier base. We put real value on their record of reliability and safety.”

• Maintaining its own fleets of railcars and trucks
“This helps us control some of our destiny when one area or another becomes strained,” he says.

• Combining modes of transportation.
Intermodal transportation (mixing rail and trucking for the same load) provides the flexibility to create the most efficient, cost-effective shipping option based on local or regional conditions

• Putting enhanced bidding processes in place.
Van Ausdle’s team keeps a close track of tender acceptance with Simplot’s contracted shippers. If acceptance falls off, these companies know Simplot has the option to re-bid the contract on short notice, potentially opening the door to their competition.

When will the freight shortage end?

Van Ausdle, like most logistics professionals, doesn’t see an end in sight anytime soon for the shipping squeeze.

“We don’t believe this will normalize until the end of 2022,” he explained. “In the meantime, we’re constantly rescanning the environment to make sure our supply chain stays nimble, which is a good thing for us and our customers.”

For Simplot’s operators and distributors, he offers this bit of advice to help mitigate elevated freight costs:

“The ability to plan is more important now than ever. To the extent we understand our customers’ plans and needs, the better we’ll be able to anticipate all of their requirements, including their transportation and inventory requirements.”