From empty supermarket shelves to Australia’s dwindling supplies of fuel additive AdBlue, the pandemic has exposed how tenuous the world’s supply chains can be. Innovative solutions are needed to build resilience against future disruptions — and engineering know-how will be vital.
Australia experienced its first taste of supply chain disruption when the COVID-19 pandemic began in 2020, with supermarkets unable to keep up with the huge spike in demand for products like toilet paper and dried pasta.
There were also shortages of medical equipment and supplies, which caused some local manufacturers to pivot to produce essential goods, and the ongoing global semiconductor shortage.
Not to mention the lockdowns that brought global manufacturing to a halt and caused chaos with the world’s airfreight and shipping channels.
A report from Citi, released in December, put it well, saying that global supply chains were “not designed to absorb the highly uneven stops and starts in demand and production that the pandemic has caused”.
It advised companies to review their supply chains based on lessons learnt from the pandemic, warning that “global supply chains we thought were optimised and secure were actually riskier than we originally thought”.
Now, Australia is experiencing another crisis, as workers at every link in the national supply chain — from farms to distribution centres and truck drivers to supermarket staff — have been forced into isolation while Omicron infections surge across most of the country. It’s not a lack of goods causing shortages this time, it’s a lack of people available to get them to where they need to be.
As economist Jim Stanford recently wrote in The Conversation: “The economy doesn’t work if people can’t work”.
These examples highlight the inherent flaws in today’s supply chains, which tend to be extremely complex and involve multiple suppliers spread across the globe.
While the pressures will ease as the pandemic ends, Engineers Australia CEO Dr Bronwyn Evans AM HonFIEAust CPEng said companies should take note and prepare for the future.
“The pandemic has forced organisations to prioritise supply chain resilience and we are seeing in real time the limitations of traditional supply chain models,” she said.
“Experts are urging enterprises to map their supply chains, identify risks, review their networks and innovate via technologies such as robotics and automation. It’s no longer enough to ‘manage’ supply chains. We are seeing a complete reimagining from design to operation, with engineers at the heart of the process.”
From ‘just-in-time’ to ‘just-in-case’
For decades, keeping supply chain costs low — rather than mitigating risk — has been the priority for most businesses. From building factories in low-wage locations to choosing cheaper suppliers, using short-term, flexible contracts and limiting the amount of stock on hand, the focus has been on ensuring supply chains are as lean and efficient as possible.
While this “just-in-time” approach has generally worked, it relies on supply and demand remaining stable. So when manufacturing shut down due to the pandemic, and consumer demand for products such as laptops jumped as people rushed to prepare home offices, businesses couldn’t keep up.
As supply chain and logistics experts Sarah Schiffling and Nikolaos Valantasis Kanellos wrote in the Conversation, “the pandemic raised new doubts about outsourcing production to far-away countries with lower labour costs”.
“Equally, problems were aggravated by strategies to maximise supply-chain efficiency such as just-in-time manufacturing, where companies keep inventories to a bare minimum to reduce costs.”
However, the pair wrote that the cost of developing resilience — including building additional capacity, holding inventory and safeguarding against disruptions — could see the urge to reform processes peter out as life returns to normal.
“Some companies will probably continue to improve their just-in-time with a sprinkle of just-in-case,” according to the pair.
“Others will bring production of some products closer to home markets while also keeping offshore production facilities to serve local markets.”
The case for digitisation
While there are many interconnected links in global supply chain networks, one area engineers can play a key role in is the adoption and promotion of new technologies.
The internet of things (IoT), artificial intelligence and machine learning can all be used to help businesses make strategic decisions quickly and to provide oversight of their supply chains in real time.
This is important as the more visibility businesses have, the more they can find ways to lessen risks.
For example, in June 2021, the Australian Wool Exchange was awarded $180,000 as part of the Australian Government’s Traceability Grants Program to trial its e-Bale technology, which uses RFID and QR codes to uniquely identify wool bales.
“If this trial is successful, we should see better information flow from farm to mill, and hopefully less logistical errors in the system as we move towards more automation,” CEO Mark Grave said.
The first tracked bale of wool was shipped from Tasmania last year and will allow buyers and growers to easily trace the product through the supply chain.
Transport engineering expert and Chartered engineer Dr Nirajan Shiwakoti CPEng from RMIT’s School of Engineering said implementing Industry 4.0 technologies such as IoT, cyber-physical systems, artificial intelligence and cloud computing could be a focus for engineers.
“Also, engineers may need to develop advanced algorithms [or] mathematical models to optimise production and distribution capacity, and identify and secure logistics capacity, as the traditional models may not be able to handle the complexity in the supply chain,” he said.
Dr Evans said robotics and automation will increasingly play a pivotal role in “smart” supply chains.
“Think of an AI-enabled robot moving inventory or its use to track, clean and detect anomalies in data,” she said.
“Not only does it enable more agility and precision in the supply chain, it can also reduce the requirement for manual labour, lessening the impact of any future stay-at-home restrictions.
“While this won’t mitigate all future disruptions, incorporating automated technology offers scalability and provides the ability for business to quickly adapt to changes in their supply chains.”
Appetite for automation
Companies are already responding to the changing conditions.
According to a McKinsey survey of senior supply chain executives conducted in mid-2021, a majority of companies had invested in digital supply chain technologies over the past year, and almost every company plans to invest more in future. These digitisation efforts are most likely to focus on visibility, as companies strive for a better picture of their supply chains performance.
Just under half of all respondents said they were looking at network modelling tools to help improve supply chain design in the longer term.
Although these changes will require substantial investment from companies, research shows it pays off.
According to a report from PwC, “digital champions” (which it defines as “organisations that have developed digital capabilities to transform their linear supply chains into ecosystems”) save 6.8 per cent each year in supply chain costs. They also benefit from a 7.7 per cent revenue increase.
It said a lack of visibility leaves organisations vulnerable to shortages and lost business opportunities, with companies forced to resort to expensive last-minute arrangements, or to stockpiling inventory to meet demand.
“Supply chains will ultimately become autonomous,” according to PwC.
“It’s already possible, via AI and smart logistics, for supply chain decisions to be made without human intervention. Create a digital twin, or virtual replica of your supply chain ecosystem, and you can run simulations of the downstream and upstream impacts of a disruption, and then use these to ‘correct’ automatically.
“Using digitisation to make networks more transparent and more autonomous means the supply chain operates as a connected and self-orchestrating ecosystem.”