Australian businesses have emerged from the pandemic with new priorities for their supply chains, with many diversifying across markets, consolidating suppliers, and implementing their sustainability roadmap.
It appears the biggest supply chain lesson of the past few years has been in managing uncertainty. The response? Local businesses are becoming more selective with their trade partners to concentrate on the most reliable ones to navigate this uncertain environment.
In fact, recent HSBC research found 73% of Australian corporates are planning to reduce the number of their supply chain partners (compared to the 23% who are planning to increase supply chain partners).
It may seem counterintuitive, but it does make sense for companies to secure their sourcing from fewer suppliers while cultivating longer-term, more strategic relationships with them.
Building a resilient supply chain
A key factor in identifying a strong trade partner is one that provides diversification benefits.
Expanding into markets beyond our shores has long remained a top diversification tool for Australia’s supply chains. The major supplier locations for Australia’s corporates include mainland China (29%), North America (23%) and Asia ex China (22%) as businesses seek to mitigate supply chain risks, while product quality and cost remain the key supplier selection criteria.
Closer to home, we have seen a rise in businesses looking to integrate Indigenous suppliers and sustainability credentials into their supply chains. On the latter point, significant progress has been made towards putting these policies in place, with over half of Australian corporates requiring suppliers to conform to environmental and social metrics as part of their onboarding criteria.
This greening of supply chains is only set to accelerate moving forward. With corporates set to continue finessing their supply chains, it is understandable that suppliers not yet implementing sustainability metrics into their operations can expect to be left behind.
For those looking to establish their sustainability credentials, the top focus areas for corporates in Australia planning to invest in sustainable supply chains are energy efficiency (87%), environmentally friendly plants and machinery (80%), and sustainable buildings (40%).
Top three digital priorities
Not discussing the digitisation of supply chains would be a missed opportunity; while much has been written on the topic, there has been less about what this actually means and how to put it into practice.
A starting point is knowing who your suppliers are. Almost one in five businesses in HSBC’s research reported that understanding their own market and ecosystem was a top priority in digitising their supply chain. Seamless integration and cybersecurity protection rounded out the top three digital priorities.
After gaining an understanding of supply chains, businesses are then able to identify opportunities for cost efficiency, enhanced visibility and also determine what sort of KPIs or metrics should be set for suppliers, such as measuring carbon footprint and ESG principles.
ESG credentials is one of the top factors companies in the survey consider when selecting supply chain partners. Almost half of these companies have been investing in making their supply chains more sustainable, and this is a trend we expect to continue.
Without digitising supply chains and leveraging data, it will be near impossible to track the financial as well as sustainability standing of their suppliers and identify those trade partners delivering best value.
If the pandemic has taught Australian businesses anything it is the need to know who their suppliers are to streamline and build resilience in their supply chain by working closely with strategic partners.
Nadia Ladak is Head of Global Trade and Receivables Finance at HSBC Australia