Insights

The continuing coronavirus epidemic illustrates just how many global supply chains rely on offshore manufacturing. Now, with quarantine as the most reliable methodology for COVID-19 containment, supply chains are broken, and may remain this way for quite some time.

Since the mid 70’s, globalisation and the pursuit of efficiency – to inevitably reduce costs, has been the dominant mindset. In developed countries around the world, the emergence of shareholder value as the purpose of business has created a force which has in many ways been destructive to national independence and sovereignty. It has created a form of short-termism which dominates the business system and it has become a cost-based race to the bottom. Outsource as much as we can for the cheapest cost, and have it delivered just in time. In times of crisis, such as the one we are in now, these ideas and practices have left us vulnerable.

In Australia there have been more calls for manufacturing to be brought back onshore. Anyone offshoring their manufacturing knows there are challenges around communication, responsiveness, quality, unexplained price hikes, FX fluctuations and hidden costs. Historically, developing countries have won out on price due to some manufacturing processes being so labour intensive however, the introduction of automated technology in many industries has now allowed Australian manufacturers reach a price parity. Already we are starting to see companies beginning to diversify and localise their supply chains, making them less dependent on other nations.

We are an innovative country – recently we have seen so many companies change the way they do things to adapt in this current climate. Many breweries are now starting to make hand sanitiser…. a printing company is now making work from home desks. Innovation is most successful when it goes hand in hand with production, particularly in the advanced manufacturing sector – and recognising this link is critical. Andrew Liveris (the Australian former Chairman and CEO of American multinational Dow Chemical Company) has suggested that most global innovation comes from the manufacturing sector – the solutions we seek…. the solutions that will drive sustainable growth and human progress, will be found at the intersection of innovation and production. A focus on services led growth has gutted the nation’s manufacturing capacity and left it highly dependent on imports – a side effect of our nation becoming richer.

Bolstering Australia’s weakened manufacturing sector will not only ensure the country has enough essential supplies to manage during a crisis, it will also provide the productive capacity needed to rebuild the economy once the virus is contained. There will be some sectors where scale is impossible and imports are inevitable, based on population, geography etc. Now more than ever since the 1980’s it seems like the tide is turning to “Buy Australian” & create or at least maintain local jobs.

Has COVID-19 made us all re-think local quality, availability and sustainability vs offshoring at lowest cost?