Proxima: Australian companies highly vulnerable to supply chain shocks

More than half of Australian businesses would stumble within three weeks in the event of a major supply chain disruption according to a new study, the most vulnerable among major economies.

The research, conducted by specialist procurement consultancy Proxima, also found that one fifth would be impacted within the first fortnight following a shock, while only 5 percent could withstand the disruption for between four to six months.

Those were the results of a survey of over 500 chief executives overseeing companies generating in excess of $500 million in revenues in Australia, the US, UK, Germany, and Singapore, with Australia by far reporting the biggest hurdles to sustained operations.

For example, almost a quarter of the respondents in Singapore said they could continue their business without an interruption to revenue or customer delivery over the next four-to-six month period should a major supply shock occur tomorrow, such as due to an extreme weather event, cyber attack, geopolitical shutdown, or, topically, a further escalation of international tariffs.

It was a familiar story across the board as to the time-spans of operational resilience, with 59 percent of the Australian leaders surveyed expecting serious impact to day-to-day operations before the first three weeks were out compared to 51 percent globally, while the staggering 21 percent of local businesses which would fall over within two weeks was well above the 14 percent average.

Unfortunately for local bosses, Aussie customers also appear to be less forgiving than some of their international peers, or have been adjudged to be so, when it comes to supply chain challenges, despite the nature of their weather-beaten island-nation. Here, CEOs downunder are far more reluctant than their counterparts to build up their resilience by passing on the costs to buyers.

While the survey revealed that the CEOs as a whole felt a 17 percent (mean) average increase to supply-costs to address vulnerability wasn’t unreasonable – a significant sum given around three quarters of expenditure already falls into this category – almost half of the Australian leaders would finance it through cost-cutting, whereas 43 percent of their UK counterparts would look to pricing.

More broadly, the willingness among organisations to fork out for greater resilience – including the 30 percent who said they were prepared to bump up their outlay by over a fifth of current costs – seems, and is, remarkable, but as Proxima notes, also understandable, considering the succession of serious events that have already impacted procurement of late and the risk of lasting damage.

Here, the firm points to the OECD contention that diversification, rather than being seen as an inefficiency, should now be viewed as a strategic investment and potential competitive advantage. Yet, while the survey findings may strike as if Aussie businesses are somehow less prepared than others, the reality is that they’re confronted with their own specific set of market challenges.

“Australian businesses face a unique vulnerability due to geographic isolation, long-haul supply routes, and extended lead times,” says Proxima senior vice president Lara Mujico. “A shock that other markets might weather for longer creates a crisis for Australian operations within weeks. But we’re seeing something positive in that businesses are responding with strategic discipline.”

Proxima – which is part of Bain & Company – says that in response to the ongoing uncertainty there has been an increased tendency among Australian businesses towards local and regional sourcing in a shift away from global concentration, which is in turn having a positive feed-back effect on domestic sales, with half citing ‘protectionist policies’ as driving local demand.

“This shift reflects a strategic realisation that resilience requires proximity,” Mujico concludes. “But the challenge is execution speed. Procurement teams are being asked to deliver resilience faster, but internal processes and capability gaps are creating friction. The businesses winning this cycle are those embedding procurement into strategy early, not treating it as a cost-control function.”