Businesses turn to Australian made to ease supply chain pressure

18 November 2022

One in two business owners (51%) would increase their use of Australian-based suppliers to tackle the country’s ongoing supply chain issues, new NAB research shows.

The pandemic has highlighted the fragility of global supply chains. Heightened goods demand, factory closures, rising freight rates, a reliance on ‘just-in-time’ inventory systems and the Russia/Ukraine conflict, have coalesced to create significant challenges for supply chains across the globe. Australian businesses have not been immune.

The insights – from Australia’s largest business bank – reveal business owners believe supply chain issues have eased in Q3, although around one in four (26%) still report they were a significant issue for their business in the past three months. This is down from 31% in Q2.

The report also indicates fewer business owners (24%) believe supply chains will remain a significant issue in the next 12 months – down from 31% in Q2.

The easing in global supply chain disruptions and rebuilding of inventories, raises the prospect of a fall in inflation. Freight rates have substantially unwound, supplier delivery times and order backlogs are normalising and some
retailers, faced with excessive stock, are now moving to discount prices. Whether this will see a rapid decline in inflation or only partially offset now broad-based inflation is an open question.

Many countries are increasing domestic sourcing to combat supply chain issues. This is helping to jump start investment in additional production capacity. Some firms are also nearshoring – i.e. relying on suppliers that are
geographically closer to production facilities to reduce transport costs, time and risk. Investing in Australian based manufacturing is also widely seen as a key way of addressing supply chain issues. New research this quarter explores how likely SMEs would be to support local manufacturing – i.e. either through establishing their own new manufacturing facilities, increasing their use of Australian based suppliers, and supporting new Australian based manufacturing start-ups

NAB Executive for Business Metro, Michael Saadie, said investing in Australian-based manufacturing was one way to address supply chain issues.

“Since the pandemic, most of us have experienced a shortage of our favourite items at the supermarket, department stores and online retailers – this is the tail-end of wider global supply chain issues worsened by natural disasters, increased freight costs and ongoing global conflict,” Mr Saadie said.

“Although global supply chains are improving, greater investment in local manufacturing facilities opens up a lot of opportunities – it means reducing reliance on overseas suppliers while also stimulating the local economy through valuable jobs.”

The research reveals the construction, accommodation, and hospitality sectors were most likely to increase their use of Australian-based suppliers, with almost seven in 10 saying they would be ‘very’ or ‘extremely’ likely to source locally.

By state, South Australian businesses were most likely to increase their use of local suppliers (64%), followed by Queensland (53%) and NSW (51%).

Encouragingly, for those considering establishing new manufacturing operations in Australia, over four in 10 SMEs (44%) said they were ‘very’ or ‘extremely’ likely to support new local start-ups.

Breathe Fresh owner, Malcolm Corben said supply issues are improving, although delays are still making it difficult to plan for the future.

“We can’t source locally as Australia doesn’t have the manufacturing capabilities anymore, so we rely on international suppliers,” Mr Corben said.

“Greater investment in local manufacturing would help, but in the meantime, we’re looking at suppliers in various regions, rather than sourcing from a single country.”