In my column this month I am going to discuss the current global supply chain realty and the associated challenges that this continues to present for truck manufacturers.
It is not news that new truck sales are strong. 2021 saw 41,404 new heavy vehicle sales, just 225 trucks short of an all-time record set in 2018. Sales are at similar levels this year with customer order intake not abating.
A record in truck sales for 2022 looms. These sales are the result of strong consumer demand before, during and after the initial COVID outbreak, helped, in no small way, by Federal Government incentives to keep our economy from collapsing in the wake of pandemic.
But there is a problem. Australian truck manufacturers, importers and distributors equally, are experiencing significant challenges within their supply chains both at the primary supply and secondary manufacturing stages.
Due to the continuing disruption to global supply chains, truck suppliers face long lead times in delivering new truck orders.
To give perspective to the supply chain problems being faced by truck OEMs, we are all aware of the well-publicised worldwide shortage of microprocessors, however shortages are far more broad reaching, including availability of internal and external finishing trim materials; resin shortages for components such as, sleeper cabs, roofs and bonnets; shortages in bullbars, fifth wheels, fuel tanks, exhaust pipes and mufflers, alloy wheels, mudguards, general metal components, and fluids for production; shipping constraints, skyrocketing shipping costs, shipping transit times now 100 days, up from 40 days; and my favourite, last year if you wanted your truck painted blue, good luck, no blue pigment could be sourced, worldwide.
In summary, all elements of truck building and delivery are in peak demand and under stress. These challenges are real, change daily and are set to get worse. They are today’s known problems.
OEMs do not know the supply chain problems they will encounter over the next 12 months. They only know they will be difficult to predict. At best we can only manage — we cannot solve them.
With the reopening of economies creating strong demand in a post-COVID world, supply chain problems have obviously forced companies to rethink their corporate strategy.
‘Just in time’ has been the manufacturing sector’s mantra for some five decades but now has been found wanting in a COVID impacted world.
Not unsurprisingly, management is now factoring into the equation of inventory management, the element of risk as opposed to the previously singular focus upon costs.
Companies are now transitioning to a ‘just in case’ model of inventory management.
Just in case, is a set of words that sounds like a warning. Just in case of what, was my first thought, going straight to a scenario I do not want to think about.
Risk, always a factor in business, has taken on a renewed management emphasis and is now the prime determinant for building enduring organisational capability.
The pandemic has been the tipping point.
Countries are finding now that their supply chains are not as robust as they thought, in many cases, these chains have failed.
Add to this, geopolitical tensions arising from a resurgent China, the world’s production plant and warehouse, as well as the war in Ukraine, our industry, the road freight sector, should heed the notice we have been given by the pandemic and assess our role in an increasingly troubled world.
Resilience needs to be built into the Australian freight sector, ‘just in case’.
COVID and the supply chain disruptions have established this as an urgent need. During COVID, Government established a National Coordination Mechanism to ensure the capabilities of federal, state and territory governments as well as the private sector, were brought to bear to address the crises.
This happened after COVID hit. A similar mechanism is perhaps needed now before a future event, as a different approach to address the strategic problems the world is presenting to Australia. The mechanism would for starters:
• Prioritise the security and efficiency of the national road network throughout Australia for freight distribution. The network must be resilient and have the capacity to respond to disruptions to safeguard domestic capability.
• Ensure diesel and diesel exhaust fluid security.
• Build a strategic workforce.
• Have bipartisan support.
I call upon Government to support and facilitate this action now, ‘just in case’.
Tony McMullan CEO, Truck Industry Council