The pivot's back in business

Across the Illawarra, everywhere from cafes to gardens and lawns, small businesses are feeling the pinch of higher costs and weaker demand.

Amid uncertainty over shipping in the Strait of Hormuz and ongoing high fuel costs, a supply chain expert says we should buckle up for the long haul, look beyond resilience and embrace the concept of "antifragility".

“For many small businesses, the real challenge is getting squeezed from both sides. Their costs go up while customers start spending less,” said Dr Ethan Nikookar, a senior lecturer at the University of Wollongong.

“The little cafe is going to be like that. 

“Aviation, manufacturing, transport and logistics – they are especially exposed. Construction is another big one.

“But cafes, restaurants, even the retailers, the tourism operators and many other local services in our region could come under pressure quite quickly.”

Even the university could feel the pain, he said, with the cost of living deterring international students.

What 'antifragile' means

To cope with the challenges, Ethan said small businesses could benefit from studying their supply chains, planning and pivoting.

“When you're talking about resilience, we are aiming to recover quicker, at least to the original state," Ethan said. "But antifragility is the idea that says that we live in a very uncertain world, and basically disruptions are like a part of normal business nowadays.

“The concept of antifragility is about how we can help supply chains to emerge stronger – like a phoenix – and take advantage of the potential opportunities that may arise due to the disruptions.” 

As an example, he points to how Australia’s wineries and breweries – including the bright minds at Headlands Distilling Co. in Austinmer – adapted during the pandemic.

“They repurposed their entire operations to make hand sanitiser,” he said.

As deputy director of UOW’s Centre for Supply Chain Research, Ethan wants to educate business owners to help them capitalise on opportunities, which include renewables.

“Moving towards more electric cars – so electrification would be an opportunity that can help them a lot,” he said.

“We have a lot of businesses in the region that rely on transport, deliveries, tradies on the road, and goods moving through the supply chain.”

With oil-based fertiliser costs also rising, restaurants are bracing for a double whammy of higher food and delivery prices, all while customers cut back on discretionary spending.

“Big companies might be able to handle this, because they have access to more resources, but for a small business is going to be very tough in the next couple of months.”

A senior lecturer and academic program director for supply chain and business analytics at UOW's School of Business, Ethan has written several papers on antifragility. His research has revealed the need for supply chain education and a chance for the university to give workshops for small businesses. 

“When we talk to them, they don't really know who’s involved in their supply chain beyond their first immediate suppliers. They only know that, for example, they buy the milk from this particular company. But they don't really know beyond that.” 

Who could have predicted this

Poor planning for supply chain disruption in the Middle East is more than a local matter; the nation's had its blinkers on for five decades. 

Originally from Iran, Ethan is puzzled by the “very naive” failure of successive Australian governments to take the regime’s threats to shipping seriously.

“This problem in the region has been there forever,” he said.

Ethan has worked in supply chain management at automotive and steel manufacturers, and studied in Finland and Germany before taking on a PhD at the University of South Australia. “I moved to Australia in 2015 and been working in supply chain disruption management for the last 10 years, researching how we can make supply chains more resilient,” he said.

“There has always been the tension between Iran and Israel and other Arab countries. And, in the last 50 years, after the revolution, they [Iran] kept threatening the world with the blocking the Strait of Hormuz.

“I don't really understand why the Australian government never paid attention to things like that, and we are heavily exposed to the oil supply chain from that region.”

Some help at hand

In April, the federal government announced it would fast-track the roll-out of $6.15 billion from the National Reconstruction Fund to bolster business supply chains, including zero-interest loans to keep trucks, trains and planes moving. Farmers, wholesalers and freight operators could be eligible. There’s also support for those in manufacturing, clean‑energy supply chains and timber processing. 

For small businesses, Ethan said cutting taxes on fuel has provided indirect support, but grants or long-term loans with low interest may also be required.

“If the government doesn't step in and try to support the local businesses, that would be very hard for them.

“The problem with that would be it would severely affect the inflation rates again. So it's like this double-edged sword. It could be an immediate relief, but in the long term would have some negative impacts on businesses all around the country.”

How long the war in the Middle East will affect supply chains is the “million-dollar question”, he said, predicting extended disruption even if peace was declared as Australia relied on imported fuel.

Meanwhile, the “high risk and volatile” situation is driving up insurance, companies remain cautious and countries are looking for different routes and back-up fuel supplies. “The supply chain is all about confidence,” Ethan said.

“I don't think that in the near future we'll see this go back to normal. There is a possibility of a recession. So that's why we should be very cautious in terms of how we plan for the future.

“We all need to hope they reach an agreement as soon as possible.

“The worst-case scenario is going to be if the conflict escalates. It’s going to not only affect the movement of the ships, but also production of the oil in that region. And that would be catastrophic – for everyone in the world, including us in Australia, because we are very exposed to oil, and we are at the very end of the supply chain.”

For information about business assistance, visit the federal and state government websites.

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