Vulnerable supply chains
Study report
This report was sent to Government on 22 July 2021 and publicly released on 13 August 2021.
The Commission has developed a framework to identify supply chains that are vulnerable to disruption, and applied it to Australian imports and exports. The Commission has also identified strategies to manage supply chain risks and the circumstances under which government might intervene.
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- Executive Summary and Findings - Vulnerable Supply Chains - Study report (PDF - 840 Kb)
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Few vulnerabilities in Australian supply chains
Australia’s supply chains have been disrupted by COVID and trade tensions, but most essential supply chains have proven resilient, according to a report released today by the Productivity Commission.
“While people have been understandably feeling apprehensive about supply chains, only a few traded products are vulnerable,” said the Productivity Commission’s Jonathan Coppel.
“Businesses can usually manage these risks through stockpiling, contracts and diversification,” he added.
The report developed a new, data-driven approach to identifying imports which are vulnerable to disruption, and which form a critical input into an essential industry. It found that few imports were used in the supply of essential goods and services, such as healthcare. Most vulnerable imports identified included non‑essentials such as Christmas decorations, luxury watches and sparkling wine.
“The main import vulnerabilities appear to be in certain chemicals, and in personal protective equipment,” Commissioner Catherine de Fontenay said.
Likewise, on the export side, few exports are primarily directed to one country; and most have alternative markets to which they could pivot.
Aside from iron ore — where our export concentration is well known —only 1.5 per cent of the value of all goods exports were found to fit the definition of vulnerability to disruption.
“Many exports such as coal have been successful in finding alternative markets,” Commissioner de Fontenay said.
The report also considers how best to respond to vulnerabilities from geopolitical, environmental and social risks.
Firms and government agencies are generally best placed to manage their own supply chain risks.
“Except in rare circumstances, the best response does not involve using policy levers to encourage more Australian production. Other available risk management tools include stockpiling, alternative contract design and diversification,” said Commissioner Catherine de Fontenay.
Governments also have the responsibility to provide an environment that facilitates firms’ risk management. This includes providing an open trading environment, ensuring regulation doesn’t impede risk management and providing information to help firms manage their risks,” said Jonathan Coppel.
“The main case for government intervention is in those few instances where the community as a whole is more sensitive to risk than an individual business,” said Jonathan Coppel.
The Vulnerable Supply Chains report can be found at: www.pc.gov.au