4 Factors Reshaping the Global Supply Chain
Since the early 80’s the focus of supply chain design and development on leveraging cost arbitrage has catapulted China to becoming a world economic force and number one source for intermediate and finished goods. It has given us a blueprint for intricate global supply chains spanning multiple highly specialised markets that continues to serve us well despite increasingly challenging economic, political, and natural circumstances.
These challenges pre-date COVID-19 and continue to simmer beneath the surface while businesses adjust to successive waves of the pandemic and “the new normal”. The most prominent challenge we see companies preparing for currently is mitigating the effect of COVID-19 on their business as well as their employees. Over this past year, we have come to recognise many risk contingencies measures in the workplace such as, social-distancing, new healthcare policies and remote working arrangements. In addition, over 96% of global companies are seeking to boost the resilience of their supply chains in response to COVID-19. Yet, it is important to recognise that the best risk contingency plans are rarely 100% foolproof and it will require adjustments on the fly as circumstances continue to unfold.
However, worryingly, the pandemic has overshadowed several other forces that are already influencing the nature of global supply chain which will leave companies without risk contingency plans and as such, unprepared for the inevitable disruption.
4 Factors Reshaping the Global Supply Chain (besides COVID-19)
1. China +1 – Parallel Productions
The idea here is to offset or hedge against China’s continuing loss of competitiveness by relocating some activities to lower cost Asian neighbours via a concept know as new or parallel production operations.
When technology reduces the role of human capital through productivity improvements, and businesses activities become more capital intensive and therefore open to relocating manufacturing activities back to home markets.
3. Business Interruption
While the Pandemic has been a life changing event for everyone, natural hazards like floods, hurricanes, earthquakes regularly disrupt supply chains with different levels of impact to ongoing business activities. McKinsey reports we can expect disruptions lasting a month or more to occur every 3.7 years with significant worst case financial consequences.
4. Political Risk
Both BREXIT, and the US/China Tariff situation illustrates the underlying tensions that are influencing supply chain design decisions, most notably the trend toward regionalisation whereby manufacturing is relocated closer to markets or near-shoring.
While disruption to the scale of the current pandemic is devastating but rare, it is interesting to note that the insurance industry sees it as a change accelerator as part of a wider series of shifts in competitiveness, protectionism and technology.
Supply Chain network technology holds the key to modelling and understanding the impact these different forces are having on your supply chain. These technologies support supply chain network scenario modelling, monitoring supplier networks, accelerating response times, risk monitoring and alerts, and even changing the economics of transportation and production. These tools are regularly used to develop more agile and innovative supply chain networks that are better equipped to operate and prosper under increasing turbulent and unpredictable business circumstances.
For more information on how to optimise the design of your supply chain, email firstname.lastname@example.org
- McKinsey Global Institute