Did you know?
Numerous corporations began globalizing their sourcing and production in the 1990s, and once China was admitted to the World Trade Organization in 2001, they embraced lean manufacturing practices to cut costs.
Between 1990 and 2019, global commerce increased from 39 percent to 58 percent as supply chains expanded abroad.
However, as a result of this globalization, businesses are also susceptible to a variety of supply chain hazards, including extreme weather, labor disputes, cyberattacks, and supplier disruptions.
Growing knowledge of these dangers delayed globalization, a phenomenon known as “slowbalisation,” and global commerce as a share of GDP fell from 61 percent to 58 percent between 2008 and present.
Challenging years in the making
The difficulties plaguing global supply chains, according to panelists, are a direct result of more than two decades of failed trade policies, continuous outsourcing, and underinvestment in vital infrastructure in North America.
The pandemic, like the ensuing economic downturn, has exacerbated existing stresses.
Supply chain bottlenecks have become endemic as a result of a number of key events, in addition to pent-up consumer demand fueling product shortages.
Flight restrictions imposed as a result of the Ukraine crisis are the latest in a string of setbacks that include a fire at Japan’s largest semiconductor factory, extreme weather causing more semiconductor shortages in Taiwan, a record freeze in Texas, a stranded container ship blocking Suez Canal traffic, and destabilizing border protests in Canada.
Simultaneously, initiatives to enhance supply chains face a variety of societal difficulties, the most significant of which are inflation and rising salaries due to labor shortages.
Governments are intervening through various policy initiatives to contain the wider economic fallout, as the recovery period is difficult to forecast. As a result of the ongoing crises, complex geopolitics, and industry transformation, supply networks are changing.
The Pandemic Effect
The COVID-19 epidemic, as well as the associated economic crisis, has only expedited these trends and uncovered new supply chain dangers. SARS, measles, swine flu, Ebola, and avian flu were all epidemics that affected supply systems, but none of them damaged global trade and domestic supply chains as much as COVID-19.
The current pandemic has brought attention to structural issues in global supply systems. Manufacturing of crucial medical goods and equipment in China has highlighted what some see as a worrisome over-dependence on products that are critical to national health and economies.
Customer demand for some goods (healthcare products and equipment, groceries, and household products) that shifted geographically (moving from hotspot to hotspot) and dramatic decreases in demand for other goods (basically everything non-healthcare) exposed supply chains’ inability to respond quickly enough.
These stresses revealed the modern supply chain’s vulnerability, prompting a rethinking of supply chain network design to increase resilience and agility.
Supply networks cannot be built primarily on the premise of efficiency at the expense of resilience, as both businesses and governments are finding. More than ever, companies must rebuild their supply networks for the long term without resorting to pre-pandemic behaviors, necessitating a new paradigm for competitive resilience.
Being Supply Chain Resilient with Business Experience
The ability of a supply chain to prepare for and adapt to unexpected events; to quickly adjust to sudden disruptive changes that negatively affect supply chain performance; to continue functioning during a disruption (sometimes referred to as “robustness”); and to quickly recover to its pre-disruption state or a more desirable state is referred to as supply chain resilience.
The following are critical tenets for supply chain resilience:
1. Design Thinking (Strategy – Governance / Leadership)
2. Innovation (Business Process Automation)
3. Technology
Detection, response, and recovery all happen quickly. Changes in supply chains must be detected, responded to, and recovered from rapidly.
Data-driven, end-to-end supply chain control. Integration, transparency, and visibility in the supply chain are all necessary but not sufficient factors for increased resilience.
It’s more critical than ever to be able to see raw materials, semi-finished items, and final products all the way from your “suppliers’ suppliers” to your “customers’ customers.”
However, extracting value from these data necessitates prompt action. Preparation for a disruption in advance (e.g., scenario planning, wargaming) is critical. It could take months to figure out what data to collect and how to turn it into actions for quick disruption detection, response, and recovery.
Emergency stockpiles, safety stocks, and diversified procurement from offshored, nearshored, and/or reshored suppliers are all examples of redundancies. To maintain business continuity, these providers must be able to deliver additional surge capacity when supply is disrupted.
In conclusion
Leading multinational corporations have long understood that managing supply chain risks is critical to maintaining their competitiveness.
To this purpose, supply chain risk management and risk mitigation measures have grown in popularity among business executives and boards of directors during the previous two decades.
However, supply chain risk management tools have not been widely used. Supply chains have become brittle, lean, and offshored as a result of a concentrated concentration on operating margins and asset efficiency.
Because more resilient, and hence more expensive, supply chains based on high levels of redundancy can have a short-term negative impact on the bottom line, corporate boards and shareholders have rejected them in the past.
Although a variety of concerns, such as the firm’s financial health, macroeconomic conditions, SEC reporting requirements, and investor impatience, may serve as impediments to such a perspective, assuming a longer-term perspective may make investing in resilience a superior value proposition.
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