4 Factors Reshaping the Global Supply Chain

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.

2. Reshoring

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.