By creating major shocks to both supply and demand, the COVID-19 crisis has exposed the fragility of complex global supply chains. Because of this critical goods, such as PPE and food supplies, cannot get to where they are most needed. While many production lines in industries like automobiles have ground to a halt.
But why are supply chains so unable to deal with disruption? And what are the short- and long-term impacts from a business and policy-making perspective? We invited experts from Flexport, the National Retail Federation, and Global Affairs Canada, to join our spring virtual summit, Paradigm Shift, and provide some insights.
From fragile to antifragile supply chains
“The COVID-19 crisis hasn’t made global supply chains fragile,” says Mikkel Hippe Brun, Co-founder & SVP APAC at Tradeshift. “It’s simply exposed several issues that have existed for some time now.”
Hippe Brun points to the fact companies have attempted to squeeze every last cent out of their supply chain over recent decades by outsourcing production in low-cost markets. China is a prime example. A study at the start of the crisis found that 938 of the Fortune 1000 companies had a tier one or tier two supplier in China impacted by the virus.
Yes, this strategy keeps costs down, but at what price? Because, as we’ve seen in recent months when supply from these markets is disrupted, entire supply chains are at risk of grinding to a halt. “And when you consider that most companies operate with lean inventory and just-in-time manufacturing processes it all equates to very little robustness in corporate supply chains,” says Hippe Brun.
“The supply chain becomes a company’s biggest risk during times of disruption. But by making it antifragile it can become its biggest strength.”
“This is a big wake up call for many companies,” he says. “It’ll accelerate the trend of companies reconfiguring their supply chains to ensure they’re more resilient and prepared to adapt to shocks.”
Leading companies will take this a step further, says Hippie Brun. In his view, they’ll work to build supply chains using the concept of anti-fragility—supply chains that improve and learn from disruption. “The supply chain becomes a company’s biggest risk during times of disruption. But by making it antifragile it can become its biggest strength.”
Reconfiguring supply chains isn’t a sure bet
Jonathan Gold, VP, Supply Chain and Customs Policy, National Retail Federation, expects to see supply chains fundamentally change coming out of the crisis. But it’s a task riddled with complexity, he warns.
“Diversifying supply chains isn’t a new trend,” says Gold. “Many companies have worked on reducing their reliance on markets like China in recent years. What’s happening now will accelerate that trend.”
But there are many issues. Gold cites the time it takes to locate, vet ,and verify any new suppliers to ensure they meet necessary standards as just one big hurdle companies will face. This is especially true when the processes used to facilitate this are paper-based and manually intensive.
There’s also a question of capacity. “In the U.S. the dominant political narrative is around reshoring supply chains,” he says. “But it’s not that easy. The U.S. doesn’t have the capacity, technology and the workforce right now for that to happen. And that’s a similar story in many other markets that companies are looking at outside of China.”
No solution is simple, says Gold. “Companies must think carefully about how they wish to reconstruct their supply chains. And it may not matter where they locate their supply chains, so long as they work to ensure it’s robust, agile and resilient.”
Using policy to facilitate trade
It’s not just companies working through the complexities of this crisis and figuring out what’s next, policymakers also must move quicker than ever before to keep the flow and goods and capital moving around the world.
“As companies on the ground adjust and adapt to deal with the realities of the crisis, it’s up to policymakers to ensure that the overall trading architecture remains solid,” says Dr Ailish Campbell, Chief Trade Commissioner, Global Affairs Canada.
To achieve this, Dr.Campbell and her team are diligently working with key trading partners to keep goods flowing into and out of Canada safely and effectively. “This is especially critical for items like PPE,” she says. “And we’ve worked to build a PPE network and air-bridge with China to ensure that our supply of PPE meets our demand.”
“As companies on the ground adjust and adapt to deal with the realities of the crisis, it’s up to policymakers to ensure that the overall trading architecture remains solid.”
Yet moving at speed and with urgency cannot come at the expense of due-diligence and risk mitigation warns Dr.Campbell. “Companies must verify any new supply chain partners and ensure they meet the necessary standards. And we’re supporting the private sector with this effort by helping them test N95 masks they’re sourcing, for example.”
Technology can promote supply chain resiliency
Technology will be core to whatever companies and policymakers do following this crisis to reconfigure and build more resilience into supply chains.
“One of the key challenges companies face right now is understanding what happens in their supply chains,” says Christos Chamberlain, UK General Manager at Flexport. “Most companies don’t know if their stock is in transit, in a warehouse or somewhere else. And that's a problem when trying to decide what steps to take during a crisis like this.”
By digitizing supply chain flows and the documentation that supports it, businesses will be much better prepared to deal with disruptions. “Volatility isn’t going away,” he says.” Another crisis is always just around the corner. Companies must ensure they have that real-time data and visibility into their supply chain to plan with confidence and execute quickly on their decisions.”
What’s next for supply chains?
Once this crisis is over, many companies will rewrite the rule book around how they manage their supply chain.
Will this mean that concepts like just-in-time become a thing of the past? Will this mean a large scale decoupling from China? And will it spell the end of large, complex global supply chains?
It may, but ultimately it’ll come down to what's the best way for companies to build resilience, robustness and antifragility into their supply chains.
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