Global supply chains are facing an unprecedented array of challenges. It is essential to address them. The global supply chain is fragile and at risk of disruption. The corona pandemic illustrated this. Many companies will be paying more attention to how they plan their inputs in the future. This is not only for efficiency reasons but also because it increases risk management. This creates a conflict between resilience and efficiency. This conflict could be partially resolved by digital technology.
It was easy to have production outsourced to other countries and then have them produce clothes, computer chips, and medicines and send the products back to the US. Many businesses used cheap labor from overseas to assemble products. Global distributors would then deliver materials "just in time" to American companies.
The world will look very different after the Covid-19 pandemic ends. The global economic collapse in February caused a supply shock in China. It also led to a demand shock in March 2020. This resulted in vulnerabilities in many firms' supply chains and production strategies. Their weaknesses were highlighted by temporary trade restrictions and shortages in critical medical supplies and pharmaceuticals.
What is supply chain disruption?
Supply chain disruption refers to the interruption of an organization's normal operations. It can impact productivity, business reputation, profit, and the organization's employees and suppliers, depending on how severe the disruption is.
Global supply chains today are constantly at risk of disruption. The risk is usually higher with increasing complexity. A supply chain's infrastructure and resilience can significantly impact a business's ability to withstand disruption.
Responsible business practices help companies to identify potential supply chain disruptions and prepare better-informed responses. These responsible business practices help companies achieve their sustainability goals and address the demands of stakeholders.
Five ways to improve global supply chains
- Boosting Domestic Capabilities Through On-Shoring and Near-Shoring: Many companies used to stock only the items they needed immediately and trusted supply chains to deliver any additional items quickly. This saved money as firms didn't need to store large quantities of stock or build additional storage. They kept their stock low and replenished them as needed.
Manufacturing capabilities were also shifting abroad as corporate leaders looked for low-cost labor and energy areas in which products could be manufactured.
- Some governments offer incentives to bring production back to their countries. Singapore has, for instance, announced the Together Enhancing Enterprise Responsive Programme, which provides money to improve business operations and capacity.
- Italy has programs that restore luxury goods such as jewelry, fashion, and textiles. Japan established a fund to finance 70% of relocation costs for small and mid-sized enterprises that produce PPE and raw materials for drugs.
- Easing Transportation Jams: Distribution logistics have been made more difficult by transportation logjams in recent years. Many reports have reported port holdups, shortages of container boxes, and price rises in crucial areas. If delivery delays product contracts, companies cannot obtain the necessary parts to assemble their products.
These problems have led to a sharp increase in container freight rates, which has resulted in higher costs for items made abroad. Off-shoring is not an affordable way to provide goods and services. It harms businesses' ability to satisfy their customers. For people who prefer quick turnaround times, orders sometimes take several months to fulfill.
- Dealing with Labor Shortages: Recent economic shocks and labor shortages have caused supply chain disruptions, delays, cost rises, and other logistical problems in recent years. Inflation has become an economic problem again, with complications related to shifts in the workforce.
The problem is partly due to changing demography. The Federal Reserve Bank of Boston has documented that the population is aging, and the workforce is also changing. The overall participation rate in the workforce fell during the pandemic, and it has yet to return to pre-COVID-19 levels. Despite the low national unemployment rate, many people are still out of work. This is particularly true for women caring for elderly parents and children.
- Fighting Anti-Competitive Practices: Imperfect market competition can cause supply chain problems and make it challenging to stop abusive market practices. Large firms often have market power in many areas and can use that power to increase prices or engage in anti-competitive activities. This can exacerbate market problems and worsen supply chain problems.
This situation requires vigorous antitrust enforcement to prevent market dysfunctions and other abuses. Experts argue that it's also vital to ensure national competition authorities can monitor market behavior and freight rates. UNCTAD contributes to this monitoring by providing statistics and research on liner shipping connectivity, fleet deployment, port calls, and freight rates.
Policymakers must continue strengthening national competition authorities in maritime transport and ensure they have regulatory oversight.
- Mitigating Geopolitical Complications: As Russia invaded Ukraine, the geopolitical landscape became more complicated. Relations between the US and China became more hostile, and many countries have placed tariffs, sanctions, and barriers to entry on other countries. Many goods made in China include electronics, medical equipment, clothes, and furniture. It is difficult to maintain open supply chains while geopolitical conflicts intensify and there is high economic and security risk.
Building a resilient supply network requires collaboration, agility, and proactivity. RationalStat market intelligence and procurement market research solutions are available to help you build visibility, identify risks, and plan for future disruption. You can use today's technology and data to draw insight and create more sustainable business operations.
Global corporations are expected to focus on the decentralization and location of their manufacturing plants in their home countries. This will help avoid another disaster that could cause the business to close down due to a lack of supply. New concepts such as small batch production, digitalization to decrease the gap between buyer and supplier, remote operations, and more technology-driven operations (AI, IoT, etc.) will be prioritized.
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Co-founder and Director at RationalStat
Divyanshu is an experienced market research consultant. He helps growth-driven organizations and entrepreneurs understand market entry prospects, industry assessment, and grow their revenue strategically.