Global Supply Chains - Risks and Rewards

“Globalization is a fact, because of technology, because of an integrated global supply chain, because of changes in transportation. And we're not going to be able to build a wall around that.” - Barack Obama.

Historically, companies have looked for reliable and cheap transport to leverage low-cost labour markets. Supply chain resilience is now getting snarled with economic sovereignty. The trade wars have revealed the cross-border dependencies. The Ukraine-Russia conflict is yet another shock to global supply chains after the disruptions caused by the pandemic and geopolitical tensions.

We have witnessed the semiconductor chip shortage which has pushed a plethora of industrial policy initiatives for localisation. The companies making embedded system have their manufacturing facilities spread across countries from the Asia Pacific to South America. Pandemic not only impacted these industries offering embedded products and solutions but also the companies using these products. The entire supply chain was jolted due to a limited supply of parts.

In addition, accidents such as the blockage of the Suez Canal and climate-related events have led to elevated logistics costs. Companies that relied on labour arbitrage and global sourcing strategies are thinking about regional alternatives. This will involve balancing production capacities and the development of geographic trade blocks.

The health of smaller suppliers has deteriorated as they?struggled with rising raw material costs. A strategic approach that recognises costs to suppliers and better shared demand planning is needed. Firms must re-examine ways to incentivise their suppliers for flexibility and resilience. On account of rising pressure to manage emissions and incorporation of ESG goals, new environmental regulations will become an important factor in sourcing choices.

“Resilience is the strength and speed of our response to adversity — and we can build it. It isn’t about having a backbone. It’s about strengthening the muscles around our backbone.’’ - Sheryl Sandberg.

We are headed into a new era of supply-chain management. The time of tremendous growth of distant global supply chains is changing. Leaders will encounter fresh choices and challenges with a focus on resilience and sustainability. They will have to pivot their capacities and capabilities to be more flexible and regional.?