Could APEC play a role in boosting supply chain resilience?
COVID-19 has affected the function of global supply chains that provide us with access to food, medicines, technology, and other necessities. The pandemic has also refocused our attention towards the workings of global value chains (GVCs) and how to make them more resilient.
The latest APEC Regional Trends Analysis report has highlighted the need for governments to consider strategies for greater resilience in the APEC region, due to significant disruptions in supply chains caused by the pandemic.
“Most of the concerns raised about supply chain resilience have been echoed by the business community, but more can be done to manage resilience at the policy level,” says Dr Akhmad Bayhaqi, a senior analyst with the APEC Policy Support Unit.
The APEC region has been producing close to 60% of global manufacturing value added (MVA) over the past two decades, spread mainly across four main hubs. When COVID-19 lockdowns affected these hubs, it led to severe supply chain disruptions. In the first four months of 2020 alone, the APEC region saw a 6.3% decrease in exports and a 5.5% decrease in imports compared to 2019.
Boosting resilience of supply chains
The report found that some businesses are considering reconfiguring their supply chains to alternative competitive locations to diversify risks, or closer to markets or headquarters for easier management if shocks arise. These changes could involve re-shoring or near-shoring of production or relocation to other economies to diversify risks. Re-shoring (business operations moving back to their home economy) or near-shoring (moving business operations closer to the home economy) would result in more regional supply chains.
“There is a need for investments in order to build more resilient supply chains,” Dr Bayhaqi adds. “Improving just-in-time manufacturing, combined with the right technology and other strategies such as creating cushions in the form of inventory, capacity or lead times and designing contingency plans for possible supply chain shocks can boost resiliency.”
The report calls for governments to avoid policy interventions that may disrupt the efficient configuration of global value chains. Rather than looking at trade as the root cause of supply chain’s vulnerability, the report suggests policymakers look at global trade as part of the solution to achieving resiliency.
“Governments can focus on promoting digitalisation and supply chain visibility; and by enhancing regional cooperation on trade, connectivity and economic openness,” says Dr Bayhaqi. “Customs operations and cooperation can be improved by applying automation and digitization through platforms such as the Single Window System.”
Will redundancy improve supply chains?
It is suggested that structural reforms could also play a crucial role in developing a stable and predictable environment that allows global value chains to operate and recalibrate their network structures during recovery from a pandemic.
Some surveys show that businesses are already considering introducing redundancy as a means to improve the resilience and flexibility of their supply chains. A McKinsey survey of supply chain executives conducted in May 2020 reports that 93% of executives planned to incorporate redundancy across suppliers, reduce the number of unique parts, and shorten and regionalise supply chains.
“There is no easy fix for supply chain disruptions,” says Dr Rebecca Sta Maria, APEC Secretariat’s Executive Director. “The focus for economies today is to build long-lasting resilience by looking at their supply chains more holistically, harmonising regulation, digitising processes and creating some level of redundancy to allow flexibility.”
Biden establishes Supply Chain Disruptions Task Force
The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration.
The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing.
“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said.
In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”.
In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips.
Support domestic production of critical medicines
- A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration.
- The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”.
- The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.
Secure an end-to-end domestic supply chain for advanced batteries
- The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”.
- The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”.
Invest in sustainable domestic and international production and processing of critical minerals
- An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”.
- The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.
Partner with industry, allies, and partners to address semiconductor shortages
- The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing.
- Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”.