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.”
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