Beginning in the 1990s and accelerating after the inclusion of China in the World Trade Organization in 2001, many companies globalized their sourcing and production and embraced lean manufacturing techniques to reduce costs. As supply chains moved abroad, global trade jumped from 39% of global GDP to 58% between 1990 and 2019.
But this move toward globalization exposed companies to a plethora of supply chain risks, such as extreme weather events, labor disputes, cyberattacks, and supplier disruptions. Growing awareness of these risks slowed globalization—a phenomenon sometimes called “slowbalisation”—and between 2008 and today global trade as percentage of GDP shrunk from 61% to 58%. The COVID-19 pandemic and the economic crisis accompanying it has only accelerated these trends and revealed additional supply chain risks.
COVID-19 is not the first epidemic to disrupt supply chains—SARS, measles, swine flu, Ebola, and avian flu all resulted in business interruptions—but none of these epidemics disrupted global trade and domestic supply chains as much as COVID-19. The ongoing pandemic has highlighted structural problems in global supply chains. Chinese manufacturing of essential medical goods and equipment has revealed what some regard as a dangerous over-reliance on products critical to national health and economies.
Surging customer demand for some goods (healthcare products and equipment, groceries, and household products) that often shifted geographically—moving from hotspot to hotspot—and dramatic decreases in demand for other goods (essentially everything non-healthcare) exposed the inability of supply chains to quickly shift production and logistics in response.
These stresses revealed the fragility of the modern supply chain and require a reset in the design of supply chain networks to improve resilience and agility. Companies and governments alike are realizing that efficiency at the expense of resilience cannot be the sole criterion around which supply chains are designed. Now more than ever, a new paradigm for competitive resilience is necessary in order for companies to redesign their supply chains for the long haul without reverting to their pre-pandemic practices.
Supply chain resilience
Supply chain resilience refers to the ability of a given supply chain to prepare for and adapt to unexpected events; to quickly adjust to sudden disruptive changes that negatively affect supply chain performance; to continue functioning during a disruption (sometimes referred to as “robustness”); and to recover quickly to its pre-disruption state or a more desirable state. To achieve supply chain resilience the following are important tenets:
Rapid detection, response, and recovery. Supply chains need to be able to quickly detect, respond to, and recover from changed conditions.
End-to-end, data-driven, supply chain control. Supply chain integration, transparency, and visibility are necessary but not sufficient conditions for enhanced resilience. Being able to view raw materials, semi-finished goods, and finished products starting from your “suppliers’ suppliers” to your “customers’ customers” is more important than ever. However, to extract value from these data requires action to be taken quickly. Preparing for a disruption before it occurs (e.g., planning, scenario planning, war gaming) is key. It may take months to determine what data to collect and how to convert these data into actions for rapid disruption detection, response, and recovery.
Redundancies, including emergency stockpiles, safety stocks, and diversified sourcing from offshored, nearshored, and/or reshored suppliers. These suppliers must be able to provide additional surge capacity when there are disruptions of supply to ensure business continuity.
Collaboration of private and public supply chain stakeholders.