Supply chain disruptions have affected all parts of the global economy, from the start of the COVID-19 crisis through to the disruption caused by the war in Ukraine. From shortages of Ikea furniture to the dearth of microchips that sent the cost of second-hand cars soaring, the dislocation of a once smooth-running system has caused havoc in the global economy. But while predictions about the reduction of bottlenecks have not led to any meaningful progress, it is now easy to see that the various crises of the past two years are spurring fundamental changes to the world economy that could have profound impacts on our lives.
Reducing dependence on China to mitigate supply chain disruption
In Washington, the United States government’s China Economic and Security Review Commission has called a hearing to examine reducing America’s dependence on Chinese manufacturing. Anxiety in the US about dependence on China has been building for years and led to the Trump tariff war against Chinese products. But the supply chain disruption, brought about during the height COVID, ongoing thanks to China’s strategy of eliminating COVID shut down Shanghai for two months this year, have prompted a major rethink of how companies should organise themselves. Despite talk of reshoring and diversifying our supply chains, the basic need is still that we must make western economies less reliant on China and faraway manufacturing hubs like it.
United States President, Joe Biden, said at the opening of the summit of the Americas that countries had to commit to making sure that supply chains were more secure and resilient. The White House has made a $250bn fund available to boost US manufacture of microchips, the shortage of which was one of the first visible signs of problems in the wake of the pandemic shutdowns of Asian factories. Samsung has acted. The company has said that it will build a $17bn chip factory in Texas as the company aims to reduce the supply chain disruption arising from its United States customers depending too heavily on its east Asian manufacturing bases.
What the meetings in Washington will achieve
The hearings in Washington are intended to drive the urgency of the situation, specifically about the defence industry, and will take evidence from management experts from Harvard, champions of reshoring and Biden administration officials such as Deborah Rosenblum tasked with securing the industrial base. President of Reshoring Initiative, Harry Moser, says that growing inequality, government deficits and insecurity of defence supply lines make the repatriation of industry imperative. The changes necessary to fix the supply chain problem reportedly include better-trained teams, a lower dollar and greater investment by companies.
The new normal for supply chains
In Britain, a recent survey of retailers found that 87% do not believe things will go back to how they were and that costs will not return to pre-pandemic levels. Retailers are seeing significant supply chain challenges arising from the crisis around materials, labour and changing consumer behaviour. The exclusion of Russia from global supply chains worsened existing problems and spiked energy prices. Exiger has developed software to analyse and reshape supply chains, granting companies more transparency through open-source data across alternative supply lines. This could be the end of the just–in-time delivery systems pioneered by Japanese car-makers in the 1980s.
Supply chain experts warn that these problems could last another two years before they are fixed and says there will be a long way to go thanks to China’s zero-COVID strategy. On the other hand, there are signs the supply chain disruption may not be as catastrophic as feared. Even though the recovery may be slow from the city lockdowns, the number of delayed shipments out of China to the US had plateaued at 35%. Companies are becoming accustomed to dealing with delays at Chinese ports despite the unpredictability of the country’s economy.
To discuss your supply chain strategy and how you can make your supply chain more resilient and adaptable, get in touch with us.