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Images of a mega tanker Ever Given blocking the Suez Canal, an artery for 10% of the world’s trade, is an emblem of the world’s evolving supply chain challenges. Indeed, 2020 with the paralysis caused by the COVID-19 pandemic, along with the nationalistic instincts to erect borders and introduce global fractions to trade, commerce, and travel, is only the latest punctuation mark showing how brittle the world’s supply chains really are. The forces of supply and demand together with business rationalization of costs, has stretched the limits of globalization and just-in-time approaches so thin, that the world’s supply chains resemble a Stradivarius violin—they are priceless, fragile, and tightly strung.
Some of the insidious ways this tenuous supply chain has shown strain, includes the fact that for many so-called fortress nations around the world, the production and inventory of comparatively basic supplies was meager. From N95 masks to simple ventilators and life-saving personal protective equipment (PPE), among other essential material to combat the pandemic, the reliance on far-flung production and continuous shipping and air transport routes showed the risks of off shoring.
In the run up of globalization over the last 50 years, the pendulum swung too far afield. As supply chains and foreign direct investment grew around the world, accelerated in the year 2000 by the moniker BRICS—which directed business activity and a fierce investment race to Brazil, Russia, India, and China (along with other emerging economies)—supply chain linkages were stretched even further. Today, the tendency is to skew to ultra-national interests. From blocking or seizing COVID-19 vaccine exports, referred to as vaccine nationalism, to using war powers for directing companies to manufacture essential materials, it would seem the pandemic combined with other political tendencies are beginning to change the nature of global integration, which will have profound implications on supply chain management. Just as the post-2008 financial crisis world was informed by the lesson “cash is king,” speaking to how chastened corporate treasurers realized the limitations of leverage, so too supply chain leaders have realized the limitations of just-in-time, priceless, and tightly strung supply chain linkages. If cash is king, is on-shore or near-shore the kingdom?
While COVID-19 is certainly the global supply chain antagonist of 2020, it is not the only adverse force showing how brittle the world’s supply chains really are. 2020 was another year roiled by record climate change effects that paralyzed many communities, countries, and global supply chains. An emblem of this is the fact that the first ocean going vessel was able to traverse the Arctic in the winter, showing the prospects of an open ocean sea route in the North Atlantic. While this may be heralded by some as a potential global supply chain advantage, the invariable long-term effects on global coastal communities, along with the accelerating rate of climate change impacts, will negate any gains from a widening berth across once untraversable ice. Indeed, what is transpiring at a global level is also manifestly posing supply chain challenges in a hyper-local environment as well. Here too, preserving cold temperatures matters, as the world’s ability to sound the “all clear” on COVID-19 hinges on our ability to get safe vaccines to the world’s population, which in turn hinges on an incredibly unreliable and unequal cold supply chain.
The other megatrend affecting supply chains is the dueling risks and rewards of cyber threats and digital transformation, in which the rate of connecting everything to the internet continues unchecked. Historically, a proverbial “air gap” between critical infrastructure or relationships was the overarching goal with supply chain management and business continuity planning, especially in the military context, from which the discipline is born. When the internet of things (IoT) creates an unknown backdoor to critical infrastructure, meat processing plants, industrial and farming equipment, the true peril is laid bare. Recent examples show how this exposure via internet-connected devices, sensors and the ever-present danger between the keyboard and the chair (low human cyber hygiene) are complicating basic modern economy activities such as keeping the lights on or gas stations running. The world is in a perennial game of cyber risk whack-a-mole and supply chains are in the crosshairs.
In a global economy that is equal parts haves and have nots, always on and digital, versus partially on and analog, supply chain and business continuity is not only about the reliability of transporting goods around the world, but also about the hyper-local reality of being able to keep the lights on. You can have electricity and no economic growth, but you cannot have economic growth without reliable, low-cost electricity. Here too, the veritable supply chain of electrons is being roiled by a turbulent risk landscape, where the single source of failure infrastructure designed in the 1940s and 50s, built in the 60s and 70s, is looking very feeble in the face of 21st century risks. Shoring up supply chain resilience post-pandemic, will require not only a rethink and recalibration of the limits of globalization, but it will also require strengthening the deeply strained chain of global resilience (and reengagement) one link at a time.