Diversifying Global Supply Chains for Resilience
Updated: Aug 22
Global supply chains are the backbones of the worldwide trading economy. And just like its human form, when pushed to its limits, requires expert strengthening and conditioning.
The world is experiencing increasing changes in its political, economic and social systems. A sign of this change is the growth of international trade among countries that are now more interconnected than they were before. This development can be attributed to technological advances which have lowered costs of transportation and communication.
A consequence of this is the reliance of certain economies on others for key factors of production and essential commodities such as energy. This has made some nations vulnerable to natural disasters that can disrupt trade, as experienced by Japan after the Tohoku earthquake and tsunami in 2011, and the ongoing global health pandemic. Therefore building resilience in global supply chains is crucial in ensuring the continued stability of the economy.
Resilience is Necessary for Sustainable Growth in the International Economy
Resilience is a characteristic of any system that enables it to continue to function in spite of an internal or external disturbance. In the context of global supply chains this means continuing production and trade in the event of a natural disaster, financial crisis or other “shock” which could disrupt or endanger these activities.
By being able to cope with such events, the system avoids significant damage and disruption to trade. This therefore helps to facilitate long-term economic growth in a global market which is more interconnected than ever before.
It is expected that the world will continue to become more interconnected than ever before as businesses seek opportunities to increase productivity and efficiency through economies of scale. Therefore, building resilience in global supply chains is a crucial element for enabling a thriving economy to continue its operations in the event of a natural disaster or economic crisis.
Resilience at the Individual Level
At an individual level, resilience can depend on factors such as strength of character and prior experience in coping with challenges that are outside of one’s normal life experiences. For example, individuals who have faced adversity in the form of poverty may be more resilient to the pressures of being unemployed than individuals who have had a relatively privileged background.
Resilience at the Societal/Community Level
For societies, being resilient can also depend on whether citizens have access to basic services such as health care and education through their social security systems. As such, building resilience is an important aspect for ensuring long-term progress and stability in a country.
For businesses that depend on long-term relationships with local customers, a change of suppliers can sometimes cause a loss of market share. Therefore it is important to be able to maintain positive business relationships in order to avoid losing sales. This requires building trust and confidence through transparency about the company’s activities and ensuring fairness for all stakeholders.
Resilience of Global Supply Chains
Supply chains are the networks of suppliers, manufacturers, distributors and retailers that provide products or services. A company’s supply chain can be global when it is made up of multiple components from around the world. This means that the success of the company has to rely on its suppliers, manufacturers and retailers to maintain a stable supply of goods for the customer at the end of the chain.
Resilience at the global supply chain level can be said to refer to how resilient they are to economic shocks that are external in nature. These are particularly relevant in the context of international trade because they affect trade between countries. For example, a country may have an established trading relationship with another country which is disrupted by political instability or even natural disasters – disruptions that are far away geographically from the business could actually impact its local ability to operate.
Businesses that have been able to maintain a positive relationship with their trading partners have been seen to recover from such disruptions faster than those who were less resilient.
Diversifying Global Supply Chains
The need for businesses to diversify their supply chains is important because they are vulnerable when all of the components in the chain come from only one country. This can be especially true in an age where global health issues, complex trade laws and national political issues increase in frequency and severity.
Diversifying global supply chains for resilience is an important aspect for ensuring long-term progress and stability in all economies. Broadly speaking, these diversifications include:
Decentralized and independent trusted suppliers and manufacturers
Sourcing raw materials from a local supplier in each country of production- geographical diversification, lowest transport cost, emergency preparedness etc.
Analyzing distance between components in supply chains; the transportation costs, delivery terms, capacity utilization (from low to high)
Managing Inventory costs – reliability of supply- safety stock levels
Disruption management strategy, joined/integrated policy, adaptation to climate change etc.
As the world becomes more interconnected, global supply chain resilience has become an increasingly important factor in ensuring growth for businesses.
Companies that seek out trusted partners that have expert managers and teams who are experienced in building, managing and maintaining these international supply chains gain a significant competitive advantage in being able to diversify their supply chains, therefore strengthening their overall business against competitors.