costs when supply chains are calm is not as important as maximizing resilience when supply chains are not. DEMAND FOR ENVIRONMENTAL AND SOCIAL RESPONSIBILITY: Consumption • We’ve reached a point where minimizing recurring of economics, where sourcing from distant shores produces cost benefits—so long as nothing goes wrong. AN ALARMING SPEED OF FAILURE: Of course, things do go wrong; and when global supply chains fail, they fail big and fast. Companies, consumers, and whole societies may struggle to bounce back. Global crises such as the COVID-19 pandemic “lead to irregular flows of goods, shortages, reduced operations for extended periods, or complete shutdowns by individual suppliers,” as Deloitte describes. habits typically don’t change very quickly; but as consumers learn more about global supply chains, they are pressuring companies to rethink the environmental and social impacts in their sourcing. Many consumers are ready to pay more for their favorite products if producing and sourcing them are less damaging than others. Companies that wish to raise their profile in these areas will prioritize these factors as well. business demands? increase visibility, ensure accountability, and improve how we anticipate future crises? Recessions create a whipsaw effect that causes unexpected congestion in supply chains. This drives up supply costs as goods become stuck in storage or on ships; many sensitive products expire. Companies in many industries struggle to anticipate or even survive recessionary environments. On the distribution end, organizations must increasingly deliver on new promises of next-day delivery, greater supply chain visibility, and both sustainability and ethics in supply chain management behaviors. LOOMING RECESSIONS: consumer expectations blur the lines between B2B supply chain management and B2C fulfillment. Consumers expect immediacy in the form of two-day shipping and next-day delivery. Today’s consumers also expect immediacy in terms of information—about their orders, but also about activity within the merchants’ supply chains. EVOLVING CONSUMER EXPECTATIONS: Evolving Now, we must consider whether we will continue to rely on sources where global disruptions, such as geopolitical tensions, are more likely to upset the supply of essential materials. We’ve reached a point where minimizing recurring costs when supply chains are calm is not as important as maximizing resilience when supply chains are not. We may find, then, that a new wave of supply-chain de-globalization is appropriate. Organizations need some redundancies in terms of their sources; or they need to change their sourcing strategy altogether. They must ask themselves, how can we … • reduce risk in the ways we source products and manage our supply chains? • transform as our business focuses more on direct-to-consumer? • source and fulfill in a way that’s meeting new consumer and THE ECONOMIC IMPLICATIONS OF SUPPLY CHAIN DISRUPTIONS Now, supply chain leaders who acknowledge these realities are leading a new wave of de-globalization. They are shifting their supply chain management strategies and, in turn, the economics of supply and demand. They are reconsidering diversification and investing locally as often as possible; even if those moves lead to an increase in recurring operational costs, they can enable resiliency in the face of otherwise business-busting disruptions at global levels. Again, the reason is clear—the real cost of supply chains is less in the everyday costs of sourcing. The real cost comes from the vulnerability of supply chains in the face of disruption and an organization’s inability to anticipate when those disruptions will occur. It’s going to be more expensive in the near term to do things the right way. There are economic and political consequences to this, but it’s necessary to enhance the readiness of supply chains to weather unstable economic conditions. New, strategic requirements include: HYPER-LOCALIZATION: As often as possible, companies can rely on local supply, supply from nearby and smaller suppliers, or sourcing closer to end-customers. A NEW WAVE OF DE-GLOBALIZATION AND RESHORING A STRATEGIC SHIFT TO RETOOLING: Smart business 38 JAN/FEB 2023 www.globaltrademag.com
Global Trade January February 2023: Page 38
