5 Considerations to Adjust Your Global Supply Chains
Here are five ideas, based on lessons learned from the COVID-19 pandemic, to help make your supply chains simpler, faster and more resilient.
In the chaotic first weeks of the COVID-19 pandemic, supply chain strategy was all about pivoting. Now, it’s about pivoting permanently and extracting more value as supply chains evolve.
Businesses were already navigating a changing global supply chain environment before the pandemic. Their emergency response during COVID is now a blueprint for helping business leaders build new markets, increase financial flexibility and meet advancing environmental, social and governance (ESG) goals.
This new paradigm isn’t just about opportunities at the buyer level—it will also open doors for new and more diverse suppliers that have never tested the international marketplace. In addition, new, digitally driven tools can help improve supply chain financing for new partners to accelerate their cash flow with long-tail pricing, payment and delivery incentives built into each transaction.
As you weigh supply chain strategy in 2021 and beyond, here are five major considerations based on what we’ve learned in 2020:
1. Know what’s changing in global supply chain strategy—and what’s not.
Years before COVID-19 struck, the “China Plus One” conversation was well underway as multinationals responded to China’s rising prosperity—and wages—by moving supply chain relationships into lower-cost, close-border nations including Vietnam, the Philippines and Thailand.
But China’s dominant role in global supply chains isn’t even close to disappearing. It will soon overtake the U.S. as the world’s largest consumer retail marketplace, to which global corporations will likely want their supply chains to remain close.
Furthermore, 40 years of investment in advanced manufacturing infrastructure makes China tough to quit, as 79% of U.S. companies manufacturing in China noted in a September 2020 report from the American Chamber of Commerce in Shanghai. However, a more risk-averse, post-COVID-19 future might give “Plus One” status to trade partners significantly distanced from Asia, such as Mexico.
2. Produce as close to the consumer as possible to reduce supply chain risk.
While the business disruption of COVID-19 won’t leave corporate memories quickly, neither will the dramatic recovery in consumer spending that happened in the months that followed. Global corporations soon realized the value of having their supply chains located near their vendors and customers as demand returned.
As companies consider more geographically diverse areas to locate supply chains in the future—potentially outside China into Latin America and other emerging markets—new supplier relationships may need to be built and may need risk-mitigating solutions.
3. The time to implement digital automation is now.
In its October 2020 report, the McKinsey Global Survey of Executives1 said that COVID-19 has pushed companies over “the technology tipping point,” accelerating the digitization of firms’ customer and supply chain interactions (as well as other operations) “by three to four years.”
Established multinationals and prospective global suppliers have had to adopt emerging digital onboarding tools that quickly add new suppliers. These advancements may become standard in a global business environment that increasingly depends on mobile technology for transactions of all sizes. Mobile-enabled solutions for working capital and cash management may attract newer and more dynamic vendors to make up the increasingly diverse supply chains of the future.
4. Use ESG goals to drive closer supply chain partnerships.
ESG plays a critical role in global supply chains by aligning a buyer’s environmental, social and governance principles to those of current and future suppliers. Large companies can use digital solutions to procure billions of dollars of goods and services from smaller, minority-owned suppliers that reach new customers while meeting their buyer’s ESG goals. In return, these new suppliers are able to join supply chains quickly while boosting their liquidity through customized supply chain financing and other incentives.
5. Make sure reliable infrastructure, trained labor and evidence of good planning are available in new destinations.
Successful supply chains depend not only on what you build, but what is built around you. China’s massive investment in physical infrastructure, technology and workforce training since 1980 helped them become the world’s largest producer of manufactured goods. Companies looking to realign, expand or diversify their supply chains should evaluate a potential location’s investment in people as well as processes and facilities. As more than half2 of today’s human tasks could be automated by 2055, supply chain planners and their financial counterparts need to select locations with the talent, resources and planning to support that future.