The COVID-19 Pandemic Revealing the Weakness of the Globalised Supply Chains
Understanding the Global Supply Chains
The COVID-19 has revealed the weakness of the world logistics system. Indeed, the accelerated globalisation of the economy in the last 20 decades and the growing internationalisation of exchanges have contributed to the establishment of vast and complex supply chains. These depend on distant supply sources that are often difficult to control in contexts of health crises such as the COVID-19. Let’s take as an example the pharmaceutical industry: according to the Académie nationale de pharmacie in France, 80% of the active principles used in the world would be currently manufactured in China, India and some Southeast Asian countries (Académie nationale de pharmacie, 2020). The geographical dispersion of these supply sources is bound to disrupt the activities of the actors at the bottom of the pharmaceutical industry, closest to the consumer markets.
In the last few decades, the facilitation of exchanges and the scale economies provided by containerisation (over 20,000 twenty-foot equivalent units [TEU] on a single container ship in 2020 compared to 8,500 TEU in the early 2000s) help reinforce the base of the internationalisation of trade. In addition, there is an ongoing research on optimisation of stocks from the supplier to the final client as well as an emphasis on the comparative advantages of each territory in the world (accessibility to raw materials, cost of low-skilled labour, industrial cluster such as Shenzhen, which accounts for half of the world production of mobile phones, and so on). As incredible as it may seem, the only objective of these strategic choices for the vast supply chains that are always more internationalised is to offer the final client products at increasingly competitive prices.
The post-COVID-19 crisis era is likely to question the dependence of modern economies on distant overseas suppliers, giving the impression of a loss of economic and industrial autonomy. Companies such as Intel, Proctor & Gamble, General Motors and Walmart are well prepared for the potential disruptions of their international supply chain. They all have a protocol concerning the decisions to make when an unexpected crisis occurs.
Introducing Supply Chain Risk Management
The notion of risk management is defined as the probability of an event/incident occurring. In a supply chain, this might concern diverse hazards (ruptures in suppliers, peak demand, lack of shipping capacities, and so on). These repercussions, recognised by the literature, are often formalised by the bullwhip effect concept. The COVID-19 pandemic has revealed the vulnerability of the supply chains faced with the need to anticipate and model risks before they occur.
From this point of view, the new digital technologies, such as the Internet of things (IoT), cloud computing, artificial intelligence, machine learning, 5G, and so on, can help better integrate supply chain risk management in the supply chain design. These technologies could in the future notably improve the visibility of flows within the supply chain. The increased connectivity and visibility of the international supply chain would enable the supply chain actors to assess and anticipate the risks. Such proactivity is necessary to deploy the appropriate strategies to respond to a “pandemic”-type crisis.
The figure below features a conceptual framework enabling the integration of the risk management notion and how to prepare thanks to the contribution of digital technologies: