For decades, low-cost supply with minimal inventory were the key tenets of supply chain management. Lean manufacturing and just-in-time delivery were how companies across the globe achieved cost control and production efficiency.
For many major companies, China has been the key component of their supply-chain strategy. But while the earlier part of the decade was relatively static in terms of production and share of exports, some significant swings from China to other emerging markets started to be seen in 2018 and 2019.
In the consumer goods sector, for example, China's share of global exports fell four percentage points to 42% in one year, while the figure picked up across Southeast Asia, Latin America and Europe.
Southeast Asia has seen its share of global consumer goods in key export categories, including smartphones and furniture, rise by two percentage points. Notable swings away from China were also seen in computer hardware and audio-visual and communication tech exports, with Vietnam and Mexico among the biggest beneficiaries.
While the simplistic view is that that production is moving out of China, a closer look into the data shows a complex picture of a new, more agile landscape emerging. It is being affected as much by specific sector issues -- led by geopolitics, sustainability concerns and the desire to bring essential production onshore -- as it is by labour costs and tax incentives.
Recent developments, experts say, clearly illustrate how the relocation and reorganisation of global supply chains is under way, and how it is being accelerated further by the Covid-19 pandemic.
"The global supply chain faces historic disruption. We will see more change in the next five years than in the last 20," said Ben Simpfendorfer, the founder and CEO of the strategy consultancy Silk Road Associates (SRA).
"We are moving to a new model entirely shaped by competing forces, from US-China trade tensions, to Covid-19, to rising automation and digitisation."
While many companies in the short term are looking to secure lower-cost suppliers in the interest of financial health and survival, businesses are seeing increased incentive to do more production in their home countries, or onshoring as it's come to be known.
In longer term, businesses increasingly see the need for a more fundamental reimagining of supply chains. The supply-side shocks that characterised the early part of the pandemic have compelled many companies to prepare for substantive supply chain restructuring. The combination of all of these factors will result in a very different supply chain landscape by the mid-2020s, Mr Simpfendorfer said.
At the same time, the digital transformation of supply chains is accelerating. According to a joint report by the law firm Baker McKenzie and SRA, as workplace technology has made great strides due to the pandemic, so too will the management of global supply chains. Businesses will increasingly combine geospatial technologies with artificial intelligence (AI) to identify potential risks, bottlenecks and underperformance in their supply chains.
"Leading multinationals will likely look to integrating pre-emptive risk management and much deeper data analytics into their supply chains," said Anne Petterd, head of the international commercial and trade practice in Asia Pacific for Baker McKenzie.
"Being able to fully map their supply chain to understand the geographic location of suppliers and feed the maps with alternative data, such as natural disasters or lockdowns, can help companies to have in-built defences against large shocks to their supplier ecosystems."
Businesses are therefore increasingly likely to move away from reliance on a single supplier in a high-risk location (such as a flood-prone industrial park) or on a cluster of suppliers all located in the same concentrated area, she added.
For multinationals, the crisis has exposed the vulnerabilities of complex global supply chains built on lean manufacturing principles. At Unilever, a multinational consumer goods company, the key lesson learned since Covid-19 erupted in January is to have a supply chain that is well diversified, resilient and digitised.
"Logistics are extremely critical for us because several lanes are broken," said Amit Mohta, Unilever's vice-president of procurement for Asia, recalling the unprecedented challenges the company encountered when the coronavirus outbreak began in China.
"Whenever we do a disaster recovery plan, we've never planned for all the world being locked down. This was a unique moment," he told an online forum hosted by London-based Standard Chartered Bank recently.
While China is the factory of the world, Unilever is based in nearly every part of the world. In that sense, it gives the company a natural hedge for sourcing from a wide variety of sourcing.
But the emerging issue is that several markets and governments are trying to be more cost-efficient and self-sufficient, partly to reduce logistics costs. Geopolitics is also a factor.
"We cannot control customers' behaviour. What is essential is to make our supply chain more agile and be able to track how the demand is moving and reflects back in our production," Mr Mohta said. Unilever's logistics system, he said, is thus designed to store and move products in the most efficient way.
Kelvin Leung, CEO of DHL Global Forwarding Asia, said the importance of digitisation has been underlined by the events of this year.
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