from The Ripon Forum

May 2021

https://riponsociety.org/article/strengthening-global-supply-chains-in-the-wake-of-covid-19/

Strengthening Global Supply Chains in the Wake of COVID-19

by NICK VYAS

Over the past three decades, corporate America and much of western democracy have become highly dependent on cheaper and faster goods. This dependence has in turn created another, perhaps even more significant, dependency on linear supply chain networks which rely on a single country to efficiently function.

COVID-19 exposed the vulnerability of these networks. Moving forward, it is critical to think about structuring supply chains in a way that is different from the past. At the same time, it is also critical that we maintain a globalized approach to these networks, as globalization is strongly linked to economic prosperity. Today, economies are far more interconnected and interdependent than they were in the 1920s or even the 2010s, and that has helped to lift millions out of poverty and improve living standards across the world.

Globalization is a very effective way to ensure that supply chain networks continue to function in the face of single-location events, such as a natural disaster or political unrest. In order to build the same level of reliability into decoupled networks, it is critical to create network redundancies and diversity within a region. Component and raw materials should be made on shore, nearshore, or within a company. We should not depend on a single, long supply chain. Instead, we should depend on a regional node or decoupled supply chain.

We should not depend on a single, long supply chain. Instead, we should depend on a regional node or decoupled supply chain.

For example, Canada and America are one node, Asia has two nodes, and so on. In the event one node is unable to function, other nodes can still operate and support the node in need. In other words, instead of a worldwide web of long and linearly-joined supply chain networks, we will have regionally-concentrated supply chain clusters, each connected with other clusters using a decoupling point. Decoupled networks will have dynamic, responsive, real-time supply chain capabilities, with the ability to withstand shocks of any magnitude.

This past December, the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency (CISA) and the Information and Communication Technology (ICT) Supply Chain Risk Management Task Force published an analysis on supply chain challenges that the ICT industry has faced in dealing with COVID-19 which reinforces many of these points. Industry issues identified in the report include a lack of diversification in supply chains, reliance on lean inventory models, and not having sufficient understanding of suppliers. The report also identified specific recommendations for companies to build a more resilient ICT supply chain, including the need to take a proactive and iterative approach to supply chain risk management, map specific supply chains, broaden specific supplier networks (by raw material, product, and region), expand inventories, keep an eye on important metrics, and make plans for alternative logistics and transportation options.

In the coming years, we are likely to see more regional, customer-centric supply chain clusters taking shape around the provisioning of essential items such as food and lifesaving drugs and equipment. Due to national policy changes such as President Biden’s Executive Order on Supply Chains, these supply chains could subsequently include a larger set of goods and services that are not dictated by reasons of health and medical security, but rather by a mix of economic competitiveness and national security considerations. These semi-independent clusters will be joined by decoupling points that will provide them a dynamic capability of moving procurement or supplies from one cluster to another. Such customer-centric supply chain clusters will be less vulnerable to an end-to-end disruption in a future crisis. During the initial days of the COVID-19 crisis — when U.S. supply chains floundered in their ability to source ventilators, vital drugs, personal protective equipment, and other critically-needed supplies — imagine if our country had been able to tap into a decoupled, agile, and resilient cluster of supply chains instead.

In the long run, decoupling will provide a way for companies to navigate growing tensions between China and the U.S. and the highly regulated environment of the post-COVID world.

In the long run, decoupling will provide a way for companies to navigate growing tensions between China and the U.S. and the highly regulated environment of the post-COVID world, along with the natural proclivity of nations to seek prosperity through mutual economic cooperation. Given the need to prepare for the next global crisis, the likelihood of continued China-U.S. tensions, and the need for many countries and regions to take sides for economic and/or national security reasons, governments will also need to implement national and/or regional decoupling strategies.

Moreover, now that the U.S. has entered numerous periods with significant COVID-19 infections, companies cannot afford to wait to build additional resilience into their supply chains. Further, the public policy shift toward decoupling in the U.S. and other major economies is likely inevitable, so companies should advocate for national and regional policies that would improve their competitive positioning in a market and shape multilateral and/or plurilateral rules that may be developed.

Effective planning will result in a company’s ability to think proactively, and rapidly and coherently implement strategies to address risks, mitigate harm, and leverage opportunities to strengthen and safeguard its supply chains.

Nick Vyas is Executive Director of the University of Southern California’s Center for Global Supply Chain Management.

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The Ripon Forum is published six times a year by The Ripon Society, a public policy organization that was founded in 1962 and takes its name from the town where the Republican Party was born in 1854 – Ripon, Wisconsin. One of the main goals of The Ripon Society is to promote the ideas and principles that have made America great and contributed to the GOP’s success. These ideas include keeping our nation secure, keeping taxes low and having a federal government that is smaller, smarter and more accountable to the people.