Supply Chain 2024

The COVID-19 pandemic has transformed the concept of supply chains from narrowly defined operational systems within companies to a new framework for the manufacturing and distribution of goods defined less by operational and cost efficiencies and more by alignment with national interest and geopolitical competition.

The post-World War II paradigm of globalization based on comparative advantage, shared prosperity, agreed-upon rules and efficiency is waning. As a result, costs are growing due to decisions that need to be made based on nonbusiness considerations. In some cases, this includes decisions to diversify manufacturing away from China after decades of reliance on the country. Governments are intervening in supply chains, and their policies are continuing to shift toward national security priorities while some economic aspects become less important. This has led to nation-state cooperation and competition for access to critical supply chain inputs, ranging from minerals and food to intellectual property and investment.

Following a period of supply chain disruptions, corporations are finding that disruption is not receding and the reliability of inputs such as transportation is not normalizing. There is a demonstrated need to invest in resilience projects that cut risk and improve profitability, such as reshoring and spending on supply chain technology enhancements. Failure to invest now could result in continued or even heightened exposure to future disruptions.

Companies also need to consider decarbonization, but there is little willingness to spend on reducing emissions. Few companies have backed their public climate commitments with investments in higher-cost, zero-carbon logistics solutions offered by the major ocean carriers and freight forwarders. This presents a conundrum to container lines that handle 45% of global trade by value but face the prospect of not having an effective mechanism in place to pass along the higher costs of zero-carbon fuels to customers.

Supply chain pressure is coming from other directions as well, including labor. Climate change, demographics, public health and corporate responsibility related to labor will have far-reaching impacts on supply chains in the coming years. There are growing demands on companies to monitor and manage labor risks within their end-to-end supply chains, coming from a growing number of mandatory due diligence regulations requiring companies to protect worker rights across the value chain.

This Look Forward: Supply Chain journal also dives into detailed case studies on the electric vehicle revolution.

Trade wars, geopolitical battles and infrastructure issues have tempered initial excitement surrounding EVs. A global battle is shaping up to secure the critical minerals and raw materials needed to manufacture sophisticated batteries and other EV parts. Asia, and particularly China, holds a dominant manufacturing advantage for EV parts, but national security concerns are quickly changing the narrative.

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