This past year and half has shown us that global supply chains can be very fragile.
Whether the supply chains are impacted because of the pandemic or they are impacted due to climate change and the unprecedented weather extremes that come with it, it doesn’t seem as though a strained global network of supply chains will subside anytime soon.
However, with that being said, companies can and will have to adapt to these trends. Globalization has its advantages but it has also undoubtedly heightened these strains in the wake of unprecedented occurrences. Especially in the past few decades, we have been increasingly reliant on a global network of supply chains that in hindsight were destined to fracture in the right situations at some point. What has worked smoothly for many years now has become questionably backward thinking in the future of global trade.
Raw materials that are produced in a given country may become less desirable to produce at some point if they could be found cheaper somewhere else. Then, it may be found that processing raw materials in a different country (or the same country if they have the infrastructure for it) has its advantages, and when parts or the materials to make the parts are produced, companies may import them directly or they might make a pit stop in another place to be assembled or made into parts.
Labor is seemingly cheaper in this manner because of many reasons. It could be because of exchange rates or other factors such as the tariffs imposed on materials or products before they are imported. The list goes on and there are many different supply chain scenarios and inner-workings that would take too long to list and break down. This is an oversimplification and global supply chains can be way more complex. But, even in this scenario, any kink in the supply chain can halt any or all production of much-needed goods and supplies at any given time.
Covid has really exposed many of the challenges faced by a globalized supply chain.
Whole factories have had to shut down at one point or another because of Covid. Ports of entry have been halted because of Covid cases. Travel restrictions might slow shipments between borders, etc. So, it’s not unfounded that these examples help contribute to supply chains that may suddenly fracture under a bit of pressure.
Some companies have found that diversifying the companies that they do business with helps to mitigate possible supply chain breaks. One example may be finding more local or closer to home raw materials, suppliers, manufacturers, etc. It may prove beneficial in the long run even if the immediate costs are a little higher. Even if you don’t go completely localized, it also works as a back up if there is a kink in the chain. Not to mention the cost of shipping has risen exponentially in the past year and half. Even if the materials are more costly locally, the reduced cost of shipping may make up for the extra costs.
Although Covid restrictions in many places have eased up in recent months, the effects of the previous year will still be felt in the next couple of years. And, not to mention that some of the countries along the supply chains have disproportionately received fewer Covid vaccines compared to their more industrialized counterparts. This inaction is set to cause unintended supply chain issues that are both foreseeable and unforeseeable.
What does this mean for an already strained global network?
Even if we soon get back to normal life from Covid, we are still witnessing weather extremes that will and have had adverse effects on supply chains as well. Whether it be an increase in hurricanes in the Atlantic or typhoons in the Pacific, rogue polar winds reaching farther south dumping snow on places not equipped for that kind of weather, rising water along coastal cities, droughts due to warming climates, etc., it doesn’t seem as though things will get better.
These examples will only exacerbate the current supply chain problems created by rapid globalization and a pandemic. They will ultimately have the same, if not similar, effects that the global pandemic has had on our supply chains. So if anyone is looking for things to go back to our pre-Covid norms, that’s not going to happen. All we can do is adapt to an ever changing world.