Decision Sciences and Managerial Economics
• 3 minute read

The Future of Supply Chains

Wu, Jing(吳靖)

As the world emerges from the COVID-19 pandemic, businesses find themselves in an altered economic landscape in which the restructuring of the global supply chain is progressing at pace. As well as the disruption caused by the pandemic itself, companies are having to adapt to developments in the U.S.-China Trade War and new government-led trade and economic pacts, such as the USMCA and CHIPS, amid a climate of rising geopolitical tension.

Our studies provide a number of key findings about the nature and direction of this “new normal”. So, what are the crucial points to note? Firstly, risks arising in local markets due to COVID-19 are propagated along supply chains to companies in other regions of the world. Secondly, in some sectors such as medical supplies, COVID-19 has led firms to re-evaluate the relative importance of resilience in supply chains against their traditional concern with cost-saving, and to re-shore production.

Thirdly, the U.S.-China Trade War has prompted manufacturers to spontaneously shift their supply chains out of China due to geopolitical risks. Firms also shift suppliers from countries with higher uncertainty to ones with lower uncertainty. Notably, however, government suppliers have drastically increased imports from China due to government connections that help them win tariff exclusions. Finally, government-led trade deals such as USMCA, are prioritising near-shoring and re-shoring of supply chains over outsourcing production to low-cost countries such as China.

“Regional value will weigh more in globalisation. To counter supply chain disruption, firms will take on more sourcing suppliers and supplier countries. In the long term, re-shoring, near-shoring, or even “friend-shoring” will be adopted to cut lead times and uncertainty.” – Prof. Jing Wu

Drawing on these findings, we offer four key predictions about how the reconstruction of the global supply chain will evolve over coming decades:

  • Supply chain disruption will stay, especially disruption that is geopolitical in origin. Political disruption to global supply chains will increase due to intensified competition and tension in international relations.
  • Western multinational companies relying on assembly manufacturing in China will pull production out of China partially. However, China will remain the world’s factory for a decade or so, due to the lack of a competitive substitute, leading to the manufacturing structure of “China + N”. It is worth noting the rapid rise of India as a new manufacturing hub, with the potential to challenge China.
  • Regional value will weigh more in globalisation. To counter supply chain disruption, firms will take on more sourcing suppliers and supplier countries. In the long term, re-shoring, near-shoring, or even “friend-shoring” will be adopted to cut lead times and uncertainty, forming a new era of “geoeconomics fragmentation”.
  • We predict that while the cost efficiency can be hurt during the future supply chain restructuring, this more fragmented form of supply chain globalisation will benefit innovation such as manufacturing modularisation and servitisation, as innovation usually comes from small, creative groups that function as part of a diverse network.

To find out more about a specific topic, click on the links below to navigate to the relevant chapter:

INTRODUCTION – Managing Supply Chains in the Post-pandemic New Normal

PART I – How Does Risk Propagate along Supply Chains?

PART II – Where Will Global Supply Chains Go?

PART III – How is Political Economy Intertwined with the Global Supply Chain?

CONCLUSION – The Future of Supply Chains

 


Wu, Jing(吳靖)

Associate Professor
Associate Director, Master of Science Programme in Business Analytics
Director, Institute Development Office, Asian Institute of Supply Chains and Logistics

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