The Covid-19 pandemic, amongst its many effects, has brought the issue of global supply chains to the forefront of current economic discourse. It has disrupted almost all industries in some way and its impact will be felt for decades to come. Firstly, it would be useful to have some explanation as to what exactly a global supply chain is.
Modern supply chains are the result of a century of mechanization and globalization processes. During the first stage of this phenomenon, it was more cost-efficient and convenient for the production of goods to be concentrated, as transportation was expensive. However, as societies became more advanced, it became possible for firms to spread their activities over a larger area, taking advantage of every possible cost-cutting measure they could find. This brings us to the present, where the explosion of manufacturing in Asia has meant many firms have based their manufacturing there using raw materials from resource-rich countries such South America, Africa and Asia. One can easily see the reliance today’s manufacturing process has on the efficiency of global supply chains. Although this process has led to increased standards of living for most of participants, an obvious potential drawback is the interdependence which it has fostered.
This issue has now come to the forefront of public interest after the recent pandemic and the ongoing Russian-Ukrainian conflict. As Covid-19 led production in Asian ground to a halt, western industries felt the squeeze of their reliance on cheaper outsourced labor. These disruptions not only have dampened prospects for small businesses as many did not have the capital to survive the pandemic but have also thrown fuel onto the nationalist fire which has been smoldering for some time. There have been calls for a return to somewhat more autarkic policies now that the fragility of global supply chains has been exposed. However, this solution is incoherent, as it would lead to sharp price increases, something which competition would not allow. The alternative, and much more stomachable case is one which involves increased monitoring of supply chains and some minor tweaks.
Perhaps the only benefit to come of the pandemic has been the rise in awareness of the importance and fragility of our supply chains. The ability of any business to take advantage of supply chain’s cost-effectiveness has seen competition increase rapidly, forcing firms to innovate to succeed. This has led to a rapid increase in the quality of life over the past decades. In order to maintain this positive trajectory, it is important that these global supply chains are closely supervised, with careful consideration of possible risks.
To overcome the above issues, we have seen a rise in demand for firms providing logistic support. Firms such as Flexport, a technology company, have assisted firms ranging from small to Fortune 500 in simplifying their supply chains so as to monitor potential risks and opportunities in order to avoid delays and disruptions.
This could be the way forward for the global economy. Whilst some are still unwilling to let go of the days of domestic production, others have to accept that this phenomenon is inevitable, and it will be impossible to return in a situation where the industrial production was entirely domestic. However, this is not a negative; having seen the current issues with the global supply chains, firms such as Flexport can help companies identify weaknesses in their supply chains using analysts and machine learning, allowing these companies to prevent these from becoming issues.
In Italy we have a saying: ‘Prevenire é meglio che curare,’ or preventing is better than curing. This dictum is particularly relevant in this case, because preventing supply chain issues is absolutely a better solution rather than transplanting these processes in areas which can no longer accommodate them.