Recent years have shown that global supply chains face both resilience (as seen as the pandemic and global events) and sustainability challenges. Amid a push towards better environmental compliance and greater transparency, what are business strategies most focused on?
Global supply chains are an integral part of efficient business operations – essential for trade, but vulnerable to a range of factors.
For example, the recent pandemic has laid bare the weaknesses of the ‘just in time’ models, which, while efficient under stable conditions, can falter amidst disruptions.
Geopolitical tensions, trade wars, and environmental concerns further compound the risks, leading to a re-evaluation of supply chain strategies. Companies are now grappling with the need to balance cost-effectiveness with resilience and sustainability.
The shift towards ‘just in case’ management, with its emphasis on larger inventories and long-term supplier contracts, reflects a growing recognition of these challenges.
As businesses strive to adapt, the question of whether to re-shore or near-shore supply chains to mitigate risks and enhance sustainability is at the forefront of strategic planning.
Global supply chains face a range of issues that could potentially jeopardize the operation of businesses.
The lack of transparency in corporate reporting is a significant problem, leading to difficulties in assessing Environmental, Social, and Governance (ESG) risks and the prevalence of greenwashing.
The inconsistency in ESG metrics across different rating providers further complicates the matter, with no universal standard to guide companies.
Additionally, the reliance on extensive and often opaque networks of suppliers can lead to disruptions, as seen during the COVID-19 pandemic, which alongside events like Brexit, has prompted a shift from ‘just in time’ models towards more resilient ‘just in case’ strategies.
However, this approach is more capital-intensive and requires a rethinking of long-established supply chain practices, emphasising the need for a balance between efficiency, risk management, and sustainability.
Beyond ‘just in time’ and ‘just in time’ models, the tumultuous global landscape has spurred a pivot towards closer-to-home supply chains.
This movement is driven by the desire to mitigate the risks associated with international trade tensions, regulatory changes, and potential future pandemics or similar unforseeable global events.
By shortening supply chains, companies aim to reduce their vulnerability to external shocks that can cause costly disruptions.
The ‘just in case’ strategy, which favours larger inventories and longer-term supplier contracts, is gaining traction as businesses seek to shield themselves from the unpredictability of global markets. This approach promises enhanced control and stability but again – requires larger capital.
Furthermore, the reshoring of jobs and manufacturing capabilities, as evidenced by initiatives like the Reshoring Initiative in the U.S., reflects a broader trend of national self-sufficiency and economic security.
As companies reassess their supply chain strategies, the emphasis on proximity and preparedness is becoming increasingly pronounced.
Sustainability is increasingly at the heart of supply chain considerations, with businesses recognising the need to mitigate environmental impacts and embrace social responsibilities.
The drive towards sustainability is not just a moral imperative but also a strategic one, as sustainable practices can lead to increased resilience against market volatility.
Companies like Standard Chartered are setting ambitious targets for green transition finance, committing substantial funds to support sustainable business practices.
owever, the journey towards sustainability is complex, with many companies still in the early stages of their evolution. The challenge lies in developing transparent and effective reporting structures that can accurately monitor and encourage progress.
Moreover, the financial industry plays a crucial role in directing capital towards low-carbon and sustainable businesses, which can be incentivised through differential capital treatments.
As market conditions fluctuate, the integration of sustainability into supply chains becomes a way to hedge against uncertainty, aligning long-term business health with environmental stewardship.
Technology and strategic partnerships are pivotal in the evolution of supply chains.
Distributed ledger technology, for instance, will revolutionize transparency and trust in manufacturing and retail industries.
Blockchain’s potential for enhancing traceability and securing information is being recognized, with its mainstream adoption anticipated by 2025.
Collaborations, such as the partnership between HSBC and Walmart, leverage technology to link financing rates to ecological footprints, incentivizing sustainability.
Oracle’s advancements in cloud logistics further exemplify how technology can optimize operations and decision-making.
These innovations and alliances are instrumental in driving supply chains towards greater efficiency and sustainability.