supply chain resilience

Assessing IPEF’s Supply Chain Breakthrough

Assessing IPEF’s Supply Chain Breakthrough

This is not what seems to have happened.  Instead, members shared experiences and tried to figure out how to solve challenges that might arise in the future.  Given the rapid timelines, it may not be a surprise that the best “solutions” turned out to be to continue talking.  In fact, most of the supply chain pillar consists of a series of committees to address specific aspects of resilience in the future. This is, frankly, a bit like getting a toothbrush for Halloween.  It’s not a bad idea.  Talking and keeping lines of communication open is important.  But it’s not really what you thought you were getting when you dumped out the bag at the end of the night of trick-or-treating.  As a result, businesses are already showing impatience and disappointment with IPEF.  A group of nearly 30 diverse sizable industry associations just sent a letter to the US Commerce Secretary and the US Trade Representative expressing their concerns about IPEF outcomes.  The key sentence of relevance is “However, we are growing increasingly concerned that the content and direction of the administration’s proposals for the talks risk not only failing to deliver meaningful strategic and commercial outcomes but also endangering US trade and economic interests in the Indo-Pacific region and beyond.” IPEF’s peculiar negotiating structure, as has been noted before, is largely the result of a White House determination that market access of any kind was off the table for the talks.  The letter from businesses highlighted a range of topics that could have been included that did not offer up tariff reductions but could still provide important economic and business outcomes.  These include standards-related barriers to trade, obstacles to remanufactured goods, or specific regulatory challenges for key sectors. Of course, it is possible that these types of issues will end up being identified by the IPEF committee structures, with the creation of new approaches to solve some of the concerns raised by American businesses and firms across the region.  However, it’s also possible committees never get past sharing experiences or never manage to meet at all. The great irony is that governments and businesses do seem keen to address new issues that will be increasingly important in the future like digital trade rules, sustainable trade, or resilient supply chains.  But if the supply chain pillar that has been substantially concluded is any guide, the IPEF as a whole falls woefully short of accomplishing these tasks.  It’s a toothbrush and a lecture rather than a bag with candy.

US-China Decoupling: Implications for Asia

US-China Decoupling: Implications for Asia

While firms have shifted some production already out of China, it is economically risky for companies to completely ignore the unique advantages that China offers including its quality infrastructure and sizable domestic market, which serve as strong incentives for firms to stay put. Most companies that believe they may be exposed to an ongoing set of trade tensions between the US and China have engaged in internal reviews and scenario planning. COVID-19 has both put a hold on and, paradoxically, accelerated some of this thinking. While the pandemic has made it difficult for many companies to focus on strategy not directly related to immediate survival and management of a series of supply chain disruptions caused by market shutdowns, it has also amplified the risks of potential exposure to new challenges. Every company has begun talking about building more resilience into their systems. What, exactly, such resilience will mean is less clear. For some, it means holding more inventory. For others, it means identifying key chokepoints in the supply chain and looking for additional sources of supply to lower risks in these specific aspects of the chain. For others, it means shifting production closer to final markets to reduce disruptive effects caused by border closings and other specific obstacles. At this point, however, most firms have already instituted supply chain reshuffling between internal locations, if such options are available. For example, companies that have overlapping capabilities in multiple locations have ramped up production in some markets while lowering production elsewhere. Internal swings to mitigate risks have already been put in place wherever possible.

Building Supply Chain Resilience Starts at the Border

Building Supply Chain Resilience Starts at the Border

The net result of this unprecedented supply and demand shock to the economic system has led to many calls to build or rebuild supply chains with more “resilience.” Resilience is a word, however, a bit like motherhood and apple pie. After all, who doesn’t want a mother or pie? Who wouldn’t want resilience in the face of disruption? Resilience, perhaps like motherhood and apple pie, means slightly different things to different people. For some, it implies a new-found enthusiasm for relocating chains closer to home. If foreign markets are part of the problem, with uncertain responses to unfamiliar challenges likely to arise in the future, getting critical parts or entire chains to move home seems like a logical solution. For others, resilience means building up multiple supply chains, including an extreme version that calls for double chains for every item. The slightly less pronounced version looks to have multiple suppliers available for every item or every critical item in the chain. To minimize disruptive impact, these two chains or multiple suppliers should be located in entirely different countries or regions. Resilience can also mean holding increased inventory, to reduce the shock of chain disruptions. Over the past decade and beyond, firms have been following the “just in time” mantra and eliminating or reducing inventory. Parts, components and raw materials arrive at precise timings and get slotted directly into assembly. The reduction in inventory provided important cost savings for companies, as holding stock is expensive. Governments tend to be less certain about what, exactly, they mean when they ask for resilience in supply chains and are unclear about what sort of actions, if any, they ought to take to ensure it happens.