Page 138 - COVID-19: The Great Reset

The shocks to global supply chains analysed in the macro
section will affect global businesses and smaller companies alike.

But what does “just-in-case” mean in practice? The model of
globalization developed at the end of the last century, conceived
and constructed by global manufacturing companies that were on
the prowl for cheap labour, products and components, has found

its limits. It fragmented international production into ever-more
intricate bits and pieces and resulted in a system run on a just-in-
time basis that has proven to be extremely lean and efficient, but
also exceedingly complex and, as such, very vulnerable

(complexity brings fragility and often results in instability).
Simplification is therefore the antidote, which should in turn
generate more resilience. This means that the “global value
chains” that represent roughly three-quarters of all global trade will

inevitably decline. This decline will be compounded by the new
reality that companies dependent upon complex just-in-time
supply chains can no longer take it for granted that tariff
commitments enshrined by the World Trade Organization will

protect them from a sudden surge in protectionism somewhere.
As a result, they will be forced to prepare accordingly by reducing
or localizing their supply chain, and elaborating alternative
production or procurement plans to guard against a prolonged

disruption. Every business whose profitability is contingent upon
the principle of just-in-time global supply chain will have to rethink
how it operates and probably sacrifice the idea of maximizing
efficiency and profits for the sake of “supply security” and

resilience. Resilience will therefore become the primary
consideration for any business serious about hedging against
disruption – be it disruption to a particular supplier, to a possible
change in trade policy or to a particular country or region. In

practice, this will force companies to diversify their supplier base,
even at the cost of holding inventories and building in redundancy.
It will also compel these companies to ensure that the same is
true within their own supply chain: they will assess resilience

along their entire supply chain, all the way down to their ultimate
supplier and, possibly, even the suppliers of their suppliers. The
costs of production will inevitably rise, but this will be the price to
pay for building resilience. At first glance, the industries that will

137