Dec. 14, 2021
Global supply chains aren鈥檛 going away
As concerns grow over widespread manufacturing disruptions, clogged ports and empty store shelves, so too predictions grow about the impending demise of the global value chain (GVC). The pandemic has taken a huge toll on how the world produces and ships goods and an increasing number of business and academic papers are suggesting radical change is coming to how GVCs are organized.
But Dr. Liena Kano, PhD, suggests the global system is here to stay and rather than radical change there will be 鈥渘uanced adaptations.鈥 In , Kano, an associate professor in strategy and global management at the Haskayne School of Business, argues the global supply chain isn鈥檛 going anywhere in the near future, and lessons from the pandemic will make it more resilient.
鈥淲e're not going to see universal demise of global value chains because, in many cases, that would be impractical and inefficient,鈥 says Kano. 鈥淚n some industries it's just not possible to relocate activities and transform global value chains from global or regional to national, simply because it's too costly. And even if governments mandate the change, the question arises as to who's going to pay for that.鈥
Kano and her colleagues, Dr. Rajneesh Narula, PhD of the University of Reading and Dr. Irina Surdu, PhD, of the University of Warwick, argue supply chains will see marginal rather than fundamental changes. 鈥淲hat we're going to see for certain is that managers are going to make changes that are within their control,鈥 says Kano. 鈥淎 lot of these issues can be addressed at the firm and manager鈥檚 level through changes in strategy, management tools and governance.鈥
How firms are adapting to supply chain issues
The paper identifies barriers and disruption-related governance issues that firms face with GVCs and discusses several different forms of 鈥渕anagerial governance adaptations鈥 that many firms have already starting using to cope with supply chain issues.
First, lead firms鈥攖hose that govern the global value chain鈥攚ill invest more in predictive analytics. 鈥淲e already know, through the pandemic, that firms that have this kind of predictive analytical capacity were able to quickly predict disruptions and reroute their supply chains to get the goods to the final consumers in a hurry,鈥 says Kano.
Firms are also undergoing what the researchers call 鈥渆ntrepreneurial retooling鈥 to adapt management practices to cope with the fragility of global value chains. For example, clothing manufacturers repurposing their production lines to produce PPE, gyms and yoga studios offering online classes or grocery stores and restaurants merging supply chains to reduce food spoilage.
Further, firms are examining their business relationships and redesigning contracts. 鈥淲e think that there may be more equity contracting and greater emphasis on relationships,鈥 says Kano. 鈥淲e saw it during the pandemic, because companies that had strong relationships with suppliers suffered less because suppliers prioritized those partners when they had a shortage of supply.鈥
Companies are also engaging in 鈥渟upplier upgrading,鈥 wherein lead firms invest in technology for their suppliers and provide training. 鈥淭his secures commitment,鈥 she says, 鈥渂ecause suppliers will be more capable to handle disruptions and deliver on commitments when times are hard.鈥
Lessons from the pandemic
These adaptations in management practices will enhance GVCs鈥 long-term resilience, she says. While companies reacted quickly to the pandemic, as the shock wears off, they鈥檒l begin to restructure and evolve GVCs based on long term corporate strategy.
鈥淟essons learned from responding to the pandemic can help managers enhance their efficiency and resilience and how to be prepared for future disruptions,鈥 she says. 鈥淲hatever challenges are going to be in our way are probably going to be solved through investment in sophisticated technology and through relationships and entrepreneurial savvy.鈥
And collaboration. She points to the large-scale global collaborations between governments, scientists, pharmaceutical companies, and suppliers that led to vaccines for Covid-19. 鈥淥ne opportunity I really hope managers will capitalize on is collaboration.鈥