University of Birmingham
Now is the time for companies across the West Midlands to de-risk their businesses in response to Covid-19. Covid-19 must be placed in the context of the SARS outbreak of 2002. This should have been the Covid-19 testbed and yet companies and governments failed to learn from SARS to develop new approaches to the management of business, supply chain and regional or national risk.
The Covid-19 pandemic represents a major disturbance that has rippled across the world’s
central nervous system or global supply chains and global production networks (GPN). Countries and economies are now interconnected allowing for easy transmission of viruses and for other supply chain disruptions. All companies across the West Midlands must enhance their resilience to future global disruptions.
A study undertaken by John Bryson at the University of Birmingham tracked the experiences of 91 American manufacturers from 2017 to the end of April 2020. This was published in July 2020 in the journal Tijdschrift voor economische en sociale geografie (TESG) under the title “Covid-19 and Alternative Conceptualizations of Value and Risk in GPN Research”. This is part of a much larger research project that is exploring the management of risk in global supply chains including a focus on rightshoring.
Existing approaches to the configuration of supply chains tend to adopt a high-risk approach based on maximising economic returns. The impacts of Covid-19 have highlighted that supply-chain management and corporate strategy require a fundamental rethink. This includes ensuring that supply chains are configured not just around profit maximization but includes a much broader and encompassing approach to risk-management to increase resilience, responsiveness, and flexibility. This approach includes reconfiguring global supply chains from an over-dependence on production facilities in a single location to a more dispersed approach that balances global with local or regional supply.
Globalisation can be conceptualised as a double movement that involves balancing the tensions between relying on global supply versus local production. A key issue is ensuring continuity of supply. The TESG paper includes an analysis of company responses to the China-United States trade war. This identified that the most common operational response involved swapping suppliers from China with those in another low-cost country, for example, Thailand or Vietnam. Nevertheless, 21% of companies had reshored tasks to the US by expanding existing factories and building new facilities. This involved capital substitution for labour, and was driven by a concern with enhanced resilience, speed to market and the ability to engage in rapid customization.
Corporate strategies in response to the COVID-19 pandemic, and in dealing with supply chain disruptions, include building regional supply chains for larger firms, leaning more on technology for smaller firms, and focusing on efficiency and resilience. The study highlights that firms need to consider de-risking production by exploring three alternative values when configuring the balance between local and global production. These include, first, companies that are developing alternative approaches based on waste minimization and a reduction in their carbon footprints by focusing on producing closer to market as part of a business model based on alternative values, for example the slow fashion movement.
Second, companies that benefit from the additional values, including profit, that comes from value chain integration. Managing a dispersed and fragmented value chain is complex and resource intensive. Third, companies who have begun to appreciate the value of non-cost-based sources of value including place-based affiliations. Combining these different approaches to value should be part of a company’s risk reduction strategy.
Professor John Bryson is Professor of Enterprise and Economic Geography, Development of Strategy and International Business at the Birmingham Business School, University of Birmingham.
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