Supply Chain Diversity and the Risks of Relying on China

Supply Chain Diversity and the Risks of Relying on China | Future Business

For decades, the vast majority of goods, parts, components and products imported into Western economies have all come from one place; China. Of course, the global coronavirus pandemic changed all that. Internationally, lockdowns were impossible to predict. Manufacturing and hence supply zig-zagged across the globe as one container port or manufacturing city closed down and another opened up; procurement executives scurried to keep goods on shelves, or more precisely in delivery warehouses as shops closed. However, has the time come to act on supply chain diversity?

The global situation opened up the supply chain equation in unprecedented ways, and now further risks have arrived. Self-evidently the invasion of Ukraine has massively disrupted exports, but crucially it also opened business minds to the realities that pandemics, wars and political turmoil aren’t necessarily a thing of the past, in Europe or elsewhere.

NDTV writes that Chinese military exercises around Taiwan are set to disrupt one of the world’s busiest shipping zones, highlighting the island’s critical position in already stretched global supply chains.

It calls the drills, China’s largest-ever around Taiwan, a major show of strength after US House Speaker Nancy Pelosi infuriated Beijing by visiting the contested island.

The manoeuvres take place along some of the busiest shipping routes on the planet, used to supply vital semiconductors and electronic equipment produced in East Asian factory hubs to global markets. So political tension between Russia, the US, China and the rest of the world is high. Covid-19 isn’t yet in the past completely. Energy supply and demand is in flux, and costs for businesses and consumers are rising.

It all makes for a vexed supply chain scenario, where corporates seek to manage reliable, affordable supply against shifting geopolitics and risk.

A Lesson from Nature

Some analysts are talking seriously about the risk of war between Taiwan and China cascading global supply into an abyss. writes that procurement professionals are being urged to flex supply chains as tensions ratchet up.

“There is certainly a threat there, and it would be ridiculous if Western politicians and Western manufacturers weren’t actually cognisant of that and weren’t flexing their supply chains to take that into account. China is sending a very clear message, and that could result in more disruptions in supply chains,” writes their commentator, John Manners-Bell, chief executive of Transport Intelligence.

He said China was sending out a “very clear warning” to the West to “not poke the hornet’s nest”. He warned: “There may well be disruption over the next week or so as China flexes its muscles. It’s almost saying to the West, ‘And this is the sort of thing that you can look forward to, unless you toe our line’.”

He warned that the global semiconductor industry – and any sector that relies on silicon chips – is vulnerable to any disruptions in the region, which controls 63 percent of the global market.

But there are answers. The World Economic Forum writes that the growing threat to the biodiversity of the planet, upon which life on earth depends, is well documented. It is declining faster than at any other time in recorded history, and this has serious implications for human health and prosperity.

The key here is the word prosperity. We require a biodiverse planet with a diverse range of plants and animals to use as raw materials for a diverse range of business goods; we need a diverse source of rare earth minerals and metals to build out the components in the new energy efficient goods of tomorrow.

Similarly, a solution to the vexed geopolitics of today can come from a diverse approach. Diversity in nature thrives because competition encourages evolution, change and development.

Diversity and competition in business too encourages better practices, faster, more adaptive thinking, better solutions and more flexible corporates. Supply chain, in the face of all these risks, must do the same.

Diverse Supply Chains

Forbes writes that diverse and inclusive supply chains are more competitive, able to unlock innovation, provide access to new markets and deliver socioeconomic impact in local operating markets.

Casting a wider net enables firms to build a supplier portfolio that includes a broader range of supplier segments. This ultimately allows companies to increase spend with diverse suppliers, drive higher procurement cost savings and optimise overall supply chain value.

Forbes also notes that, in addition to increased supply chain competition, innovation and lower cost, diverse suppliers can also deliver access to new customer markets.

Ernst and Young (EY) agrees, noting that diverse sourcing can contribute to building more resilient supply chains. And if the COVID-19 pandemic has taught supply chain leaders anything, it’s the importance of supply chain resiliency. EY says a resilient supply chain is one that’s both diverse and sustainable. One that can flex when stressed, is not disrupted by geopolitical, meteorological, health, or economic shocks, and is secure for the long term.

To successfully apply this equation relies on understanding exactly where your suppliers are, and what they supply. Multi-tier mapping of suppliers and reviewing supplier sourcing approaches for critical parts are fundamental to resilient supply chains – it’s often the delay to deliveries of small but crucial components that can halt production.

Economic nationalism increasingly impacts supply chains, and as a result many organisations are looking to localise or nearshore their suppliers. A “glocalisation” approach, driven by the pandemic and sharp changes in global trade policies, focuses on balancing localised and globalised business options to stay competitive.

The advice is that organisations start by changing perceptions that supply chain diversity costs more, are small operations only, or are hard to find. And they can actively communicate across and throughout the organisation the substantial benefits of sourcing from diverse suppliers.

No organisation can afford to ignore or lag behind this peaking wave. Supplier diversity is a business imperative; long gone are the days when we looked at this as simply right thing to do. As supply chain disruption is the new normal, supplier diversity is one key strategy to help you weather the next major disruption.


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In Conclusion

Certainly, no one would want any further ramping up of global tensions across trade, conflict nor health. But no-one can guarantee they will not occur. In recent years business and the world have changed irrevocably; old certainties appear fragile against new worries of climate change, war, inflation and politics. Any corporate would be wise indeed to build resilience across all these measures, along with the profit and societal advantages such thinking brings. The message is; act now not later on supply chain diversity.


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