12/11/2020 'Risk to supply chains from climate disruption a bigger issue than Covid-19' - The Loadstar

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By Ian Putzger 14/10/2020 the larg
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Supply chains are undergoing a profound transformation, according to MOL C
DHL and consultant McKinsey.
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DHL has published a study entitled Post-coronavirus Supply Chain loss of
Recovery, which predicts more diversification of geographies, suppliers in heav

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12/11/2020 'Risk to supply chains from climate disruption a bigger issue than Covid-19' - The Loadstar

and business models as well as a more holistic view of risk management. 3. Antono
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“Post-coronavirus supply chains will not be the same as they were pre- for gro
coronavirus,” it says, and one prominent trend in this transformative
process is a stronger emphasis on supply chain resilience, away from the
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This tallies with a report in July by the McKinsey Global Institute (Risk,
Resilience and Rebalancing in Global Value Chains), which predicted a shift 5. Contain
from single-source, cost-focused supply chains to a heightened focus on shortag
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risk management and higher supply chain resilience. where
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The researchers found that 53% of respondents planned to adopt a dual-
sourcing strategy for raw materials, 47% were looking to boost inventory,
40% were leaning towards near-shoring and 38% wanted to regionalise
their supply chains.

The pandemic has had a massive impact on supply chains. Another

study, published in July by Resilience360 and the Business Continuity
Institute (Covid-19: The Future of Supply Chains) found 73% of
organisations interviewed had encountered “some” or “significant”
detrimental effects.

However, both the DHL and McKinsey studies make clear that the
transformation of supply chain strategy pre-dates the advent of the
pandemic.

The global nature of the pandemic produced mass awareness of the

disruption it has wreaked, but many companies were already planning or
implementing changes to reduce supply chain risk. The McKinsey report
was started before the outbreak of Covid-19, and the researchers found
that the pandemic had reinforced such efforts.

And the authors of the DHL study said: “The pandemic will accelerate
changes that had already begun, and at the same time unveil new trends
and new priorities.”

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12/11/2020 'Risk to supply chains from climate disruption a bigger issue than Covid-19' - The Loadstar

Concerns about the impact of catastrophic events go back a decade at

least, to 2011, when a massive tsunami hit Japan, causing damage
costing $360bn, and massive flooding submerged seven of Thailand’s
largest industrial zones for weeks.

According to McKinsey, supply chain risk is a much bigger issue than

Covid-19, as climate disruptions are going to become increasingly
frequent and more severe. On average, every 2.8 years there is an event
that causes disruption lasting two to four weeks. Losses from supply
chain disruption can amount to 42% of ebitda for a year during a 10-year
period, the authors found.

One of the major priorities Covid-19 has reinforced is the desire to

eliminate risk from single-source supply strategies.

This extends beyond individual suppliers to nations. US government

officials have stressed their desire to eliminate a strategic vulnerability
from overdependence on individual countries for products or raw
materials.

One of the issues the pandemic brought to light is that a lot of the active
ingredients for a number of important pharmaceutical products are
produced in China. This requires supply chain visibility beyond tier-one
suppliers, and historically firms have not had much insight past their tier-
one providers, says the DHL white paper.

In conjunction with the US-China trade conflict and tariffs, concerns over
excessive reliance on goods from China is accelerating the exodus of US
firms from the country. According to PwC Research, 16% of US
companies currently active in China are considering adjusting their
production and supply. Low-cost Asian countries, led by Vietnam, and
Mexico top the list of alternative locations under consideration.

Near-shoring is a hot topic at the moment. As the McKinsey study points

out, global flows and networks are more exposed and vulnerable to
disruption. Its authors concluded that a shift to regionalisation was a big

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12/11/2020 'Risk to supply chains from climate disruption a bigger issue than Covid-19' - The Loadstar

focus for companies. They estimated that up to $4.6trn of the $18trn in

global trade flows could shift.

And the new mantra of proximity to markets is fuelling interest in near-

shoring or on-shoring. The State of Logistics report published this
summer by the Council of Supply Chain Management Professionals
(CSCMP) found that delivery windows of three to five business days were
no longer acceptable, which increases the need for high-velocity supply
chains and shorter transits.

This is good news for warehousing providers. Re-shoring or near-shoring

of production, along with elevated inventory levels to avoid stock-outs, as
seen early in the pandemic lockdowns, are going to push up demand for
warehousing and logistics real estate, the CSCMP notes.

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