- Russia's invasion of Ukraine triggered new supply chain disruptions, but supply chains face additional challenges.
- If unaddressed, supply chain challenges will hamper economic recovery and long-term growth.
- Ahead of the World Economic Forum Annual Meeting in Davos 2022, business leaders provided insights on how to build supply chain resilience and sustainability.
At the start of the year, we asked business leaders to share insights on how supply chains were changing and key trends to watch in the coming months. Shortly after, Russia’s invasion of Ukraine triggered new disruptions in supply chains and trade networks, on items ranging from food to semi-conductors, with significant implications.
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Exacerbated by the immediate conflict, supply chains face many challenges, which if left unaddressed will hamper economic recovery and long-term growth. Deepening supply-demand imbalances – compounded by various shocks in the last two years – could lead to high inflation. The IMF estimates this could be in the order of 5.7% and 8.7% for advanced and developing economies, respectively.
Meanwhile, food trade disruption will hit the poorest the hardest, and chip shortages impact the supply of everything from smartphones to automobiles and washing machines. And even though disruptions are here to stay, recent studies find only 12% of companies are sufficiently prepared for future shocks in supply chains.
Yet many stakeholders – public and private – want to improve supply chain sustainability while they build resiliency for future disruptions. For example, governments are looking at increasing supply chain disclosure and obligations, among other interventions.
The World Economic Forum recently worked with over a dozen business sustainability champions to map key trends and views on supply chain sustainability policies. At the same time, more companies than ever are working with suppliers to reduce emissions, increase resource circularity and ensure workforce engagement and inclusive transformation across their value chains.
What is the World Economic Forum doing to ensure that trade benefits people and the planet?
COVID-19 has shocked global markets already strained by trade tensions. With trade and investment undergoing rapid change, businesses and governments need to ensure strategies for open and resilient markets.
The World Economic Forum’s Platform for Shaping the Future of Trade and Investment informs business and policy action towards dynamic, inclusive and sustainable trade and investment – which drives growth and development. It aims to facilitate the flow of goods, services and investments, ensure open and stable commerce, support sustainable and equitable value chains and grow cross-border digital business.
- The Forum has piloted sustainable investment facilitation in Cambodia, Ghana and Kenya to help tackle shortfalls in sustainable foreign direct investment and boost capital for development.
- The Global Alliance for Trade Facilitation is a public-private partnership making cross-border trade simpler, faster and more cost-effective. To date, it has contributed to the implementation of a significant global trade agreement that could reduce trade costs by up to 18% and is delivering 28 trade facilitation projects in 30 countries in Latin America, Africa and Asia.
Contact us for more information on how to get involved.
Leaders from the public and private sector gathered at the Forum’s Annual Meeting 2022 in Davos have the opportunity to come together, after a long time, to revisit and prioritise action to respond to this landscape. To inform these conversations, we again asked our partners what that should look like for supply chain resilience and sustainability. Here's what they said.
'Visibility is crucial'
Kathleen O'Reilly, Global Lead, Strategy, Accenture
The complexity of supply chain challenges continues to increase. Companies face instability caused by supply and material shortages, price inflation, logistics disruptions and labour constraints – all of which are exacerbated by the ongoing global pandemic and the shattered peace in Europe. The leaders of tomorrow will be those who seek new ways to respond, today.
These leaders know that traditional approaches to building resilience in supply chains must evolve. Businesses must not only have flexible manufacturing, strategic inventory buffers and diversified supply sources, but also strategic supply chain risk management solutions. Visibility is crucial for resilient supply networks. Companies must be able to identify gaps and quickly address them to withstand disruption and enable sustainability and resiliency that delivers growth, not just survival.
For example, we helped the supply chain leaders at a European technology company affected by the microchip shortage assess critical suppliers, materials and practices to identify “low-resilience” vulnerabilities through a heatmap of risk exposure and revenue impact. A digital twin-enabled supply chain stress test across its multi-tier, end-to-end supply chain is identifying risk areas and informing survival and recovery strategies for specific threats or disruptions across the supply network. A new supply chain resilience team is leveraging the digital twin and other data sources to create an enduring internal capability focused on strategic and operational actions to strengthen resilience.
'Global supply chains are less global than we think'
Frank Appel, CEO Deutsche Post DHL Group
The war in Ukraine and the pandemic-related lockdowns in Shanghai have revealed how local supply chain disruptions can become global issues. But we needn’t only look at these recent events. A cyberattack on a key player, a blocked canal, a volcanic eruption – we have seen several cases over the years that severely stressed supply chains.
These events reveal that global supply chains are at times less global than we think. Too often, companies have pursued a sourcing strategy that is less international, more bilateral.
To counter this, leaders need to reshape supply chains to become more immune to single source disruptions, such as by multi-sourcing of suppliers, or using multiple trade lanes and modes of transport. In addition, they need to address the increased volatility by building greater agility into their supply chains, such as with digitalization and automation.
At Deutsche Post DHL Group, the vast part of our business is built on networks. This ensures that if one node fails, we can reroute around it. Increasingly, we are also creating greater resilience by being able to move resources, such as airfreight capacity and even staff, between our divisions.
'Understand how our peers work and the challenges they face'
Maha Al Qattan, Group Chief People & Sustainability Officer, DP World
World trade should be a force that empowers businesses, economies and communities – but never at the cost of our natural world. We can only make this vision a reality by innovating the global supply chains that make trade flow. If we refuse to evolve, world trade’s vulnerabilities will continue to disadvantage communities and environments across the globe. We must act now to make trade the force for good it should be.
This change is possible if we work together – and as industry leaders, we must be the driving force behind this transition.
We can make these changes sustainably, too. Understanding how our peers work and the challenges they face is paramount to building confidence and stronger relationships and making our work impactful and beneficial. Through open dialogue with our partners on everything from emissions data, human rights, modern-day slavery criteria and operations reform, we can mitigate and, where possible, eradicate adverse outcomes. As participants in the UN Global Compact, we aim to support partners industry-wide with our framework for sustainable operations, looking at everything from responsible ocean stewardship to human rights and from labour standards to anti-corruption.
Transforming trade together will have ripple effects beyond global supply chains, supporting communities, driving business and protecting our planet.
‘Analyse supply chains and address pain points’
Jens Bjørn Andersen, Group CEO, DSV
The challenging market conditions that have characterised supply chains in recent years have continued into 2022. Disruptions and low schedule reliability are more the rule than the exception, and the challenges have been compounded by the war in Ukraine and new COVID-19 lockdowns in China. Meanwhile, a labour conflict at the U.S. West Coast ports is not unlikely.
The expectations for global economic growth have deteriorated since the beginning of 2022. Still, when the current restrictions in China are lifted, it will likely lead to a surge in volume, further exacerbating already stretched port capacities. This impact will depend on how much longer lockdowns go on and if they are extended to other regions and countries.
Supply chain disruptions have become the “new normal” and the China lockdowns are just one of several challenges that the industry will be grappling with for the foreseeable future. In order to navigate this “new normal”, we help companies analyse their supply chains and address pain points, in order to build robust and more sustainable supply chains. This may require diversification of supplier networks and investments in warehouses and technology.
‘Data transparency is essential’
Julia White, Chief Marketing and Solutions Officer and Executive Board Member, SAP SE
Investing in technology and data transparency combined with collaborating across networks is key to enhancing business resilience, performance and sustainability.
Data transparency is essential. By embedding metrics in core business processes that measure climate risk, carbon emissions, and waste and pollution, among others, across both upstream and downstream supply chains, organisations can access a continuous view of financial, social and environmental data that manual processes simply cannot offer. Suppliers are increasingly required to be transparent and verifiable in their fair and equitable labour practices. As new legislation requires organisations to more consistently and systematically address human rights issues, business leaders need data-based monitoring and validation mechanisms across an organisation’s entire value chain.
Cooperation across business networks is required for designing, manufacturing, delivering and maintaining products in ways that minimise carbon footprints, decrease waste and help ensure social equity. Operational, purchasing and industry networks help companies create, share and act on sustainable business information. They can help support diverse and sustainability-focused suppliers and partners, and open new avenues for innovation, cost savings and environmental and societal impact.
How is the Forum helping to navigate global value chain disruption?
The world economy is facing a perfect storm of disruptive megatrends, ranging from the climate crisis to geopolitical tensions and emerging technologies. These are challenging the foundations on which global value chains are built. And while issues affect various industry sectors in different ways, there are unique opportunities for pioneers to build resilience and shape the supply chains of the future.
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The World Economic Forum has been working with a community of manufacturing and supply chain leaders to anticipate how manufacturing companies can best move beyond reactively responding to disruptive forces towards proactively building the right set of capabilities to ensure long-term and sustainable resilience.
This work has resulted in the co-development of the resiliency compass, a unique framework aimed at helping manufacturing organizations assess their current level of resilience across eight dimensions:
- portfolio excellence
- customer orientation
- financial viability
- go-to-market versatility
- logistics flexibility
- manufacturing adaptability
- supplier diversity
- advanced planning
Through our work across industries and geographies, we also identified five profiles of resilience leadership, reflecting distinct priorities and approaches to starting and navigating a resilience journey: the collaborator; the planner; the enhancer; the adapter; and the provider.
To further help firms build and implement new resilience efforts and roadmaps, a series of strategy playbooks were co-developed in close collaboration with members of the Platform for Shaping the Future of Advanced Manufacturing and Value Chains. These playbooks outline the set of actionable strategies employed by leaders within each resilience profile to fortify their value chain.
‘Bolster resilience across two domains: design and operation’
Mourad Tamoud, Executive Vice President Global Supply Chain, Schneider Electric
The biggest challenges to supply chain resilience stem from the ongoing, highly volatile environment. The severity, frequency and global impact of these challenges — COVID-19, geopolitical tensions, shortages of raw materials and components — has never been seen before.
Supply chains must bolster resilience across two domains: the design of the supply chain itself to resist, absorb and recover, and the operation of the supply chain to react with agility to minimise impacts.
With this volatile environment expected to continue for some time, companies must respond to the situation in crisis mode and simultaneously invest strategically to ensure greater resilience in the future.
Behind all of this is the backdrop of climate change. Sustainability may take a back seat as companies navigate crisis after crisis, but investors and customers expect companies to act on climate change, and companies have a responsibility to do so.
Supply chain leaders must ensure sustainability and resilience continue to drive the strategic direction of their supply chain operations and ensure everyone across the organisation is clear on this direction. But this alone is not enough. Supply chain leaders must also define concrete actions and then ensure adequate resources are allocated to meet them.
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One key pillar of Schneider Electric’s supply chain strategy, STRIVE, is moving from “just in time” to “just in case” through the Power of 2. This ensures greater redundancy across multi-sourcing, safety stocks, supplier base, manufacturing sites and logistics networks. The supply chain is mapped end-to-end with dedicated resources on risk management in the procurement team. In partnership with the business, the risk management methodology ensures effective prioritisation of mitigating actions.
In April 2021, we launched the Zero Carbon Project, partnering with our top 1,000 suppliers to help them decarbonize their supply chain. More than 70% of participants said they were new to decarbonization and needed support. So far, we have trained more than 1,300 suppliers covering topics including carbon footprint methodology, decarbonization roadmaps and case studies. We launched the NEO platform, a digital portal where suppliers can exchange best practices, access training and collaborate.
‘Digitalization and a cohesive strategy’
Matthias Rebellius, Member of the Managing Board of Siemens AG and CEO, Smart Infrastructure
Supply chains won’t become sustainable unless we take action to make them so.
Managing supply chains is a juggling act. The emphasis on what’s most important keeps shifting between quality, availability, cost, innovation and sustainability. The current focus – amid pandemic and war – is to minimise the impact of disruption and shortages.
Even when global trade is flowing smoothly, supply chains face interlocking – and contradictory – demands from business, investors, regulators and government. Climate change raised awareness of the need for sustainability. Yet reducing carbon emissions is so complex as to be seemingly impossible.
Why? Because around 90% CO2 emissions generated by Siemens don’t come from its own operations, but from a complex web of 65,000 suppliers in 140 countries.
The solution lies in digitalization and a cohesive strategy. Siemens’ Carbon Web Assessment encourages suppliers to optimise emissions. The Green Digital Twin knows the footprint of every item suppliers make, so purchasing decisions can be based on emissions. And Siemens is joining forces with major industry players to create an open, cross-company, collaborative network. With blockchain and digital twin technology, this tracks the emissions of every component in a product and makes them transparent to everyone involved in making it.