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Post COVID-19: Supply Chains & More

Daniel Casares-Lauritsen
Daniel Casares-Lauritsen
May 22nd, 2020

Reading time: 3 minutes

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Over the past forty years digitalisation coupled with the overpowering forces of globalisation have redefined virtually all aspects of our life, from how we communicate to how we consume. Adapting to these changes, worldwide manufacturing production has been reorganised into global value chains (GVCs) to satisfy the growing demand at any time, any place. Thus, supply chains have become inseparably interconnected, whereby raw materials and intermediate goods are shipped around the globe multiple times and then assembled in yet another location to be reexported to the final consumers in both developed and developing markets. As such, about 70% of international trade today involves GVCs, making them a true backbone of our global economy.

This globalisation of production systems has allowed for better quality products, greater consumer choice, and higher productivity and cost-efficiencies. However, as corporations have further relied on decentralised scouring and just-in-time manufacturing, chasing efficiency gains, GVCs have become increasingly vulnerable to systemic disruptions, including environmental, geopolitical, and economic shocks. Such supply chain disruptions are especially costly, as they create what is known as the “domino effect”, in which the effects of risk spread along the value adding processes along the supply chain, affecting more than one chain link and hindering their performance temporarily. In recent years, we have lived through several instances of the domino effect, with Japan’s Kumamoto earthquake in 2016 being one of the most notable examples, since the resultant shortfall in the supply of parts led to a 16% drop in revenue and a 66% decrease in net income of global electronics manufacturers.

The above example alone demonstrates how disruptions on a local scale affect the wider global economy. However, today we are witnessing a truly global supply chain disruption, whose effects are not just immediate, but will likely continue to linger throughout the remaining months of 2020. As per the data from the global platform for supply chain management, Tradeshift, domestic and international trade transactions in China saw a week-on-week drop of 56% beginning mid-February. When put in perspective, this drop is especially severe, as neither the SARS outbreak nor the 2008/9 financial crisis were associated with such sharp declines in trade . Both the US, and Europe followed suit, with a combined initial drop of 26% in the beginning of April, and a continuing decline of 17% in late April. Overall, trade has flatlined in every region affected by the lockdown.

On a micro level, findings from the most recent survey by the Institute For Supply Chain Management reveal that 75% of the surveyed companies reported supply chain disruptions in one form or the other due to coronavirus-related transportation restrictions, and the figure is expected to rise further over the final weeks of spring.

As we begin to adjust to the new reality, many industry analysts and incumbents point out that return to the lowest-cost supply and minimal inventory level will no longer be an option in the post-COVID era. Although this approach proved to be effective during the prolonged periods of stability, it exposes companies to increased systemic risk. Hence, many organisations will use the lessons learned from this experience to shift their priorities from cost to resilience. Companies that invest in supply chain resilience gain a distinctive competitive edge over their rivals, as their product development cycles are reduced by 40%-60%, output capacity is expended by 15%-25%, and ultimately revenue growth accelerates due to increased supply chain agility.

Building resilience within the supply chain requires addressing four key capabilities, which are visibility, flexibility, collaboration and control. Digitalisation of supply chains can be the first step to achieve business resilience in the highlighted areas. Technologies such as big data analytics and cloud-computing are no longer the prerogative of tech giants. SMEs can and should implement them to streamline their supplier selection process and facilitate and mange supplier relationships. At the same time, larger corporations can take advantage of digital technologies for Industry 4.0 such as IoT devices, blockchain, robotic automation and control towers, amongst others. Companies that begin designing resilient supply chains today will be in much stronger position to weather future storms.

FLI acknowledges that transitioning to cutting-edge technologies has often involved a significant hurdle when it comes to regulatory compliance, especially for firms operating across different jurisdictions. As such, it regularly provides advisory services on product-rolls outs, international contract and supply-chain review, restructuring and insolvency assistance, and debt-collection, amongst others. Through a truly transnational offering, FLI is able to provide access to local subject-matter experts through its global network.

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Daniel Casares-Lauritsen

Daniel Casares-Lauritsen

Daniel has significant experience in advising clients’ corporate portfolios and optimizing multi-jurisdictional legal projects. His mission is to enhance clients’ leverage in complex multi-stakeholder deals through the power of FLI’s business model. He has also supervised the development and roll-out of FLI’s LegalTech Apps/PWAs, including FlightOne and FLInstitute in order to retain counsel in various jurisdictions, as well as promoting client co-creation and corporate compliance. These elements may include, but are not limited to: M&A, Entry/Expansions/Restructurings, VC/CVC/PE/Family Offices and Wealth Management, Compliance & Investigations, FDI, Import/Export Trade Regulations, Tax, Corporate Governance, and more.

Daniel regularly provides insights on industry trends, economic and legislative opportunities and threats, as well as strategic avenues for FLI accounts in conjunction with its subject-matter experts.

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