From low-cost-oriented to maximization of customer value creationAchieving Efficiency and Resilience Across Global Supply Chains with Digital Technology
The functions of the global supply chain are recovering as the counter measures to the corona pandemic have taken effect. However, risks of global supply chain disruption continue because of intensifying geopolitical risks. For example, the division of the world economy, increasing frequency of natural disasters and global warming, and systemic risks associated with cyber-attacks. At the same time, as the digitalization of society has accelerated. The objective of supply chain strategy needs to change from pursuing low cost through globalization to pursuing maximization of customer value. A smart data-driven supply chain system using digital technology is a key to realize such a strategy, enabling a supply chain that is resilient as well as efficient.
Significant impact on the global supply chains
Global supply chains have been significantly disrupted by the lockdowns, transportation problems and rapid changes in supply and demand caused by the COVID-19 pandemic. Some industries have suffered serious damage. For example, Hyundai Motor and Nissan Motor suspended their production lines from February to March, following problems with parts procurement from China. Similarly, it was also reported that production at the Tesla factory in Shanghai was temporarily halted because parts could not be procured from the United States.
Global production previously concentrated around specific regions and suppliers
Until now, industries facing severe global competition prioritized efficiency, establishing cheaper production bases overseas (the shift of production from home to the low cost country) and creating global supply chains. They focused on mass production to drive improved efficiency, resulting in increased concentration in some regions and major suppliers, and in turn making existing global supply chains vulnerable to the impact of the pandemic.
According to statistics from the United Nations Industrial Development Organization (UNIDO), the shares of the five major countries in the world gross domestic product (2015 price and value-added basis) in 2019 are 29.7% (China), 16.3% (US), 7.0% (Japan), 5.4% (Germany) and 3.1% (Korea). It became evident during the pandemic that many of the existing supply systems in these countries lacked the agility to change direction to adapt to sudden changes in demand.
As Table 1 shows, China is by far the largest import country of origin for major countries and regions of the world. In China, faced by labor and energy shortages, environmental challenges and domestic regional development imbalances, the pandemic has left the global supply chain temporarily at risk of fragmentation. In particular, the need for rebuilding the global supply chain has been identified as an urgent issue.
Table 1 Changes in share of imports from China in imports of major countries/regions
The need to reimagine new global supply chains
Loading component...
Table 2 Future global supply chain characteristics
Loading component...
Physical response and restructuring of existing supply chain
Loading component...
Building end-to-end supply chains to reflect production and distribution processes
Loading component...
Figure 1 End-to-End supply chain concept starting from the customer
