Global supply chains have come under strong pressure in recent years. As the Corona pandemic began, production disruptions in Asia and restrictions of global mobility led to supply shortages and simultaneously exposed the weaknesses of globally interconnected production processes. The invasion in Ukraine further contributed to this dynamic, leading to the interruption of the "Iron Silk Road", a railroad connecting Asia and Europe. Previously accessible airspace has now to be bypassed. Emblematic for these challenges and their long-term impacts was the blockage of the Suez Canal by the container ship "Ever Given" in 2021. The ripple effects of this blockade affected world trade for weeks afterwards.
Outside of crisis times, supply chains are less of a political than of a business question. Organizations design their supply chains based on business-oriented factors such as achievable economies of scale, cost advantages, risk reduction and market access. The macroeconomic dimension of supply chains becomes prominent only in crisis times, for instance when countries enact export restrictions on raw materials like gas, oil or rare earth metals. The importance of supply chains for national security - and thus their importance for public policy – has regained its place in public discourse with the COVID-19 pandemic.
The resulting difficulty of obtaining certain types of critical goods during the COVID-19 pandemic has led to increased calls for more self-sufficient and robust national supply chains, often demanding a redistribution of production assets from emerging economies to industrialized countries. European leaders’ bid to diversify energy supplies away from Russia is yet another example of a challenge. This exemplifies what an important role the government and public sector play in ensuring critical goods during politically unstable times.
Transparency is a prerequisite to being able to reorganize supply chains. Each partner along the chain needs to be known, along with their respective contribution to the final product. And herein lies the challenge for many supply chains, as transparency is often insufficient.
Six dimensions of responsive supply chains
The complexity of business supply chains complicates the development of a robust, transparent, but also responsive supply system for Switzerland and other countries. Resilient supply chains have six important dimensions:
The spatial dimension: Every supply chain crosses geographic areas of varying degrees of stability and depends on transport routes and resources that are controlled by parties pursuing different interests. Access to such areas is used for political and economic leverage, as seen in the examples of the China’s Belt and Road Initiative, the European Connectivity Strategy with Asia, or the efforts of the U.S. administration to build a network of prosperity with allies.
The technical dimension: Global technological development is becoming less cooperative. Digital technologies, on which interconnected and highly automated production processes of the Industry 4.0 model as based, are less often shared publicly. Through exclusivity, governments hope to gain competitive advantages. This is not helpful for building globally connected supply chains.
The financial dimension: Often overlooked by policymakers is the financial governance of supply chains. Sustainable and robust supply chains require liquidity and financial security for all participants. Managing liquidity means being connected to financial technology and networks, which connects the financial dimension back to the technological one. The objectives of China and Russia for example are only partially compatible with participating in western financial systems. They are increasingly pushing their own solutions for financial transactions. However, with the development of a separate payment system, a new fault line emerges for supply chain liquidity.
The time dimension: Changes in complex systems like supply chains take time to take effect, even in the best of times. This applies both to business decisions and to government decisions that change the ground rules for the private sector. In crisis times, there is pressure to reduce delays by, say, investing less in consultations of new regulations. Without a dialogue between public administrations and businesses about causal effects and interdependencies of these complex systems, there is a threat that actors will act asynchronously.
The sustainability dimension: Companies are subject to a growing array of environmental and social standards within their supply chains. In principle, this is an opportunity for companies to differentiate by offering sustainable products. But in practice, companies do not have enough proven tools at their disposal to verify their suppliers’ sustainability stance. Particularly in more complex, global supply chains, transparency-increasing measures are not implemented well in source countries, and buyer companies don’t have the leverage to push for improvements.
The political dimension: Supply chains are governed by political interests. When the political environment considers crisis resistance to be a zero-sum game, it may use its political power to strengthen national companies and favor developing or in-shoring production capacities. There are alternatives to this isolationist approach: supply chains can be strengthened through increased cooperation between actors, or by creating redundancy.
