The major balances established over the last few decades, which have given rise to the current configuration of international supply chains, now seem to be outdated. The questioning of these paradigms forces to consider new solutions, with different approaches on production, supply and distribution...
Covid and the new focus on supply chains
The arrival of Covid, and the chain of local confinements and induced disruptions to transport infrastructures, have highlighted the effects of dependencies in supply chains. In international logistics, the breakdown of a component, or even a sub-component, can block the production of a factory and generate a cascade of breakdowns... Locally, the confinement of a warehouse can freeze the entire economic activity in a distribution region.
Many companies have momentarily focused on their operations: the supply of raw materials and finished products, in order to maintain their activity. Supply Chain and Logistics have switched to BCP management - Business Continuity Plan.
Covid and the tension on international transport
The end of 2021 saw major disruptions in international supplies, linked to a saturation of international shipping (lack of containers, ships, and repeated freezing of Chinese ports in connection with Covid), combined with a rebound in consumption on the US and EU markets.
Shipping costs have increased fivefold in two years.
Average sailing time from China to Europe has increased by 10 days, with high volatility, with some vessels arriving 3 to 4 weeks late.
Six months ago, more than 90 container ships were blocked off the coast of China, rerouted between different ports, waiting to be loaded or unloaded, and about the same number on the American West Coast. For comparison, the blockage of the Suez Canal affected about 25 container ships for 1 week...
This situation had raised fears of systemic disruptions in availability for Christmas. At that time, conservative projections were based on an absorption of production delays in China and a gradual stabilization of logistics capacities in the ports, with a calming down in the summer of 2022 and a return to normal by the end of 2022.
Worsening international flows in a context of geopolitical uncertainty
Since then, the logistics situation has changed dramatically, in a global context of great uncertainty: geopolitical, economic and financial. The war in Ukraine has led to the closure of the Russian market and increased energy and transport costs. The Trans-Siberian rail freight link, an alternative between ship and plane connecting China to Europe, has been progressively closed. This situation has reinforced awareness of the dependence on China as a source of supply, particularly in the event of an extension of the conflict.
However, in a more immediate way, it is the sanitary situation in China that appears today as the most worrying. For several weeks now, the main ports and, above all, the main industrial production areas in China have been blocked for health reasons, in connection with the application of the zero Covid policy. Thus, Shanghai has been paralyzed since the end of March, Shenzhen and Beijing have been partially blocked since mid-April.
Naturally, the return to a nominal situation planned for the end of 2022 seems to be compromised, not directly by transport but rather by production delays. Instead of an improvement, a deterioration in the availability of manufactured goods is even to be feared in the coming months, depending on the evolution of the health situation and traffic restrictions.
A need to reinforce the control of its supply chain...
In order to face up to a series of disruptions, reinforced control over long and complex supply chains is becoming a new criterion for resilience and performance.
This control is based on perfect visibility of flows and orders, through end-to-end monitoring consolidated in a control tower facilitating management and decision-making. The management system allows to anticipate delays and to orchestrate orders according to emergencies. Some logistics service providers have even developed offers dedicated to the logistics management of international end-to-end flows (without necessarily operating them) - LLP / 4PL.
... bringing sourcing and production areas closer together
At the same time, already after the first waves of Covid at the end of 2020, many companies were planning to work on bringing their suppliers together. An Euler Hermes survey of 1,200 international companies showed that 95% of companies had seen their supply chain profoundly disrupted by Covid, 1 in 3 companies were considering bringing all or part of their sourcing/production closer together, and 1 in 6 companies were planning to relocate a significant part of their sourcing/production.
Since then, the succession of logistical disruptions, changes in consumption patterns and, more generally, contexts of great uncertainty, are pushing more and more brands down this path. Covering upstream contingencies requires high levels of inventory, and great anticipation of flows, in an uncertain commercial context. The simple gain in purchase price is no longer necessarily sufficient to justify distant sourcing.
In addition to contributing to a better control of the supply chain, such a rapprochement also meets the new CSR expectations of customers, financial markets and employees. The expected impacts of such an approach are as much environmental (including the reduction of CO²) as social and societal (contribution to the local economy, respect of work rules, contribution to taxes, ...).
The new keys to the reconfiguration of logistics chains
The various relocation initiatives will come up against the problem of residual capacity in Europe. Many production sites have already disappeared from the region, as well as complete industrial know-how in certain sectors.
Thus, some new keys are emerging, such as
Digitalization to simplify operations, make exchanges more fluid, rationalize decisions for greater agility in the evolution of logistics networks, Automation and robotization, in warehouses as well as in industry to compensate for part of the costs of relocation, as well as to increase production capacities, Improving the coupling between Production, Logistics and Distribution, in particular through transverse Supply Chain management processes of the Sales & Operations type.
In short, the transformation of supply chains has only just begun, with new challenges emerging such as access to production capacity, securing access to raw materials, and in the coming months, a risk of exchange rate changes in connection with the new European policy on interest rates, which should impact the Euro - Dollar parity...
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