During this month’s Path Forward event, U.S. Chamber CEO Suzanne Clark discusses the global supply chain crisis with Dr. Yanzhong Huang of the Council on Foreign Relations, Dr. Alicia García Herrero of Natixis, Dr. Andrea Limbago of Interos Inc., and Renato Scaff of Accenture. These experts shared their thoughts about the additional strain from the pandemic shutdown in China and the war in Ukraine, and how we can adapt and rebuild a stronger supply chain for the future.
China: Zero-COVID and the Global Economy
China’s zero-COVID policy forces metropolises, like Shanghai, to lock down and halt all forms of production. Dr. Huang outlines a few instances of how China’s zero-COVID policy is doing more harm than good:
- The policy sustains their COVID immunity gap leaving more people at risk.
- China can expect a decrease in GDP by 53% if all cities are forced into lockdown. It’s already expected to decrease by 8.6% with the closure of its four largest cities.
- Ships cannot enter Chinese ports when cities are under lockdown, which increases shipping costs and travel time from 30 days to two months, likely ruining produce shipments.
As for what we can do, our first step is staying informed and understanding the impacts on inflation and the global economy. Dr. Herrero explains:
“The impact is mixed...China will be a bigger shock for the global economy than Ukraine...I do think this is a humongous inflation issue...but also deflationary for other items.”
Ukraine: Transitioning Reliance
One of the takeaways from the war in Ukraine is the importance of diversity of supply. Dr. Limbago outlines two points that we need to address to reduce reliance on Russia:
- Investment in infrastructure: Natural gas is more complicated to move than oil because of processing differences at export and import terminals.
- Sustainable energy: A greater dependence on alternative energy sources will hopefully decrease prices in Europe, but that is not an immediate solution.
Business Leaders: Plan and Prepare
The supply chain crisis continues to strain the global economy – felt by businesses and consumers everywhere. We must prepare for what may happen and plan how to move forward.
Renato Scaff provides four priorities for businesses to prepare and adapt to the supply chain issues:
- Structural visibility: Too few companies understand their overall supply chain past their first-tier supplier. There needs to be structural visibility to evaluate risks and determine strategies to mitigate negative effects.
- Dynamic visibility: A company’s ability to sense and react to the changes it experiences at a daily level.
- Responding: Companies must refocus their responses to be through disruptions instead of to disruptions. “To” makes a situation’s timeline definite, but we are dealing with issues that will have an unknown extended effect on the economy.
- Inventory strategy: Inventory strategies are shifting from cost to a more holistic approach. These strategies now include establishing resiliency and flexibility as well as addressing ESG impacts and sustainability.
Scaff advises, “You can’t afford to be single-threaded on one supplier or one geography. You need to embark on a strategy of diversification and...placing bets in different places. Then, [create] the technology that allows you to be flexible and constantly sense and react.”
To learn more from these experts on China and the war in Ukraine’s effects on the global supply chain and how you can best utilize your “golden bolt,” view the episode here.