Beyond the COVID-19 pandemic: Coping with the ‘new normal’ in supply chains

Beyond the COVID-19 pandemic: Coping with the ‘new normal’ in supply chains

Date: 
Tuesday, August 4, 2020
Type: 
Public information and advocacy materials
Abstract

Among other things, the COVID-19 crisis has called for the reassessment of risks and sourcing criteria in global value chains (GVCs) and for their shortening. This, in turn, has given momentum to discussions on the establishment and strengthening of national and regional supply chains. The new pattern of GVCs remodelled to fit into this new design will have to absorb extra costs from redundancy and inefficiency, which will eventually be shifted onto consumers. In the Asia-Pacific region small developing economies, in particular least developed countries (LDCs), will suffer the most; not only have they struggled to be included in the GVCs of the recent past, but the new shortened GVCs might bypass them altogether.

Although policy options are limited for small actors in GVCs, assertive policy responses to short-term problems and forward-looking recovery should be prioritized, and a closer regional cooperation should be a top priority. Regional partnerships will be necessary to counter the surge of protectionism, promote greater trade and investment diversification, and ensure the continuation of enhanced productivity, which is the key to absorbing future shocks.

The medium-term policy response should focus on building sets of skills and infrastructure required for the digitalization of supply chains. Imperfect flows of information along supply chains is a major hindrance of supply chain resilience. Lacking the required skills, mechanisms and infrastructure to support the increased need for information sharing and supply traceability will rule out the opportunity for a country to participate in supply chains in the post-COVID-19 crisis period. It is also important to consider how to ensure that increased supply chain resilience aligns with improved sustainability. Due diligence regarding social and environmental concerns ought to be embedded in all supply chains, otherwise it is just a matter of time before the next crisis causes supply chains to break. Regional partnerships will be necessary to counter the surge of protectionism, promote greater trade and investment diversification, and ensure the continuation of enhanced productivity, which is the key to absorbing future shocks. The medium-term policy response should focus on building sets of skills and infrastructure required for the digitalization of supply chains. Imperfect flows of information along supply chains is a major hindrance of supply chain resilience. Lacking the required skills, mechanisms and infrastructure to support the increased need for information sharing and supply traceability will rule out the opportunity for a country to participate in supply chains in the post-COVID-19 crisis period. It is also important to consider how to ensure that increased supply chain resilience aligns with improved sustainability. Due diligence regarding social and environmental concerns ought to be embedded in all supply chains, otherwise it is just a matter of time before the next crisis causes supply chains to break.

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