#182 Risks to Global Value Chains

 The following chart combines multiple factors, including how much of

the industry’s current geographic footprint is found in areas prone to each type of event,

the factors of production affected by those disruptions and their importance to that value

chain, and other measures that increase or reduce susceptibility. For example, heat waves

affect some regions more than others. Within them, labor-intensive value chains are at

comparatively higher risk—and within that group, those with the highest concentration of

workers in outdoor or non-climate-controlled settings are most exposed to disruption.

SOURCE: <https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Risk%20resilience%20and%20rebalancing%20in%20global%20value%20chains/Risk-resilience-and-rebalancing-in-global-value-chains-full-report-vH.pdf>

7,033 suppliers (for Dell) illustrate the interdependencies on of a value chain.

These are not distant future risks; they are current, ongoing patterns. On top of those losses,

there is an additional risk of permanently losing market share to competitors that are able to

sustain operations or recover faster, not to mention the cost of rebuilding damaged physical

assets. However, these expected losses should be weighed in the context of the additional

profits that companies are able to achieve with highly efficient and far-reaching supply chains.

A survey of supply chain executives conducted in May 2020, an overwhelming

93 percent reported that they plan to take steps to make their supply chains more resilient,

including building in redundancy across suppliers, near shoring, reducing the number

of unique parts, and regionalizing their supply chains. The respondents

included supply chain and operations’ executives representing diverse value chains,

such as pharmaceutical and medical products, automotive, advanced electronics

and semiconductors, consumer packaged goods, chemicals, and metals and mining,

among others. When companies understand the magnitude of the losses they could face from supply chain disruptions, they can weigh how much to invest in building resilience. Many options can boost productivity at the same time, providing a win-win.

Summary:

Hedging against supply chain interruption is not advisable. Instead pursue possible conservative gains of secure stocks.