APEC Could Play A Role In Bolstering Supply Chain Resiliency
The COVID-19 pandemic has caused significant disruptions to supply chains in the APEC region and has highlighted the need for governments to consider strategies for greater resilience, according to the latest APEC Regional Trends Analysis report launched on Thursday.
“Most of the concerns raised about supply chain resilience have been echoed by the business community, but more can be done to manage resilience at the policy level,” says Dr Akhmad Bayhaqi, a senior analyst with the APEC Policy Support Unit.
The APEC region has been producing close to 60 percent of global manufacturing value added (MVA) over the past two decades, spread mainly across four main hubs. When COVID-19 lockdowns affected these hubs, it led to severe supply chain disruptions. In the first four months of 2020 alone, the APEC region saw a 6.3 percent decrease in exports and a 5.5 percent decrease in imports compared to 2019.
“Businesses’ attempts to reduce supply chain costs by focusing on lean manufacturing, offshoring and supplier consolidation seem to have increased overall global supply chain risk and reduced flexibility,” explains Satvinderjit Kaur Singh, a researcher with the APEC Policy Support Unit. “This has led to calls for greater resilience in the aftermath of COVID-19.”
However, improving resilience is not an easy or cost-free exercise, the report highlighted. Global supply chains were formed based on the business linkages that would provide the most cost-efficient outcome, so that businesses can position themselves competitively in the global markets. The recent disruptions have brought forward the difficult conundrum for businesses in choosing between efficiency and greater resiliency.
“While the concepts of relocation and reshoring were widely considered in the earlier part of the pandemic, it comes with higher production costs and hurts the long-term global outlook,” explains Singh.
“There is a need for investments in order to build more resilient supply chains,” Dr Bayhaqi adds. “Improving just-in-time manufacturing, combined with the right technology and other strategies such as creating cushions in the form of inventory, capacity or lead times and designing contingency plans for possible supply chain shocks can boost resiliency.”
The report calls for governments to avoid policy interventions that may disrupt the efficient configuration of global value chains. Rather than looking at trade as the root cause of supply chain’s vulnerability, the report suggests policymakers look at global trade as part of the solution to achieving resiliency.
“Governments can focus on promoting digitalization and supply chain visibility; and by enhancing regional cooperation on trade, connectivity and economic openness,” says Dr Bayhaqi. “Customs operations and cooperation can be improved by applying automation and digitization through platforms such as the Single Window System.”
Governments should leverage knowledge transfers and productivity spillovers gained from global value chains for local firms and support them in maintaining the skills and know-how that they have acquired from their supply chains networks.
Structural reforms could also play a crucial role in developing a stable and predictable regulatory environment that allows global value chains to operate and recalibrate their network structures during recovery from a pandemic.
“There is no easy fix for supply chain disruptions,” says Dr Rebecca Sta Maria, APEC Secretariat’s Executive Director. “The focus for economies today is to build long-lasting resilience by looking at their supply chains more holistically, harmonizing regulation, digitizing processes and creating some level of redundancy to allow flexibility.”
“The important thing moving forward is to ensure that stronger trust in trading partners and deeper regional integration, by involving micro, small and medium enterprises, form an integral part of APEC’s strategy toward a resilient and inclusive economic recovery,” Dr Sta Maria concludes.
View the latest APEC Regional Trends Analysis, May 2021