The COVID-19 pandemic has accelerated changes already underway in global supply chains, according to Jeongmin Seong, director of the McKinsey Global Institute. He was the featured speaker in the third seminar of the Webinar Series recently launched by Yonsei University School of Business and the Yonsei Business Research Institute to explore the what the pandemic means for business and society and how to deal with its impact.
Speaking on “After COVID-19, How Will Global Supply Chains Change?,” Seong reported the results of a December 2019 survey about global supply chain strategies conducted by McKinsey Global Institute. Seventy percent of the respondents expected changes in globalization and sourcing strategies; 43 percent proposed more investment in supply chain technologies; 32 percent expected to move their operating environments closer to their end consumers, and 24 percent suggested diversification of supply chains.
Based on results gathered over many years of research, Seong said changes in the global supply chain for the “next normal” of the post-COVID-19 era will occur in three phases: a transitional period; establishment of a resilient command center; and a technologically enabled supply chain.
Noting that the transitional phase was underway before COVID-19 appeared but has since accelerated rapidly, Seong said five trends deserve special attention.
First, as China and other developing countries build their own supply chains, the proportion of trade in consumer goods compared with production will gradually decrease.
Second, the rapid growth of trade services and cross-border data flows have increased 3.2 times since 2005. This is expected to continue to grow, and hence trade services and cross-border data flows will expand more rapidly compared with trade in consumer goods.
Third, because the cost of labor-intensive supply chains has decreased and the value of knowledge-intensive goods such as software, design, and research and development (R&D) has become increasingly important, it will become ever more critical to consider the accessibility of R&D and technical talent instead of low labor costs in determining production locations.
Fourth, as companies prioritize the speed of market launches because of the trend toward localization, trading will be increasingly localized, especially in Asia.
Finally, although the diversity of supply chains was important before COVID-19, it will be even more important in the future.
Next, explaining the importance of a command center in building a supply chain with high resilience, Seong said companies are facing many problems in responding to the current unprecedented situation. Therefore, he emphasized that it is important to respond effectively by strengthening the command center’s capabilities.
Finally, he highlighted the importance of digital technology. The use of digital tools can lead to rapid rejuvenation of the supply chain, he said, enabling real-time simultaneous planning of demand, manufacturing, assembling, and logistics and thereby accelerating sales and operational planning. Because companies are facing difficulties triggered by plant shutdowns because of COVID-19, he expects they will move quickly to build more automated and digitized plants.