The Covid-19 pandemic and the Russia-Ukraine war have exposed the fragility of global supply chains, prompting countries to look inwards increasingly. Calls for national self-sufficiency and near-shoring supply chains threaten to reverse the gains from globalisation and an interconnected world economy.
Global supply chains spanning multiple industries and dozens of countries have driven and defined globalisation over the past few decades. Till recently, an estimated 70% of world trade was carried out through these supply chains.
Their critical role in international trade has made them prime drivers of the world economy. Their evolution has led to technology growth, job creation, greater prosperity and improved living standards, especially in developing economies. Emerging markets such as the BRICS countries, comprising Brazil, Russia, India, Indonesia, China and South Africa, have been the largest beneficiaries of this development. The fragmentation of these global networks does not augur well for the world economy. Trade protectionism will result in shocks to the global financial system and add cost and inefficiencies to the detriment of consumers.
Rethinking the global supply chains
Recent developments have made it amply clear that low costs can no longer be the sole determinant of supply chain decisions. The COVID-19 pandemic had stretched supply chains, making it costlier to procure raw materials, manufacture goods and ship them worldwide. The war in Europe has worsened price pressures in the food and energy markets. According to the IMF, inflation rates around the world have recently reached an average of 8.7%.
The current situation demands a fundamental rethinking of global supply chains to make them resilient and agile to manage disruption risks better. The world needs to move from a centralised, linear model of supply to digitally enabled, distributed supply networks closer to customers and markets.
These ‘future ready’ supply chains will need to be dynamic to meet rapidly evolving and increasingly volatile customer and consumer needs. They need to be smart to predict, prepare, and respond to a catastrophe whenever and wherever it strikes. They also must demonstrate a commitment to improved environmental, social and governance performance by ensuring that business operations are circular, net zero, and trusted.
We have a great example of a flexible and resilient system, the Internet, which is based on a highly distributed architecture. The pandemic, for instance, was managed on a cyber backbone that enabled remote working, virtual meetings and digital commerce and kept the world economies interconnected and relatively undisrupted. Leveraging the Internet model to reinvent the global supply chains of tomorrow can lead us into a state of preparedness no matter the crisis.
Personalised supply chains are what the future will ultimately demand, e.g., e-commerce and e-pharmacies, which will need to cater to individual needs in the shortest time. It will need digital platforms that track, trace and deliver at speed and scale. Hub and spoke models that are both agile and affordable will form the distributed model that will need to have lean and efficient, ‘just in time’ inventory management systems.
Supply chains of the future must be global, regional and local simultaneously.
India can gain from the reshaping of supply chains
To ensure that production disruptions in one location--like the Covid lockdowns in China--don’t disrupt entire supply chains, there will be greater emphasis on making supply chains more resilient. India benefits from the ‘China Plus One’ strategy when MNCs are trying to diversify their supply chains to include sourcing from India to mitigate their dependence on China.
This dovetails with the government’s declared objective of integrating India with global supply chains. The government has rolled out policy initiatives such as the Production-Linked Incentive (PLI) Scheme and low corporate tax rates for new manufacturing to capture this emerging opportunity.
Information technology and connectivity will be key elements in global integration in future. Countries with strong digital backbones could act as the arteries of this new global supply chain system. This is why India will have a pivotal role in this digital transformation of global supply networks.
India’s strategic intent to build a robust digital economy and its commitment to universal healthcare have already been initiated in our country, from DBTs to CoWin. Digital healthcare that relies on distributed models is a great opportunity for India to build sustainable and resilient supply chains across vaccines, diagnostics and therapeutics for the world.
The writer is Chairperson of Biocon and Biocon Biologics