Przemyslaw Kowalski
Senior Policy Analyst, OECD Trade and Agriculture Directorate
Amidst a series of global crises and rising geopolitical tensions, the case for improving the resilience and sustainability of international supply chains has never been more critical.
Consumers and producers rely on access to a variety of internationally traded goods and services in their everyday lives. The most competitive products draw on inputs from different parts of the world to maximise capabilities and resources. However, production in international supply chains is challenging because it involves complex cross-border movements of physical and intangible inputs, which are sensitive to changes in regulation and trade, transport and communication costs. Supply chains have also grown more complex as firms strive to cater to a multitude of markets and meet consumer demand for quality, performance, taste and price.
Complex supply chains, complex challenges
Resilience, economic security and the achievement of environmental and social sustainability are some areas where the challenges imposed by the complexity of supply chains have recently become the most visible. Recent economic shocks highlighted both fragility of international supply chains but also instances in which they can boost economic resilience.
The difficult debates on the best approaches to promoting ambitious environmental and social standards of production are further examples of how the complex nature of supply chains can pose challenges to meeting common goals in the absence of common standards. Societies care about the environmental and social footprint of products. However, controlling this is complicated because the firms directly involved do not always have complete information on —or cannot easily verify — the standards of their suppliers. Addressing one challenge (e.g. reducing waste in the supply chain) can also create trade-offs with others (e.g. increasing inventories to promote resilience).
Transforming supply chains for resilience and sustainability
In this uncertain environment, and with sustainability emerging as a central issue, supply chains are bound to transform. This transformation will be a fine balancing act. It will be driven by both the main supply chain actors (private firms) and governments. In order to be successful, it will be important to ensure that suppliers – often small and developing regions-based – become an integral part of this transformative effort.
Firms will strive to better assess future risks and manage their supply chains to minimise costly inventories, maximise the continuity and reliability of supply and boost the sustainability of their products. Responding to public concerns about continuity and sustainability of supply, governments are investing in developing a more solid view of systemic risks of supply chains and devising appropriate policies to minimise exposure to risks while preserving the benefits of open markets.
Combining knowledge and capability
Making this transformation beneficial will require further unpacking and a better understanding of the economic and social effects of supply chains. This will be impossible to achieve without closer cooperation between firms and governments that have both the required information and ability to influence the different parts of this complex puzzle.