McKinsey: Global threats are reshaping supply chains

Companies can transfer a quarter of their global product sources to new countries within the next five years, according to a recent study conducted by the McKinsey Global Institute, in which it warned that the increasing threats to supply chains could inflict heavy losses on corporate profits.

The McKinsey Institute, in its recent report, estimated that goods valued between $ 2.9 and $ 4.6 trillion, or which account for between 16% and 26% of global exports in 2018, are in the game.

The report added that cost considerations and government pressures to rely more on self-reliance could lead to more than half of drug and clothing production operations being transferred to new countries.

The study confirms the extent to which the crisis of the outbreak of the "Covid-19" pandemic is forcing companies to rethink in a timely manner the supply chains on which the global economy has become dependent, and which are working to harmonize commodity and material requests with production schedules, but pressures, for this new focus supply chain flexibility and regionalism were increasing before the outbreak.

Susan Lund, partner at the McKinsey Global Institute, the research arm of the studies and research firm McKinsey & Company, said trade tensions, cyberattacks and climate risks, from heat waves to hurricanes, all expose companies to increasingly costly downtime in operations.

As a result, companies can expect, on average, to be exposed to turmoil that would last for more than a month every 3.7 years, and that would cost them more than 40% of a year's profits every decade, according to the British newspaper, The Financial Times, citing a report "McKins D".

Lund noted that this changes the accounts for investments in diversifying supply chains or bringing them closer to home. "You can invest in supply chain flexibility while continuing to preserve the value of work. The process is not a trade-off between efficiency and flexibility."

The main results of a McKinsey Global Institute study were published by the Boston Consulting Group last month, which showed that bilateral trade between the United States and China could contract by about 15%, or nearly $ 128 billion, by 2023, compared to the levels it reached in 2019.

A similar report issued by the American management consultancy "Kearney" last June, found that the severe effects of the Covid-19 outbreak would help companies accelerate the fundamental reassessment of their supply chains, indicating that technology has already reduced the importance of labor arbitrage. While the increasing consumer demand for express delivery was already creating pressure on the multiple, semi-limited local supply chains.

However, some analysts warn against expecting a rapid reversal in decades of globalization. The credit rating agency Standard & Poor's Global noted this week that US manufacturers saw few options for replacing their Chinese suppliers.

In addition to the potentially high costs of finding an alternative to manufacturing processes, analysts at Standard & Poor's said that US companies may hesitate to risk losing access to the world's second largest economy.

Susan Lund, a partner at McKinsey, said that "large quantities of materials will continue to be produced in China, given the presence of more than a billion consumers there, adding that she does not expect the production of many companies to return to the United States."

"However, several US companies, in particular, have come to the conclusion that their supply chains have become extremely long and complex," Lund said.

She stated that the epidemic has accelerated companies' digital investments aimed at improving their understanding of the weaknesses of supply chains, adding: "When I order from Amazon, I know when the order has been received, prepared and shipped, but most companies cannot do that, you cannot be told. In the number of industries in which people still fax orders to suppliers."