Conference: Festival of Diplomacy 13-Transitions and Contractions: Is no change an option?
October 20-28, 2022, Rome, Italy.
Session: Supply Chain: Global vs Regional
(3:00pm-4:30pm, Friday, 28 October 2022
Ihsan A. Buhulaiga, PhD
Member, Asbar Center
Riyadh, Saudi Arabia
1.Let me begin by thanking the organizers for providing this opportunity to participate on this timely topic.
2.Please allow me to briefly introduce “Asbar Center.” Asbar is an independent think tank based in Riyadh, Saudi Arabia. Currently, it has a membership of 100 with diverse professional and academic backgrounds.
3.The issue of Supply Chains is at the forefront. It emerged out of COVID-19 as a major influencing force. Supply Chain, or the distortion of it, played havoc to international trade. It had a decisive role not only in pushing inflation up, but also in showing volubility of food and energy security to say the least.
- In this brief, I’ll touch upon five points:
- Impact of Covid on supply chains,
- Supply chains after Covid,
- Supply Chains Relocation,
- The Motives to move from global to regional supply chains, and
- KSA’s National Supply Chain Imitative.
- (1) Impact of COVID-19 on supply chains: Multiple national lockdowns slowed or even temporarily stopped the flow of raw materials and finished goods, which disrupted the manufacturing of goods and flow of human expertise. However, we cannot put all the blame on COVID, Global Supply Chains had their intrinsic weaknesses all along. The pandemic exposed some of these weaknesses and exposed the unrealistic dependencies. The COVID was a force able to tip the global logistical apparatus of balance, leaving many countries, both developed and developing, experiencing shortages in basic goods, such as food and even hygienic products like toilet paper! A survey by EY conducted toward the end of 2020 of 200 major companies (with annual revenues of over US$1b) concluded that only 2% of the surveyed firms were fully prepared for the pandemic, as a result they plan to make their supply chains more resilient, collaborative, and networked with stakeholders, by boosting investment in automation technologies, like process automation.
- (2) Supply Chains after Covid-19: Upon exiting the COVID-19 crisis, the criticality of supply chains became more strategic to country stability and firms’ survival. Resiliency and sustainability of supply chains elevated to the center stage. The new requirements mandate that supply chains ought to be reliable, flexible, distributed, sustainable, and innovative. These new requirements mean digitization, autonomous, and connected chains encompassing end-to-end the various stages of value creation, namely planning, procurement, manufacturing, and logistics. Even though it has been established globally that supply chains require a substantial retooling, countries and companies vary in doubling down on supply chain investments. More specifically, it seems that there is a shift toward local and regional rather than global supply chains. This happens in the wake of the pandemic. The major takeaway for the COVID is that supply chains need to be resilient or fail-proof. This requires not only investing more money in old architecture and systems, but also doing things differently by opting for advanced real-time data acquisition (IoT and remote sensors) and intelligent analysis. Finally, countries and firms are obliged to be mindful of risks associated with supply chains. Risks must be assessed and classified in low, medium and high. Identifying risks is crucial for suppliers broadening and amassing inventories, including safety stocks.
- (3) Supply Chains Relocation: This concept is not new. The relevant literature is full of arguments on the details of relocating supply chains. The traditional look of relocating necessitates investments in the new locations. But the whole concept of supply chain relocation belongs to the pre-pandemic era, as it was instigated by decoupling US-China supply chains, i.e., shifting production from China to the United States, or other alternative locations like Southeast Asia. The pandemic taught the world a painful lesson that China cannot be cut-out and the premises of boycotting economic resources based on political grounds is both counterproductive and unsustainable. The major challenges of international trade are global. For all practical purposes, the challenges cannot be confined to a limited geography or a country. History of economic thoughts tells that economic phenomena are, just like the pandemic, contagious. Therefore, the discussion now is not any more on relocation as much as on supply chain reorganization. Obviously, the reorganization is a function of economic sanctions and other political constraints , maximizing or minimizing foreign and security policy’s prerogatives.
- (4) From Global to Regional Supply Chains: It is not only COVID, but there is a rollback of globalization and hence the global supply chain. Even though the woes of the global supply chain have eased, there is an experience which cannot be forgotten, high costs, lengthy delays, crowded ports, and shipping container shortages. The easiness may be largely attributed to less demand, cyclical and seasonality production and partially to improvements to the supply chain. This is to say that the current improvements are not sufficient. Primely for two reasons: (1) Firms demand to maintain visibility over the whole flow of goods. This requires a massive improvement based on technology. (2) Global supply chains troubles may come back when inflation eases and world economy expands. Both reasons call for distributed solutions. Neither countries nor firms can afford to rely on central systems of global supply chain with limited visibility and constrained capacity. Providing visibility requires technology-based and network-based supply chains, while capacity dictate’s flexibility and scalability. Both boil down to having a clear strategic direction and capability to invest.
- (5) KSA’s National Supply Chain Imitative: The Saudi Vision 2030, which was launched in 2016 by HRH the Crown Prince of Saudi Arabia, places ambitious targets for supply chain. The vision has three core strengths, two of them are its investment strength and the strategic location connecting three continents: Africa, Asia, and Europe. Additionally, both call for Saudi Arabia to create a more diverse and sustainable economy and enhance its role as an integral driver of international trade. The vision is realized through 11 realization programs and sectoral strategies comprising about 1000 initiatives. One program and one Strategy are of peculiar relevance to the running discussion. The program is National Industrial Development and Logistics Program which aims to transform Saudi Arabia into a leading industrial powerhouse and a global logistics hub. This is accomplished by maximizing the value of its mining and energy sectors while unlocking the full potential of local content and the 4th Industrial Revolution (4IR). The strategy is the National Investment Strategy which is a catalyst to deliver the Kingdom’s economic transformation plan, which will achieve numerous goals, including economic growth and investment attraction. A major initiative with the strategy is supply chain resilience. Earlier this week, HRH the Crown Prince launched the Global Supply Chain Resilience Initiative to strengthen the position of Saudi Arabia in the global economy and to mitigate the impact of global disruptions. The initiative will leverage the Kingdom’s resources, infrastructure, and location to bring greater resilience to economies and companies across Europe, the Americas and Asia, while further enhancing Saudi Arabia’s position in the global economy.