Final Paper APUS

2

Brief Report

Johnathan Murry

APUS

TLMT498

October 23, 2021

Project Outline: Global Supply Chain

Abstract

The global supply chain has suffered from the impacts of adverse international events. Significantly, the US-China trade wars and the Covid-19 pandemic have negatively affected the supply network. The movement of goods, raw materials, and people across borders was adversely affected at the height of the global pandemic. Recently, the international market has experienced unprecedented shortages in essential goods, including a chip that has derailed manufacturing. It is projected that the production of vehicles in 2021 will dip by 10 percent due to shortages in chip supply. The trade war between the US and China has also affected the global supply chain. Although these were considered protectionism strategies, they affected the global supply chain. For instance, the import of steel and other products from China to the US reduced significantly. Moreover, American corporations were forced to relocate to other countries not involved in the trade wars with the US. Notably, there is a need among global companies to adopt innovative solutions to avoid adverse impacts related to these events.

Introduction

The global supply chain has suffered from the impacts of the Covid-19 pandemic. The movement of goods, raw materials, and people across borders was significantly affected at the height of the global crisis. Ideally, most governments imposed lockdowns and travel restrictions to curb the spread of the corona virus. This is becoming a critical bottleneck to supply networks worldwide. Even as the world recovers from the pandemic, there are still glitches in the supply chain. The global market has experienced substantial shortages in raw materials and finished goods, leading to a surge in prices. The recent shortage of chip supply in the international market threatens to curtail the manufacturing industry. It is estimated that the global production of vehicles will drop by 10 percent in 2021 due to chip shortages (Yap et al., 2021). The problem is exacerbated by extended lockdowns and the closure of factories in China, Taiwan, Singapore, and Malaysia. As a result, the outbreak of the Covid-19 pandemic has adversely affected the global supply chain.

Literature Review

A supply chain refers to a network between companies and their suppliers involving production and product distribution. Muysinaliyev and Aktamov (2014) define a supply chain as a network of facilities, processes, and distribution options that facilitate sourcing raw materials, transformation to intermediate and finished goods, and delivery of final products to customers. The supply chain network aims to promote the movement of goods to the final consumer. Generally, the network entails different resources, actors, activities, and people. For instance, some of the entities involved in the supply chain include manufacturers, vendors, warehouses, retailers, and distribution centers. Companies develop supply chain networks to reduce the cost of production and operation and gain a competitive edge in the business landscape.

On the other hand, the global supply chain describes networks that span across multiple countries and continents. According to CIPS (2021), the global supply chains involve sourcing and supplying goods and services across borders. It also facilitates the smooth flow of resources, information, and processes. The mechanism of the global supply chain is that multination corporations (MNCs) utilize low-cost countries, where they source cheap labor and raw materials. Usually, MNCs come from developed economies, and the flow of finished goods is directed to the home country. One of the advantages of the global supply chain is that it reduces the cost of production due to reduced labor rates and operation expenses (CIPS, 2021). It also enhances innovation by facilitating knowledge sharing and technology transfer. Furthermore, the global supply chain increases competition, promoting new supply routes and competent suppliers.

Background of the Global Supply Chain

The global supply chain has undergone tremendous growth since its inception. Blume Global (2021) indicates that the global supply chain started more than 100 years ago when companies started sourcing raw materials and supplying goods and services across the globe. Before the industrial revolution in the United States and Europe, the supply chain was localized and restricted to small regions. However, the introduction of machines increased the ease of production, transportation, and distribution of goods. The invention of cars and internal combustion engines in the 20th century enhanced the global supply chain. Over the decades, the supply network has been improved by the introduction of containerization, which moved the transportation of goods across borders from railroads to trucking (Blume Global, 2021). The emergence of modern technologies and computerization gave rise to globalization which has intensified the global supply chain. World Trade Organization (n.d) suggests that globalization has increased the need to establish companies within the proximity of the production process. This is because proximity reduces production costs and risks. Today, most producers and suppliers of goods and services are located in major economies in Asia and other parts of the world.

Discussion

The global supply chain has been a crucial component of international trade for decades. Big manufacturing corporations in the United States and other developed economies have embraced offshore production. It also led to the development of a consumer-driven supply chain. Gereffi and Lee (2021) contend that the demand for offshore suppliers of consumer goods among US retailers in the 1980s led to a shift from producer-driven to customer-driven supply chains. This facilitated the development of the global supply chains, which have intensified in East and South Asia. Today, most manufactured goods come from Asian countries, including China, Japan, Taiwan, and Singapore. For instance, Apple’s iPhone products are assembled in China and shipped to the United States for sale (Gereffi & Lee, 2021). This demonstrated the flow of goods in the global chain network.

However, recent global events have affected the global supply chain. For instance, the trade wars between the United States and China in 2018 disrupted the supply chain network. In an attempt to offset trade imbalances, the US imposed up to 25 percent tariffs on imports from China (Dollar, 2020). The Chinese government also retaliated by imposing more taxes on imports from the United States. Although this was considered a protectionist strategy, it affected the global supply chain. For instance, the import of steel and other products from China to the US reduced significantly. Moreover, American corporations were forced to relocate to other countries not involved in the trade wars with the US. Electronics, garment, and footwear manufacturers shifted to Mexico, Vietnam, and Indonesia (Dollar, 2020). The US government also offered tax incentives to American companies to bring back their production operations.

The impact of the Covid-19 pandemic has also affected the global supply chain. When governments across the globe imposed social distancing rules, lockdowns, and travel restrictions, the supply network came to a standstill. The pandemic exposed the vulnerabilities of overdependence on global suppliers (Meyer et al., 2021). Covid-19 disruption brought supply shortages of raw materials and finished products. The most recent challenge has been the shortage of semiconductor products, including a chip in the global market (Yap et al., 2021). The automobile industry also faces scarcity in the supply of resin and steel. This has negatively affected the manufacturing sector in the US and other countries. It has also increased the cost of goods and services. Essentially, the global supply chain is facing numerous challenges that beg for immediate solutions.

Solutions

There is a need to implement innovative solutions to overcome challenges currently being experienced in the global supply chain. Ideally, artificial intelligence (AI) and machine learning that combines descriptive and predictive analytics will help provide better forecasting and improved order management (Blume Global, 2021). Similarly, global corporations should best inventory management practices to avoid unexpected shortages during adverse events like the Covid-19 pandemic.

Conclusion

Overall, the Covid-19 pandemic and US-China trade wars have had a significant effect on the global supply chain. These events have exposed the consequences of overreliance on international suppliers. The bottlenecks of the supply chain have caused shortages of essential goods and services in the global market, leading to an increase in prices. They have also led to a shift in supply routes.

Literature Review

Blume Global. (2021). The History and Evolution of the Global Supply Chain. https://www.blumeglobal.com/learning/history-of-supply-chain/

The article gives insight into the many changes the supply chain has undergone in the last 100 years. The author allows the reader to grasp what was going on during the Industrial Revolution to move products through the supply chain. The article quickly moves to the 20th century talks about the use of warehouses and how that was a game-changer. The author recognized how changes in transportation changed the supply chain.

CIPS. (2021). Global Supply Chains. Chartered Institute for Procurement and Supply, https://www.cips.org/knowledge/procurement-topics-and-skills/supply-chain-management/global-supply-chains/

The article goes into great detail about the importance of a global supply chain, explains the difference between a global and local supply chain, and gives the advantages and disadvantages of both. Understanding the difference helps a business understand which they should use based on many factors like lead times, fluctuations in exchange rates, and reputational risk.

Dollar, D. (2020). The future of global supply chains: What are the implications for international trade. Brookings, https://www.brookings.edu/research/the-future-of-global-supply-chains-what-are-the-implications-for-international-trade/

The article allows the reader to understand what happens when a global pandemic shuts down the supply chain and who is most affected. The article goes into great detail about moving forward with trade agreements and what needs to be done with duty-free products and supplies. The author talks about what could happen with poorer countries when the supply chain is broken, and every country has vast needs.

Gereffi, G. & Lee, J. (2021). Why the World Suddenly Cares about Global Supply Chains. World Economic Forum, https://reports.weforum.org/manufacturing-growth/why-the-world-suddenly-cares-about-global-supply-chains/

The GVC framework focuses on globally expanding supply chains and how value is created and captured therein. The author Gary Gereffi wants the reader to understand the Governance of Global Value Chains and reshaping global production. By analyzing “the full range of activities that firms and workers perform to bring a specific product from its conception to its end use and beyond” (Gereffi, G. & Lee, J. 2021).