Assignment 2 - Larissa Medeiros PDF

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There are different types of disruption that can impact the global supply chains of business as common Cyberattack, Supplier bankruptcy, man-made disaster, counterfeit, theft, regulation, localized military conflict and others. This disruptions can pass quickly or have a long duration. According to Risk, resilience, and rebalancing in global value chains article, “ Shocks that affect global production are growing more frequent and more severe. . Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.” On the Executive summary they give examples of the shocks that affect the supply chains, one of them is the earthquake and tsunamin in Japan in 2011 that closed some factories, and just months later, the floodind in Thailand that shut down the factories that produce hard drives, let the Market of personal computer in a caos. They also examplafy the Hurricane Harvey in 2017 that “disrupted some of the largest US oil refineries and petrochemical plants, creating shortages of key plastics and resins for a range of industries. Environmental and global economic changes are rising the frenquency and severity of shocks. Many business describe shocks in terms of source, such as natural disasters; macropolitical shocks, such as financial crises; the work of malicious actors, such as theft; and idiosyncratic shocks, such as unplanned outages. The text shows four categories of shocks: Unanticipated catastophes, Foreseeabe Catastrophes, Unanticipated Business disruptions and Foreseeable Disruptions. According to their analysis “Catastrophes are historically remarkable events that cause trillions of dollars in losses. Some are foreseeable and have relatively long lead times, while others are unanticipated.” Financial crises, pandemics, major militar war are some example of shock that gives some notices. Another range of disasters are extreme weather, natural geophysical disaster and jaor terrorista attacks , these can be predcited by looking at broader trends and probabilities. For the authors “ Disruptions are serious and costly events, although on a smaller scale than catastrophes.” Shorter disruptions have happend more often. This disruptions can also be divide in two categorites foreseeable , as for example the USChina trade dispute and the Brexit and unanticipated business disruptions as “data breaches, product recalls, logistics disruptions, and industrial acidentes.”

For most of business, they tend to focus attetions to “unanticipated disruptions.” The article says that “most companies now consider cybersecurity part of their overall risk management processes” According to the text analize in recente years, several other surprises, such as trade wars, have made headlines and as a consequence, business have begun to weigh them into their panning. On the other hand, types of shocks that occuer less oftend could case greater loss and also need attention. Another avoidable disruptions showed in the article is the ecosystem-internal disruption, such as a supplier bankruptcy or unexpected plant shut-down. Although the business can’t hold back from external disruption such as the one people are current living as a pandemic or natural disaster, they can minimize their effects. The article also analize Each value chain’s exposure to shocks is based on its geographic footprint and factors of production. According to them, because of their high degree of digitization, capital intensity, R&D and exposure to digital flow, the aerospace and semiconductors are susceptible to cyberattacks and trade dispute. On the other hand agriculture, textile, clothes, apparel are labor intensive meaning more susceptible to be exposd to heat stress and flooding. Another example of exposure to shocks can be the pandemics, they have a huge effect on labour-intensive supply chains. As seening in the covid crises the demand for non-essential commodities and travel has collapsed, reaching clothing, petrolum products and aerospace firms. In the other hand the demand for essential products as agriculture, food and beverage is still Strong. In this way, the article explaing that “heat stress is more likely to strike laborintensive value chains (and some resource- intensive value chains) because of their relatively high reliance on manual labor or outdoor work. Perhaps surprisingly, these same value chains are relatively less susceptible to trade disputes, which are increasingly focused on value chains with a high degree of knowledge intensity and high-value industries. Cyberattacks are more likely to affect value chains with a high degree of digitization, such as communication equipment.” In general highly traded supply chains are more exposed than those with lower Exchange volume compared to their production. The cost of disruptions to business can be really high. Once they realise the extent of the loss they might face due disruption, they will weigh how much to invest in mitigation.

As reported by the article, “ All in all, the five value chains most exposed to our assessed set of six shocks collectively represent $4.4 trillion in annual exports, or roughly a quarter of global goods trade (led by petroleum products, ranked third overall, with $2.4 trillion in exports). The five least exposed value chains account for $2.6 trillion in exports. Of the five most exposed value chains, apparel accounts for the largest share of employment, with at least 25 million jobs globally, according to the International Labor Organization.” Companies that usually keep larger stocks and have lower fixed cost tend to suffer comparatively smaller shock of financial losses. When a natural disaster happen, can hit the supplier but the distribution networks continues open, a primary buffer becomes inventory levels. Although when it is time to replenish its drawn-down security stock, the downstream business will face a cash drains after the fact. As the text states in order to survive a reduction in EBITDA, lower fixed costs become necessary when a disruption outlast the available security stock The article measured the damage associated with one especially serious and continuous disruption, they then estimated the bottom-line impact that business an expect over a decades path based on probabilities. They claim that on average, over the course of a decade, corporations can predict losses equivalent to almost 45% of one year’s earnings. These anticipated losses should be measured against the backdrop of the additional profits that corporations will creat with highly productive and far reaching supply chains The report summary also expressed how global supply chains are shifting across countries. Based on the business case, they can estimate what share of global export could shift to different nations and how much could move due to policy intervations. They analysed a variety of factories to determine whether industry economics alone endorse a potencial geográficas change one is if there is any movement underway now. The article states that “between 2015 and 2018, for instance, the share of trade produced by the three leading export countries in apparel dropped. In contrast, the top three countries in semiconductors and mobile communications increased their share of trade markedly.” Other variables claimed on the summary are whether the supply chain is intensive in terms of resources or expertise, geology and natural resources or ties to them. This all make relocation less likely. Because that represent hundreds of billions of dollars in fixed assets, highly capital- intensive value chains are harder to transfer. There are high

economies of scale in these sectors, making them more difficult to reform. High knowledge-intensity value chains. With unique suppliers and specialist talente they tend to have specialised ecosystems that have evolved in particular locations. So in this way it is expensive to decide to move production outside of this ecosystem to a new venue.. Finally, the is more potential to shorten supply chains with comparatively high levels of extra-regional exchange than those that are already regionalizes. Overall growth, according to the report, the position of major ( and rising) consumer markets, trade intensity, and innovation dynamics are also considered. They also recognise the need of government to improve national security, national competitiveness, and self-sufficiency with regard to no economic factors So, in general, the summary claims that for labor- intensive value chains such as furniture, textiles and clothing, the economic case for movement is most viable, the value chains have also seen moves away from their current top producer to other developed countries, where labour prices have risen. The continuation of this pattern may be a real opportunity for some nations. On the other hand resource-intensive value chains, such as mining, agriculture, and oil, are typically limited by the location of critical inputs from natural resources. However, new exploration and growth that can change value chains at the margins can be promoted by policy considerations. Within large value chains and individual firms, shocks ultimately seem to target the weak points. The supply chain actives of a business can be a source of vulnerability. Depending on its usefulness in risk monitoring, implementation of mitigation measures and development of company continuity plans, or resilience. As the report summary states “Strengthen supply chain risk management and improve end-to-end transparency improving transparency, accelerating responses, and even changing the economics of production” The replacement companies are now able to partner with tier one manufactues to create more transparency Also to improve the resilience, the article mention the minimisation the shocks exposure , “targeted measures taken before an event occurs can mitigate the impact of a shock or speed time to recovery . For example, as more physical assets are digitised, businesses would need to step up investment in Technologies and teams for cybersecurity. According to the article, designing products with standard componentes and reducing the use of custom parts in various product offering is another way to achive supply chain resilience. “ When a shock does hit, companies need the ability to respond

quickly.” In the aftermath of a shock , the ability to reroute componentes and dynamically flex production around sites will keep production going. This includes robust digital systems as well as powerful digital systems. To run scenarios based on distinct answer, the analytics muscle. There is a present-day expense of planning for future hypotheticals. But over time, these investments will pay off not just reducing losses, but also enhancing digital capabilities, boosting efficiency, and strenghtening entire ecosystems of the industry. This rebalancing act could offer a win-win, rather than a trade-off between resilience and productivity....