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August 4, 2021

Six months into 2021 and efforts to diversify supply chains “hit and miss”

Efforts to strengthen and diversify supply chains since the Covid-19 pandemic struck have generally been hit or miss rather than systematic, according to a new report from McKinsey & Co.

By Hannah Abdulla

McKinsey & Co., published an update on its “Trends that will define 2021 and beyond” report which explores its projections six months on with one of its key points centred around supply chains – specifically, the vulnerabilities and weaknesses that were exposed during the Covid-19 pandemic – and how businesses are trying to diversify away from having all production centred in one location.

The report says addressing this vulnerability is still a priority for businesses.

The US federal government has since conducted a supply chain review to strengthen resilience and prevent disruptions and the Senate approved a bill that would, among other things, create a supply-chain crisis-response programme.

“Companies have learned the hard way that supply chains are only as strong as their weakest link, and since large organisations have an average of 5,000 suppliers, that’s a lot of links,” says the report.

“If one breaks, the costs can be enormous. Even before the Covid-19 pandemic, such breaks were common: companies experienced a production-line shutdown lasting a month or more every 3.7 years.

The report adds that the issues are more pressing in the US because it satisfies a larger share of domestic demand for high-end manufactured goods through imports than do most of its competitors. Even so, efforts to strengthen and diversify supply chains have generally been hit or miss rather than systematic. The pandemic revealed the limits of that approach.

“In the recent past, supply chains have been optimised according to cost and efficiency; now, resilience and agility—for example, identifying additional suppliers for critical parts, developing backup capacity to reduce reliance on a single facility, and rethinking inventory management—are bigger parts of the equation.”

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