In a World Riven by Disruption, Optionality Will Help You Deliver
“Global pre-Christmas trade at risk” screams The Financial Times headline.
Where have we heard this before? Pretty much every year since 2020. VUCA – volatility, uncertainty, complexity, ambiguity – continually hinder the ability of supply chains to deliver goods.
This time, the disruptions are different. Drought in Central America is limiting traffic through the Panama Canal. Cargo ship attacks near the Suez Canal threaten shipping through that vital artery.
The risks range from consumer electronics to Christmas decorations. Either way, our profession is again in the headlines for potential failure to deliver.
Supply chain leaders still have not made the moves necessary to deal with simultaneous deglobalization and globalization. They have not redesigned global supply chains – beyond final assembly. They have not deployed optionality, developing alternate solutions for production, logistics and transportation.
More importantly, supply chain leaders have not realized that VUCA is permanent, and supply chain disruptions are perpetual. And optionality is the only path toward profitable growth and competitive advantage. If you cannot deliver goods and services, you will not remain in business.
Globalization? Or Deglobalization? The Answer Is Yes …
For decades, supply chains led the way toward globalization.
Increasingly, single-sourced, low-cost supply chains relied heavily on China for raw materials, parts and/or finished goods. Economies, cultures and populations grew more interdependent.
Then, the Great Recession of 2007-2009 and snarled pandemic supply chains gave the term globalization a bad name. Many argue that globalization is dead, replaced by deglobalization. Deglobalization is the movement toward a less-integrated world, characterized by local solutions, onshoring, tariffs and border control.
Others, like Pulitzer-prize winning journalist Thoms Friedman, argue that globalization will never die.
Both sides are right – and wrong.
The Yin and Yang of Globalization and Deglobalization
Tariffs, trade wars, shooting wars and political and consumer pressure are forcing enterprises to reorient production and supply away from China and other nations viewed as unfriendly.
Leaders see nearshoring and friendshoring as a path away from political hot spots and potential disruption. But no country will bring all sourcing and production back home.
Instead, countries and companies will deglobalize from some regions and globalize in others. Economies, cultures and populations will continue to become interdependent, only in different geographies and at different speeds.
Like the Chinese philosophical concept of yin and yang, globalization and deglobalization are opposite but interconnected forces. In yin and yang, existence is composed of interconnected dualities. These dualities – darkness and light, passive and active, feminine and masculine, Earth and Heaven, negative and positive, wet and dry – keep people, the Earth and the universe in “balance.”
Globalization will never go away. Neither will deglobalization. They will wax and wane in different areas of the planet at different times. The world economy and supply chain resilience will still rely on global, not national, supply chains.
Optionality is the answer to VUCA
This perpetual VUCA fouls up global supply chains.
Supply chain leaders face a host of challenges that continually change. Tariffs. Free trade agreements that really aren’t free. Subsidies for some businesses and operations. Punitive tax policies for others. Trade restrictions on exports. Bans on other imports.
It’s hard to know where to turn for sourcing, transportation, warehousing or advice. Or to even know what is happening where.
While you’re looking one way, globalization will increase between countries in Asia. Meanwhile, deglobalization will increase between China and the United States. Turn the other way, and globalization will increase among European countries while deglobalization increases between the continent and Great Britain.
In such a world, optionality can transform the yin of VUCA – volatility, uncertainty, complexity, ambiguity, which hamper your organization’s ability to serve customers and grow – into the yang of VUCA – vision, understanding, clarity and agility.
Optionality involves moving your enterprise away from single, low-cost sourcing. You must develop multiple sources for raw materials, parts and finished goods. You must develop agile supply chains that deliver from and to multiple companies, countries, continents and hemispheres.
That is the right path toward supply chain resilience.
The Globe Is Your Supply Chain Gold Mine
So where should supply chain leaders look? Try the entire planet.
China is certainly not going away. But Southeast Asia, particularly the ASEAN nations, have plenty to offer, from semiconductors, consumer electronics, natural resources, oil and gas. The top 5 ASEAN countries (Thailand, Malaysia, Indonesia, Philippines, Vietnam) are already industrialized.
Apple, Samsung, Dell and other consumer electronics firms are moving more production to India.
South America, Central America and the Caribbean can be great sources for furniture, textiles, iron ore, copper, natural gas and other raw materials. Shipping is cheaper, quicker and for the most part avoids the drought-stricken Panama Canal.
Africa has abundant natural resources: arable land, mineral reserves, natural gas, oil and more.
Tie that optionality into a new Western Hemisphere logistics hub in the Dominican Republic, and now we’re talking about truly resilient global supply chains.
Supply Chain Leaders Must Start Now
Globalization/deglobalization is a complex topic. The parts continually move.
Yesterday’s issues were the pandemic and China’s propensity to shut down, reopen, shut down, reopen … Then came Russia’s invasion of the Ukraine. Then Hamas’ attacks on Israel.
Today’s headlines focus on the Panama and Suez canals.
In supply chain terms, both are big deals. The Panama Canal is responsible for moving 40% of the world’s cargo ship traffic. The Suez Canal is responsible for roughly 30% of the world’s shipping container volume.
Tomorrow, the disruption will be different. But whatever the difficulty, you cannot just wake up one day and order goods, parts and raw materials from Africa, South America, Central America, the Caribbean, the ASEAN nations or some other far-flung locale.
As I have written before, it took decades to build the global supply chains that reach into China. Now, supply chain leadership must use that expertise to reorient supply chains throughout Asia, the Americas, Europe and Africa.
Optionality is not easy to accomplish. But long-term economic growth depends on it.
And depending on the length and severity of the disruption, we might not have decades to wait.
Related Reading
- The Panama Canal: Yet Another Supply Chain Problem
- Supply Chain Resilience – You’re Doing It Wrong
- The China Decoupling Might Hit Before You Are Ready
- How 5Ls Make a Western Hemisphere Logistics Hub
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.