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25 June 2015

What forces are shaping global supply chains?

Content team

According to a recent report from Standard Chartered, close to 80 per cent of world trade is now carried out through global supply chains (GSCs), but what forces are driving these buyer-supplier relationships?

The organisation believes there are several key factors that will impact the future of GSCs. It has pinpointed higher incomes and growing labour forces in emerging markets as a trend that should boost GSCs, while the increasing use of new communications technologies was highlighted as a source of growth for manufacturing and services supply chains.

Other positive forces discussed in the report include prospective new trade partnerships, such as the Trans-Pacific Partnership (TPP) and China’s Regional Comprehensive Economic Partnership (RCEP) which are due to be agreed this year, and the Transatlantic Trade and Investment Partnership (TTIP) that is also expected to be finalised soon.

A drop in trade costs was highlighted as another positive, and Standard Chartered said it expects improving infrastructure and streamlined customs procedures to drive this trend in the coming years.

However, the organisation also revealed some forces may constrain GSC growth. For instance, the rise of automation and artificial intelligence was cited as a development that could lead to increased re-shoring of manufacturing operations.

Other risks that threaten GSC growth include geopolitical tensions and natural disasters such as the recent earthquake in Japan and flooding in Thailand.

"For most companies, the response [to natural disasters] is to increase supply chain resiliency by identifying potential risks, diversifying suppliers and holding higher inventories of key components," the report stated.

"Longer-term, government and corporate policies around tackling climate change and resource scarcity could limit the growth of manufacturing supply chains, though we believe the impact will be modest," it added.

Recent research from the Chartered Institute of Purchasing and Supply has revealed only one in three UK businesses have a risk management strategy in place to deal with a supply chain emergency.

Content team, Bureau van Dijk

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