‘Manufacturers must rethink global operations’

Manufacturers need to redesign and reform their global supply chains and global production networks (GPNs) if they are to survive and prosper in the wake of the coronavirus pandemic. That is the key finding in a new study called ‘COVID-19 and alternative conceptualizations of value and risk in GPN research’ by the University of Birmingham.

According to the researchers, the substantial impact of the virus shows that, in order to reduce business risk, global manufacturing companies should switch from having large production sites in a single location, such as China, to numerous smaller facilities around the world. They claim that stability, reliability, resilience and predictability are crucial in the design of production networks in order to balance risk and reward factors, and harmonize economic value with values related to reliability, resilience and location.

Real tension

According to Professor John Bryson, there is real tension between the optimization of global production networks and the risks involved. He claims that this is the first time that the impact of a disruption has been felt to such a large extent worldwide. “It is unfortunate that companies, governments and geographers did not consider the outbreak of SARS in late 2002 as a testbed to develop new approaches to the management of risk,” says Bryson. “GPNs and offshoring come with many risks that have been ignored.”

Bryson continues: “There is a critical social science debate within geography that must move from celebrating the dominance of GPNs as an organizational form to an ongoing critical reframing that accepts that a fundamental rethink is required by global manufacturing concerns.”

Balance

According to the researchers, the coronavirus outbreak highlights that the most effective global production networks strike a balance between cost control and risk – a balance between having production facilities in core markets and over-reliance on facilities in lower-cost locations. “Existing thinking on GPN design minimizes costs and maximizes economic value, rather than balancing profit against risk reduction – a high-risk approach that must change,” concludes Bryson.