Supply chains must adapt to new realities and seismic changes to the global economy which has seen a shift from globalisation to “slowbalisation”, according to former US four-star general David Patraeus.
Now chairman and partner of KKR Global Institute, Mr Patraeus opened this year’s TPM conference in Long Beach, California, with a discussion on the shifting geo-political sands in which modern supply chains must operate.
In the past, he said, companies in Europe, the US and Pacific rim paid little attention to developments in geo-politics, where movement of capital, goods and labour was comparatively unfettered.
Now we are in a period of “renewed great power rivalries”, he explained, and the those barriers are beginning to re-emerge, in particular with China, which means companies need to understand the changes taking place.
The growth of globalisation, which was increasing at pace, has become much flatter, turning into “slowbalisation”, brought about by export controls, higher labour costs and technological developments.
He said: “We must try to determine where the puck is going, rather than where it is. Wayne Gretzky was asked why he was the greatest-ever hockey player, and he said he had an instinct for where the puck was going. That’s what we need to do.”
The ‘puck’ in this case is the shift in supply chains from a just-in-time philosophy to just-in-case, with near-reshoring and re-shoring giving companies a split in their manufacturing base that can allow them to continue to supply customers in the event of a shutdown of one facility.
In addition, Mr Patraeus pointed to the move of more strategic manufacture, such as some types of semi-conductors that are patent-protected or that would be protected for national security reasons, to be produced in regions seen as more reliable – what he called “friend-shoring”.
However, he acknowledged that a complete de-coupling of supply chains from China was not on the cards; rather a “selective decoupling”, where some manufacturing moves to Vietnam, the Philippines or India. But even this could have significant implications for company supply chains.
He also pointed to the manoeuvring between China and the US to define new spheres of influence and control, adding: “We need to make sure this severe competition doesn’t turn into severe confrontation, we must avoid confrontation at all costs.”
He explained that everyone must understand that the period of “benign globalisation” was over.
“It’s no longer business as usual, the challenges are very clear; what you have to do is identify them and understand them, but, most importantly, anticipate them.”