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Supply Chain Resilience: Reorchestrating Whole Capability Value Chains

Supply Chain Resilience: Reorchestrating Whole Capability Value Chains

Supply Chain Resilience: Reorchestrating Whole Capability Value Chains

Supply chain reorchestration is a hot topic. Countries large and small have prioritized various supply chain resilience efforts to help protect critical supply lines and products like reshoring and friendshoring, or leveraging allies and close partners. While important progress has been made to understand and reorchestrate critical supply chains, the focus is often on the supply chain of individual items, like semiconductors. Logistics and transportation of Container Cargo ship and Cargo plane with working crane bridge in shipyard at sunset, logistic import export and transport industry background getty However, many recent global events make clear that the need for supply chain resilience often goes beyond individual items. Shoring up whole value chains for critical capabilities, like end-to-end solar power generation, transformation, and storage, requires understanding the relationship between several individual lines of supply and production to help identify where risk and reorchestration opportunities may exist across the larger capability value chain. Understanding the risks and need to reorchestrate whole capability value chains isn’t just a natural next step; it may be a critical step in improving overall supply chain resilience. Our experience in supply chain resilience has taught us that neglecting the relationships between critical lines of supply—that together create critical capabilities—can leave organizations and governments with increased vulnerability to political coercion and economic shocks, that shoring up single lines of supply may not protect against. It’s time to focus on whole capability value chains. Evolving from single product to whole value supply chain resilience In a previous article , Deloitte Global discussed the need to reorchestrate critical supply chains for individual pieces of technology, and specifically semiconductors. Deloitte Global advocates for friendshoring to help efficiently reduce supply chain risk. It is an important step for reducing trade risk from trading partners that for one reason or another—like divergent national interests—may threaten access to critical materials and products necessary for national and economic security. Understanding critical lines of supply is often a natural first step in creating greater supply chain resiliency. It requires illuminating individual value chains, understanding their interdependencies, and taking steps to help reduce risk. But the process should not stop with individual items. Though it might be clear how risk in an individual value chain can affect the production of an aircraft or smart phones, adjusting for risk in a single value chain may not necessarily improve the overall supply chain resilience of those complex products. To improve resilience across whole capability value chains typically requires looking beyond individual items. Take renewable energy systems, for example. As we move away from a carbon-heavy energy economy , one unintended consequence is to increase reliance on a very small number of specific countries for climate friendly systems . Our ability to produce and store solar energy is, at a high level, reliant on three critical value chains in the collection, conversion, and storage stages of renewable energy. Among other things, collection relies on solar photovoltaics and permanent magnet motors. Conversion depends on semiconductors for inverters, and storage requires lithium batteries. Improving the resilience of a single solar energy product supply chain, like semiconductors, may not offset supply chain risk present across the whole capability. Unfortunately, many of these critical items are subject to highly concentrated supply chains. According to Deloitte Global’s analysis, the majority of the value chain steps across solar photovoltaics, permanent magnets, lithium-ion batteries and semiconductors are highly concentrated in Asia. For example, four of the five key value chain steps in solar photovoltaic manufacturing have a 75% or higher concentration in China . Similar concentrations can also affect the other critical items in the production of solar, hydro, and wind energy. Meaning, as the world moves increasingly toward clean energy solutions, countries may have to wrestle with supply chain risk across multiple increasingly important value chains. Reducing supply chain risk across whole value chains requires looking beyond single critical products or single steps in the value chain. This may prove tricky if industry and government don’t work together. The production of whole ecosystems typically requires coordination across dozens of sources of supply and production. – and, each individual step may have a different perspective on risk. Without coordination, solutioning is likely to remain reactionary and inefficient. Which is why supply chain resilience should be embedded across industry and government decision making. Taking action Thinking bigger than single value chains may not require a whole new set of skills or capabilities. In fact, many of the recommendations Deloitte Global advocates for to help improve resilience of […]

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Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

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