Supply chain shock: the best way to respond

July 20, 2022

Inflationary pressures felt by businesses and households are expected to get worse before they get better, according to Australian Treasurer Jim Chalmers.

And understanding the global supply chain disruptions  – the supply and subsequent demand shocks – that have contributed to these challenges was the focus of last week’s GMC online event.

World expert, Harvard Professor Willy Shih, last week spoke to GMC members to map and explain the Covid-19 disruptions and over-corrections which saw supermarket shelves stripped of normally “flat demand” toilet paper, and shipping lanes and ports congested for months.

Professor Shih has written extensively about the “vulnerabilities in the production strategies and supply chains of firms just about everywhere.

His advice to GMC members battling future scenarios where unforeseen shortages are looming: “moderate your response”.

“It’s not easy when human emotion is involved (in making purchasing decisions when disruptions and shortages are looming) but moderate your responses – be moderate,” he said.

Temporary trade restrictions and shortages of pharmaceuticals, critical medical supplies, and other products highlighted the weaknesses of the world’s supply chains, he says.

It is also important to develop more local supplier alternatives, according to Professor Shih. But as with all reactions, do this rationally.

Humans had a tendency to over-correct in shock situations, he said. Developing alternatives locally for some critical supply made sense, although not entirely.

“Global supply chains have become extremely complex,” he says.  But there is still economic and industrial merit in specialisation.

So even though you might want to hoard critical supplies (as in the panicked rush on toilet paper) the only wise response to even major disruptions was a moderate one, he said.