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by Carlos Cordon Published 25 April 2024 in Supply chain • 7 min read
The recent second visit to China this year by Apple CEO Tim Cook came as a surprise. But, while US CEOs don’t tend to linger in that particular geography, Cook clearly felt this market deserved a personal touch. Not only is Apple battling falling demand for its products in China, it also faces a supply chain headache in a country that has provided Apple with a key base for more than two decades.
Apple’s problem is that it is increasingly being caught in the political and mercantile sniping between China and the US. In September, it saw almost $200bn wiped off its market capitalizationfollowing reports that government agencies in China had banned the use of Apple products in various government departments and state-owned enterprises. While the claims were subsequently denied, Cook has already begun shifting parts of Apple’s production to Vietnam and India, so concerned has Apple become about the deteriorating US-China relationship.
The travails of Apple provide just the most high-profile example of the growing concern many large companies feel about their global supply chain relationships. Research published recently by EY identifies supply chain disruption as one of the most pressing concerns for CEOs. In the UK, for example, 88% of CEOs say their companies are adjusting their supply chain or geographical profile.
Such data underlines the extent to which supply chain management has now become a CEO issue. The conversation about sourcing, production and logistics, which was traditionally overseen by the chief supply chain officer (CSCO) or an equivalent executive, is now so fundamental to the business that it is taking place in the CEO’s office.
That shift began during the COVID-19 pandemic, when lockdowns exposed the vulnerability of many companies with long-distance supply chains, particularly where they were over-dependent on a particular country for key materials or production.
The climate change agenda also provides an important dynamic. With every organization under pressure to reduce its carbon footprint, scrutiny of complex and extended supply chains is increasing. Continually moving materials thousands of miles during the production cycle is difficult to justify from an emissions perspective.
However, it is the fraught geopolitical backdrop that is robbing CEOs of most sleep. From Russia to the Middle East, and from Africa to Asia, CEOs see political and military conflicts, over which they have absolutely no control, jeopardizing supply chain security, which they now prioritize over cost control.
With CEOs in charge, supply chain practices are now changing dramatically. Data from McKinsey suggests that more than three-quarters of companies have increased their inventories over the past year. They are shifting from the just-in-time model pursued by CSCOs, which prioritizes supply chain efficiency, to a just-in-case approach, which emphasizes the requirement for sufficient stocks to withstand unforeseen disruption.
Similar numbers of businesses are now pursuing dual-sourcing strategies as widely as possible. They no longer want to be beholden to a single supplier or geography. Diversification is the goal.
“The climate change agenda also provides an important dynamic. With every organization under pressure to reduce its carbon footprint, scrutiny of complex and extended supply chains is increasing.”
Professor of Strategy and Supply Chain Management
Carlos Cordon is a Professor of Strategy and Supply Chain Management. Professor Cordon’s areas of interest are digital value chains, supply and demand chain management, digital lean, and process management.
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