Reshaping Supply Chains for Resilience in the Wake of the Pandemic

The pandemic has highlighted the importance of resilient supply chains, which are vital for the global economy. Supply chains are the assembly lines that deliver goods for final consumption, and involve product development, sourcing the raw materials, assembling the parts, testing the end product, and shipping it to you. Historically, supply chains were simple and operated within confined geographic areas, but now they are highly complex and involve numerous producers around the globe.

The pandemic caused widespread factory closures that reverberated through supply chains as intermediate inputs from closed factories became scarce. This caused an extraordinarily high demand for goods at a time when the world’s ability to supply these goods was facing unprecedented challenges. In the wake of this, policymakers and firms are discussing several options that could reshape supply chains, such as “reshoring”, diversification, and overstocking.

The evidence available so far does not favor the reshoring approach, as it would yield less efficient production and not improve resilience. Diversification and overstocking are essentially insurance strategies, and countries and companies have adopted them to better withstand supply shocks. Going forward, it is important to ensure that supply chains remain resilient and can withstand future shocks.