Global Value and Supply Chain in Crisis
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The users shall be responsible for legal issues if they make any copyright infringements. Failure to comply with this warning may expose you to: Disciplinary action by the Vietnamese-German University. Legal action for copyright infringement. Heavy legal penalties and consequences shall be applied by the competent authorities. The Vietnamese-German University and the authors reserve all their intellectual property rights. Global Value and Supply Chain in Crisis - Opportunities and Challenges for Developing-country Firms Bachelor Thesis Thong, L.N. Huynh Student ID: 11965 [email protected] Vietnamese-German University (Binh Duong New City, Binh Duong, Vietnam) Study program: Economics and Business and Administration Supervisor: Dr. Lennart Johnsen Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms Abstract The first part of this paper highlights major factors that cause disruption in the global value and supply chain ensuing the start of Covid-19, namely manufacturing utilization, lead-time and demand variability. Regarding the bullwhip effect that arises therefrom, two main causes are identified: demand signal processing for the downward pattern of demand in recession, and shortage gaming for specific sectors that have an upsurge in demand. The second part discusses the post-pandemic scenario, which includes the geographic relocation away from China and the transition towards the resilient, agile and sustainable digital supply network. From there, opportunities and challenges for developing-countries firm are presented. The opportunities include productivity boost, consumer market growth, technological know-how and capabilities development and a chance to climb up the value chain. At a supply chain level, the bullwhip effect can be mitigated and supply chain planning and operation can be improved via digitization and close collaboration. The challenges consist of meeting the performance requirements and Corporate Social Responsibility standards, pursuing business growth and the risk of climbing up the value chain. I Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms Table of Contents Abstract ........................................................................................................................... I Table of Contents .............................................................................................................II Acknowledgement ......................................................................................................... IV List of Figures ................................................................................................................ V List of Tables ................................................................................................................. VI List of Abbreviations .................................................................................................... VII 1. Introduction .............................................................................................................1 2. Critical Analysis ......................................................................................................3 2.1. Covid-19 supply chain disruption and the bullwhip effect ....................................3 2.1.1. Definition and causes of the bullwhip effect .................................................3 2.1.2. Supply chain disruption and the bullwhip effect ...........................................6 2.2. Systematic vulnerability of the value and supply chain .......................................14 2.2.1. Geographic concentration of GVCs and GSCs ...........................................14 2.2.2. Visibility in the extended supply chain .......................................................19 2.2.3. The dispute over JIT inventory and lean manufacturing .............................21 2.3. Post-pandemic scenario and opportunities & challenges for developing-country firms 23 2.3.1. Geographic diversification .........................................................................24 2.3.2. The transition towards a more transparent, agile, resilient and sustainable supply chain 33 II Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms 3. Summary and Outlook ...........................................................................................40 References ................................................................................................................... VIII Statutory Declaration ...................................................................................................XXII III Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms Acknowledgement I owe a great debt of my sincerest gratitude to my supervisor Dr. Lennart Johnsen, who not only enlightens me with his immense knowledge and extensive expertise but also inspires me with considerable encouragement and charismatic leadership. Had it not been for his careful guidance and valuable suggestion, I would not have been able to reach the completion of this paper. I would also like to extend my gratitude to the professors and teaching assistants of two academic courses at the University of Bremen, namely International Management and Global Logistics, whose amazing work and dedication motivates me to come up with the subject of this paper during my exchange semester. I would like to thank my father, whose legal expertise of an experienced lawyer greatly assists me in the part regarding the force majeure clause in business contracts. Many thanks to my brother, who as a third-year Bachelor in Electrical and Computer Engineering at Vietnamese-German University provides me useful information for the part regarding the production of electronics circuit boards, and also the Internet of Things and automation in the digital supply network. Last but certainly not least, I would like to thank my mother, who as an English teacher lays a foundation for my academic English, thus without whom I would not be able to write a single word. IV Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms List of Figures Figure 1 Reported manufacturing utilization of U.S. firms’ Chinese suppliers.............................7 Figure 2 U.S. firms’ reported average lead-time for inputs sourcing from respective regions......8 Figure 3 Percentage change in U.S. firms’ demands .................................................................11 Figure 4 Percentage change in U.S real GDP in quarters of 2020 ..............................................13 Figure 5 Companies that have suppliers in China’s impacted regions in February ....................15 Figure 6 Percentage change in HHI of exports by sector, 2000-2018........................................16 Figure 7 China's proportion in the world’s production of electronics devices ...........................17 Figure 8 The extended upstream supply network .....................................................................20 Figure 9 Amount of multinational companies’ suppliers by tier ................................................20 Figure 10 Change in U.S. manufacturing import mix 2018-2019, in billion dollars ..................24 Figure 11 The transition towards the digital supply network ....................................................34 V Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms List of Tables Table 1 Expansion of companies in/into Asian LCCs and others in 2020 and ensuing years .....26 Table 2 Strategic importance vs. complexity of supply matrix ..................................................36 VI Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms List of Abbreviations CPG Consumer-packaged goods FDI Foreign Direct Investment GSC Global Supply Chain GVC Global Value Chain IPC Institute for Interconnecting and Packaging Electronic Circuits ISM Institute for Supply Management MIT Center for T&L MIT Center for Transportation and Logistics OEM Original Equipment Manufacturer PPE Personal Protective Equipment R&D Research and Development SME Small and Medium Enterprise VII Global Value and Supply Chain in Crisis - Opportunity and Challenges for Developing-country Firms 1. Introduction “Up until this month1 , a large part of our population believed that pandemics were a medical discussion and not a supply chain discussion. Now we know differently.” (Wright, 2020,