Shortages in essential goods: Are global value Cains part of the problem or the solution?
Supply chain disruptions did not cause the shortages of personal protective equipment (PPE) and other essential goods that the world experienced in the early months of the COVID-19 pandemic. Rather, the cause was manufacturers’ inability to step up production of PPEs to meet the demands of the cr...
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Format: | Article |
Language: | English |
Published: |
University of Calgary
2021-05-01
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Series: | The School of Public Policy Publications |
Summary: | Supply chain disruptions did not cause the shortages of personal protective
equipment (PPE) and other essential goods that the world experienced in the
early months of the COVID-19 pandemic. Rather, the cause was manufacturers’
inability to step up production of PPEs to meet the demands of the crisis. The
accepted wisdom that the pandemic exposed serious structural problems in
international supply chains, such as an over-dependence on China, and that it
would be better for countries to source supplies domestically, is inaccurate.
The companies that produced PPEs and other essential goods were experienced
when it came to developing risk-management strategies. Manufacturers have
understood the risks related to international supply chain shocks at least since
2008’s global recession and have long since responded by diversifying supplier
bases, increasing manufacturing capacity and creating stockpiles. Many firms
also relied on the China Plus One strategy as a buffer, which entailed duplicating production in China and at least one other country to protect against supply chain
disruption and currency fluctuation.
Far from exposing a weakness in global value chains, the pandemic instead revealed their
resilience. So well did the face-mask industry rebound from its initial shortage in fact,
that industry revenues grew by 450 per cent from 2019 to 2021. Rather, the shortages
arose because of limited stockpiles, governments’ lack of preparedness and constrained
production, such as the difficulty in accelerating the melt-blowing process that creates
the masks’ non-woven fabric. Exacerbating the situation – but only temporarily – were
export bans of the type the Trump administration imposed on manufacturers, which
required them to obtain federal approval before exporting PPE.
COVID-19 will not be the last pandemic the world experiences. Governments can prepare
for the next one by establishing stress tests that assess a country’s ability to deal with
demand spikes and other disruptions. The tests should consider the government’s level
of stockpiling, the speed with which domestic and foreign production can be ramped
up, the diversification of import sources and the limitations created by foreign export
restrictions. If the market fails to pass these stress tests, then government must design
policy tools to deal with the shortcomings the tests reveal. Limiting export restrictions
to strengthen resilience, conducting joint procurement and drafting agreements to share
essential goods are ways countries can work together to promote resilience.
Self-sufficiency, which looked to be the solution in the early days of pandemic shortages,
only increases vulnerability to local disasters that can curtail domestic production. It also
creates higher production costs and reduces the ability to ramp up production. Selfsufficiency
forces countries to absorb the shocks themselves, resulting in large price
swings and production changes.
It is now up to governments to learn the hard lessons that COVID-19 taught and improve
preparedness for future pandemics. |
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ISSN: | 2560-8312 2560-8320 |