Navigating global disruption: introducing the Global Value Chain Barometer

As the adage goes, a chain is only as strong as its weakest link; and when it comes to the current state of global supply chains, weakness remains evident everywhere, upstream and downstream. With manufacturers facing significant headwinds in the form of double-digit inflation, labour shortages, resource constraints, order backlogs, energy scarcity, climate changes, and new regulations driving an increasing imperative to reduce waste and emissions – it is no surprise that global value chain failures are commonplace.

These headwinds constrain operations, drive complexity and unveil hidden vulnerabilities, leaving manufacturers around the globe trying to find a balance between safeguarding margins and ensuring delivery capability. So, the ability to sense weakness in the chain early and take the appropriate precautions to navigate potential disruptions can be a differentiator for leading companies.

It is in this context that the World Economic Forum, in collaboration with Kearney and building on data provided by Everstream Analytics, has developed the “Global Value Chain Barometer” to help leading organizations anticipate vulnerabilities in their global supply chain so that they may better weather any impending storms on the horizon.

The Global Value Chain Barometer is a quarterly news bulletin aimed at giving manufacturing and supply chain executives an overview of global value chain disruption levels. The barometer has two sections.

The first section plots three megatrends – climate change, geopolitical tension and technological step-change – that are the main drivers of disruption. As operational disruptions are often symptoms of the underlying megatrends (e.g., congestion caused by Covid-19-related lockdowns; production stop due to flooding), they are tracked separately on the bottom of the first page of the Barometer. For both the megatrends and operational disruptions, the barometer offers a short digest, highlighting main disruptive events and their expected impact on value chains. The first section also features insights on most frequent and most impactful disruptions within the last quarter.

The second section of the barometer provides an outlook on expected developments and impacts of current disruptions over the next six months. Based on this outlook, the Barometer identifies leading strategies for manufacturers on how to prepare for these developments, drawing from the Resiliency Compass, a framework that highlights resilience building strategies around eight demand- and supply side dimensions (see Figure 1)

The Barometer is based on monthly analysis of billions of data points provided by supply chain risk analytics company Everstream Analytics. Disruptive events are identified through the application of artificial intelligence, assigned to a megatrend, and scored based on their severity. For every month and megatrend, the severity scores of all events are summed up to give an indication of the overall disruption level of a given month. Insights are regularly derived from this data to provide short digests. Furthermore, they identify trends to give a strategic outlook and highlight key mitigation strategies from the Resiliency Compass strategy playbooks.

According to the January 2023 edition of the Barometer, climate-related risk events were up by 146%, technological disruptions were down by 12% and disruptive events driven by geopolitical tension have soared by 110% compared to December 2021 (see Figure 2). Geopolitical disruptions (and related technological disruptions caused by cyber-crime) peaked as a response to Russia’s invasion of Ukraine and have remained at an elevated level since. In view of record-breaking heatwaves and droughts followed by heavy storms bringing floodings and torrential rainfall around the globe, climate-related disruptions have also shown a significant increase over the course of 2022.

While the overall operational disruption level followed the March-April 2022 peak in geopolitical and technological disruption, it has been stable since. This could indicate that manufacturers have been able to adapt to the increase in market volatility by proactively building resilience. However, with an upward trend in the geopolitical and climate disruption categories, and in view of high inflation and energy costs, as well as labour shortages and a new COVID-19 wave in China, we expect the operational disruption level to increase going into 2023.

Based on these developments, we have derived a strategic outlook for the next six months and a selection of leading strategies manufacturers can implement to proactively build resilience (see Figure 3). These leading strategies are derived from the Resiliency Compass strategy playbooks that were co-developed with the World Economic Forum community.

Going forward, we expect to see a continuation of global material shortages caused by geopolitical tensions and lockdown-related value chain disruptions. At the same time, high inflation and energy prices can cause solvency issues for manufacturing companies and their suppliers, while potentially causing demand to plummet as consumer spending decreases and the risk of recession increases. Consequently, we see two critical and three elevated focus dimensions for proactive resilience building:

The last three years have been a much-needed wake-up call to all of us leading supply chains. There is no return to a pre-pandemic ‘normal’. Leading manufacturers have made the supply chain a priority and have used the crisis as the opportunity to reimagine the supply chains from the ground up to ensure reliability, resilience and sustainability.

Going forward, the World Economic Forum’s platform for shaping the future of Advanced Manufacturing and Global Value Chain will, in collaboration with Kearney, continue to issue the Global Value Chain Barometer on a quarterly basis to help manufacturing ecosystems and all value chain actors understand the global level of disruption driven by specific megatrends, and to identify strategies to proactively build resilience to navigate the increasingly volatile business environment.

We cannot say we haven’t been warned any longer.