For years, businesses competed to reduce supply chain capital employed, while supply chain managers focused on saving cycle times (just-in-time). Now businesses are competing to improve resilience to COVID, extreme weather events, political gamesmanship, whatever. Indeed, the economic gyrations of the past two years have demonstrated to the world that modern supply chains are fragile, overstretched and vulnerable to a wide range of external and internal shocks.
The impacts of this supply chain fragility on the infrastructure sector are two-fold. First, infrastructure players are struggling with their own supply shortages, not only in material supply but also in talent, capabilities and equipment. The first big impact, therefore, is that infrastructure players will struggle to deliver on their objectives and social, economic and environmental opportunities will be lost.
The second impact is the response to increased supply chain risk. Significant investment will now flow into creating massive amounts of (perhaps ultimately redundant) infrastructure assets. Already, we are seeing fields of new distribution centers being developed around major cities in an attempt to reduce the risk of short-term supply shortages. As this mentality becomes more wide-spread, the related investment into infrastructure will be massive.
The constriction of infrastructure supply chains is a more serious issue than most people would recognize. Infrastructure supply constraints don't just slow down the rate of development, they also drive up costs, reduce competition and restrict supply of government services. Unlock the infrastructure supply chain and you'll help to unlock global supply chains.
If only it were that easy. Unfortunately, infrastructure supply chains are deeply influenced by macro-economic trends. The rise of resource nationalism, resistance to offshoring, increasing demand for local products and services, trade wars and even new tax incentives and schemes are all creating unwanted barriers to infrastructure supply.
The supply of talent may be even more constrained. COVID-19 has made some people reconsider their work and mobility choices (few want to get locked down on a remote construction site). Global mobility was already under stress as a result of political choices such as Brexit and immigration law changes. The pandemic only heightened the competition for good talent and human capital — the great resignation is real.
Of course, many of these supply challenges are increasingly intertwined and influenced by non-financial factors; the availability of good healthcare, for example, is now a key factor for some companies when deciding where to place their supply chains (a healthier workforce is a more resilient workforce).
In the year ahead, we hope to see some of the supply constraints currently plaguing the world economy to ease. One of the silver linings is that it may drive infrastructure players to place increased focus on encouraging diversity in their organizations, both as a way to reduce talent supply constraints and as an opportunity to bring new perspectives into the sector.
