OECD Supply Chain Resilience Review

Executive summary

Navigating risk, not isolation, builds supply chain resilience. Policy plays a key role in creating the enabling environment for agile, adaptable and aligned supply chains that are an essential antidote to a fragile, frozen and fractured international trading system.

This OECD Supply Chain Resilience Review draws on recent data, indicators and monitoring of supply chains to set out a sensible and balanced approach to navigating supply chain risks without undermining the upside benefits that come with global trade.

Most global trade remains diversified, but import concentration is on the rise

Based on a broad assessment of supply chain structures and vulnerabilities, this report finds that most trade flows remain relatively diversified. Approximately 30% of exported products are subject to high levels of concentration in few trading partners. That said, import concentration is on the rise, as countries are increasingly sourcing products from fewer suppliers than is globally possible. The number of cases of suboptimal diversification is 50% higher in the 2020s than it was in the late 1990s.

Some sectors and countries may be more exposed to shocks than others

Economies with strong vertical links to major foreign economies tend to be more exposed to international supply chain shocks. However, impacts of shocks occurring in domestic sectors tend to be larger than impacts of shocks occurring in foreign sectors. Industries also vary in their exposure to foreign markets. For example, the strategic manufacturing sector (including industries such as petroleum and electronics) has one of the highest levels of upstream and downstream foreign product exposure. In the OECD, 26% of inputs for strategic manufacturing industries are sourced from abroad, and 27% of their output depends on foreign final demand. These supply chains are highly complex, often requiring more production steps and border crossings.

Relocalising supply chains can come at a high economic cost 

Modelling presented in the report demonstrates that re-localisation could decrease global trade by more than 18% and global real GDP by more than 5%, with no consistent improvements in resilience. GDP stability would decrease in more than half of the economies analysed. 

Global supply chains are affected by the digital transformation and by policies pursuing environmental objectives

The digital transformation and policies pursuing environmental objectives are driving change across most economies. They offer opportunities for improving supply chain efficiencies, resilience and sustainability (both environmental and social), but also raise potential risks. Emerging sustainability requirements and the accelerated pace of digitalisation are adding to pressures on supply chains, which are already facing substantial challenges from factors such as geopolitical uncertainty, economic fluctuations, and the concentration of critical raw materials (CRMs) in certain regions. However, these pressures also open the door to transformative change.

Supply chains can be resilient without undermining the benefits of open trade

There are risks everywhere – in the domestic economy as much as in foreign economies from which key inputs are sourced. Firms seek resilience strategies for all types of risks and cannot focus only on risks related to foreign supply. Evidence suggests that agility and adaptability are instrumental for the flexibility needed to build resilience. Aligning interests among partners in the production network (including suppliers, governments and non-governmental organisations) facilitates co-ordinated and co-operative responses and contributes to the achievement of environmental and social goals.

To ensure agility, adaptability and alignment in global supply chains, governments play an important role as facilitators, integrators, and providers of infrastructure and emergency resources, in co-operation with the private sector. While these resilience strategies can be implemented at the country level, they are more efficient if co-ordinated internationally. Policy can:

• Promote trade facilitation policies: Reduce frictions to trade and create a stable, transparent and predictable regulatory framework for businesses.

• Strengthen key supply chain service sectors: Remove market access barriers for critical services sectors, and work towards greater regulatory interoperability across countries.

• Facilitate the digitalisation of supply chain operations: Enable firms to digitise processes and be more agile in responding to supply chain shocks by lowering tariffs on ICT goods, streamlining regulations and co-operating on international regulations for digital trade.

• Support international co-operation, and co-ordination with the private sector: Use multi-government trade agreements and supply chain partnerships to set rules, co-ordinate and reduce regulatory heterogeneity for the above measures, and work with the private sector to prepare for emergencies.

• Design policies that balance sustainability, efficiency and resilience: Focus on the performance of global supply chains as an ecosystem, and not target a single objective (such as assurance of supply) without assessing possible trade-offs with economic outcomes, sustainability and implementation costs.