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Keys to resilient supply chains

Risk management tools: Anticipate risks

The COVID-19 pandemic and the consequent measures to contain it highlight how an acute shock can disrupt an interconnected world economy.  International supply chains have been subjected to stress at the national and global levelsThe experience demonstrates the need for policy options that strengthen the resilience of supply chains without undermining the benefits of open and rules-based international trade. 

Anticipating and understanding the nature of these stresses ikey to obtaining an accurate diagnosis of the problemIt will allow policy makers to identify the appropriate policy responses and provide insights on how to prepare for future shocks.

Click on the doors to find more about key policy actions to anticipate risk: 

Keys to resilient supply chains

Domestic policy tools: Minimise exposure to shocks

At the national level, reducing risk and promoting growth need not be a zero sum dilemma. Investing in infrastructure, enabling digital trade, sound procurement management and regulatory flexibility can promote the resilience of supply chains while also contributing to productivity and competitiveness. These tools include some of the basic enabling conditions for international trade and represent long-term investments that have payoffs beyond crises.

Click on the doors to find out more about domestic policy actions that minimise exposure to risks:

Keys to resilient supply chains

Public-private tools: Build trust

OECD analysis highlights the key role of coordination and coherence among governments and consultation and cooperation between the public and private sector. It can be expected that international supply chains will continue to be subjected to unexpected disruptions. The public will continue to demand that governments take steps to ensure security of supply, and trade policy-makers will need policy solutions that address these expectations without resorting to beggar-thy-neighbour measures. Public-private cooperation can boost confidence that global supply chains will be able to provide needed goods and services at the right time and in the right quantities. These approaches include firm-level risk management strategies, public-private action plans, the stress testing of supply chains, and strategic governance at the national level.

Click on the doors to find more about public-private policy actions that build trust in global supply chains:

Keys to resilient supply chains

International tools: Keep markets open

While governments can take various actions at the national level, ensuring resilient global supply chains can require efforts at the international level. This can involve a full range of international economic co-operation tools, from multilateral, plurilateral and bilateral agreements, to softer forms of policy coordination and peer review.

Transparency is critical in helping governments manage fast-evolving crises. This includes sharing lessons learned, building confidence in supply and trust in global markets, and helping to avoid harmful policy choices such as panic buying or hoarding. Lowering barriers to trade and investment for essential products, as well as their main inputs, can maximise sourcing opportunities and access for all countries. Strengthening the resilience of key global value chains, however, may require new cooperation commitments from countries to prevent disruptions to markets, such as those observed during the COVID-19 pandemic.

Governments also play a pivotal role through trade facilitation measures, as these ensure the swift movement of goods across borders. Measures designed specifically for crises, such as fast clearance procedures or accelerating the certification processes, can help mitigate disruptions that affect international trade flows. Trade facilitation measures have generally proven to be more efficient when they are coordinated across countries, and even more so when they are included in a series of initiatives taken to promote cooperation, regulatory convergence, and the harmonisation of rules.

Click on the doors to find out more about international policy actions that keep markets open:

About this web tool

 

COVID-19 has placed significant strains on supply chains, with serious implications for international trade and investment.  This experience demonstrates that international supply chains will continue to be subjected to unexpected disruptions.  Citizens around the world will continue to demand that governments take steps to ensure security of supply, and trade policy makers will need policy solutions that address these expectations without resorting to beggar-thy-neighbour measures.

This interactive web tool provides a synthesis of ongoing OECD analysis from a trade policy perspective.  The objective of the Four keys to resilient supply chains is to deepen the common evidence base, identify a toolkit of policy options, and improve communication about the importance of open markets during a pandemic.

Each of these four keys is comprised of issues, policy actions and relevant tools and publications. This evidence base will be kept up to date as new contributions emerge.  It is hoped that a common base of evidence will promote coordination, coherence, consultations, and cooperation as governments and exporters strive to address unprecedented disruptions to international trade.

The OECD’s founding principles and values hold that open and rules-based international trade is an essential condition for economic growth from which all can benefit.  We invite you to explore these four keys to resilient supply chains, in pursuit of a sustainable and inclusive economic recovery.

New work on resilience in supply chains

OECD (2021), “Fostering economic resilience in a world of open and integrated markets”, OECD report prepared for the 2021 UK presidency of the G7

OECD (2021), "Global value chains: Efficiency and risks in the context of COVID-19", OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris

OECD (2020), "COVID-19 and global value chains: Policy options to build more resilient production networks", OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris

OECD (2020), "Food Supply Chains and COVID-19: Impacts and Policy Lessons", OECD Policy Responses to Coronavirus (COVID-19), OECD Publishing, Paris

 

Policy guide

Risk management tools: Anticipate risks

Identify potential risks

  • Develop risk management strategies at the national level for essential supply chains. These should include a review of potential risks and identifying the priorities in terms of government action. Strategies should not only cover international supply but look at the whole value chain.
  • Identify and agree on a diverse set of vulnerability indicators that encompass a wide range of potential risks.
  • Identify relevant government bodies. A specific government agency can be in charge of overall risk management, or a specific administration can deal with supply chain risks. Coordination across different agencies and administrations is key to implementing efficient risk management strategies.
  • Review regulations regularly in order to prevent risks. While some risks are unavoidable, others can be prevented or reduced through government action (e.g. safety regulations, enforcement of compliance with environmental standards).

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Determine government role

  • Assess the role of government for different types of risks (e.g. specific supply chain risks in the provision of essential goods and services).
  • Risk prevention through efficient regulations, international cooperation, and regular reviews of risks and vulnerabilities.
  • Mechanisms to detect and anticipate crises (e.g. monitoring the vulnerabilities in supply chains, international exchange of information, early warning indicators).

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Strategies and guidelines

  • Develop national strategies for governance of critical risks.
  • Assign national leadership roles for risk governance and management.
  • Engage all actors at the national and local government levels and create partnerships with the private sector to achieve responsiveness and shared responsibilities that align with national strategy.
  • Ensure that risk management strategies are up-to-date and properly communicated to all government staff.

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Shock diagnosis

 

  • Develop monitoring and reporting systems.
  • Early consultation with stakeholders.
  • Develop economic indicators and barometers at the outset of a crisis.

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Domestic policy tools: Minimize exposure to shocks

Infrastructure

  • Develop a long-term strategic vision for infrastructure.
  • Implement a whole of government approach to manage threats to integrity.
  • Promote evidence-informed decision-making.
  • Ensure that infrastructure is regularly maintained.
  • Strengthen the resilience of critical infrastructure.

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Digital trade

  • Ease restrictions on goods and services that underpin access to digital networks.
  • Reduce barriers to digitally-enabled services.
  • Promote policies that tackle digital divide.
  • Reduce barriers that impinge on the movement of digitally ordered parcels.
  • Use digital technologies to streamline border processes.

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Procurement

  • Cross-border sharing of information on risk-management as well as on the availability of essential goods, prices, and contacts. This will serve to inform procurement strategies and lessen global supply chain disruptions.
  • Regional or bilateral standardisation of procurement procedures, joint procurement agreements, and lending agreements can help smooth temporary disruptions in the flow of goods by simplifying cross-border transactions, facilitating the sharing of goods and inputs, and improving buying power, particularly those of small states.

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Regulatory flexibility

  • Balance the interests protected by the requirement temporarily suspended.
  • Re-assess periodically the measure to ensure its temporality.

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Public-private tools: Build trust

Firm-level risk management strategies

  • Support firm-level efforts to strengthen resilience via a transparent business environment.
  • Ensure that firm regulations are not obstacles to flexibility and agility.
  • Support SMEs in their relationships with suppliers and to identify bottlenecks in their value chains.

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Public-private action plans

  • Work closely with the private sector to design efficient stockpiling systems.
  • Consider upstream agreements to boost the production capacity of essential goods.

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Stress tests

  • Identify critical supply chains that require continuity of supply or could face surges in demand in the context of specific risks and crises.
  • Develop specific risk scenarios and stress test supply chains for essential products in cooperation with the private sector.
  • Integrate the results of stress tests in national risk management strategies.
  • Allow for the financial quantification of the costs and expenditures generated by low-likelihood but high-impact disasters.
  • Create a useful private-public dialogue that could strengthen the resilience of supply chains and the capacity to cooperate with firms in the context of large-scale unexpected disasters. 

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Strategic governance

  • Engage with the private sector and private stakeholders to address disruptions and shortages in the provision of essential products.
  • Establish platforms to share information and promote public-private dialogue during crises.
  • Communicate government objectives in a clear manner to address supply chain disruptions and integrate in public policy objectives existing private risk management strategies.
  • Re-assess public risk management strategies based on feedback from the private sector.

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International tools: Keep markets open

Predictability and transparency

  • Reinforce confidence in and commitment to the rules-based trading system by addressing gaps in rules that have given rise to trade tensions, such as those relating to government support.
  • Invest in standardising and gathering comparable information at the national and international levels, monitor market and policy developments, and clearly communicate on all findings.

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International agreements

  • Explore additional commitments in international trade and investment agreements to deal with the provision of essential goods and services during a crisis. 
  • Review general and specific exception clauses in international trade and investment agreements to create trust amongst parties and to encourage cooperation in times of a crisis.
  • Strengthen WTO rules on export restrictions for essential goods and critical raw materials.
  • Revitalise international trade and investment negotiations with the aim of reinforcing a global-rules-based environment that can promote investment, innovation, agility, diversification, and sustainability.

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Trade facilitation

  • Streamline border processes (e.g. increasing the share of trade transactions covered by pre-arrival processing; green lanes for essential goods).
  • Digitalisation (e.g. digital trade documents, certificates and signatures).
  • More efficient co-operation between agencies at borders (e.g. enhanced international co-operation in border risk management).
  • Facilitating product certification (e.g. streamlining certification procedures; use and adoption of international standards; more flexible application of product certification criteria in emergencies).

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International regulatory cooperation

  • Co-ordinated efforts among governments, firms and international organisations to develop common approaches, such as agreements on simplified procedures or adoption of international standards to facilitate the flow of essential goods.
  • Recognising conformity assessment procedures – such as testing conducted by partner economies – to facilitate regulatory delivery by expediting administrative procedures.
  • Communication and information-sharing to assist sectors in adjusting to changing requirements.
  • Promoting the inclusion of chapters on international regulatory cooperation in trade and investment agreements and the conclusion of Mutual Recognition Agreements (MRAs).

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