Five ways supply chains will shape future cities

posted by David Coulling and Aaron White
14 September 2020

Macro-level trends such as climate change, trade wars, and geopolitical posturing have combined to challenge supply chain strength in recent years.

Yet it has taken a pandemic to highlight supply chains’ importance to global economic strength and societal health. Covid-19 has also underlined the fragility of modern global supply chains and is forcing a rethink about what is needed to ensure a lasting recovery. What has become clear is that diverse sourcing and digitisation will be critical to building stronger, smarter supply chains for cities of the future.

This is important because the principles of lower unit cost, efficiency and timeliness that have defined modern supply chains are being challenged like never before. As modern, transnational supply chains adapt to ensure that they have the necessary resilience to support the economies that rely on them, future cities themselves must also respond to meet the needs of a reshaped supply chain orthodoxy.

The question this begs is, ‘How?’ and while most countries are yet to emerge from the pandemic, it is possible to anticipate five practical supply chain changes that will affect the shape of future cities:

1. Greater need for high capacity, resilient digital infrastructure. This includes gigabit-capable networks, 5G and scalable enterprise data centre services and solutions. Data and connectivity are likely to be the lifeblood of reshaped supply chains so it will be essential that future cities have the necessary digital infrastructure as the building blocks of a resilient supply chain.

2. Re-emergence of onshore manufacturing. We are likely to see a trend for onshore – rather than globally disperse – manufacturing and industrial hubs to support new industries and the needs of cities including energy supply, distribution, transport and digital infrastructure.

3. Disaggregation of workforce populations leading to diversified supply chains that have geographical spread. This will be partly due to a societal shift away from dense populated living and the rise in remote working.

4. A shift to decentralised, smaller scale manufacturing and localised supply chain. This will result from less reliance on mass transit systems and a greater focus on major road infrastructure to enable more efficient intra-city operations.

5. Connecting supply chains. Future cities will likely have a key role as ‘hubs’ for the integration of existing supply chains.

At the same time, while manufacturing has long been heavily reliant on technology, the digitisation of supply chain operations on an end-to-end basis is comparatively new. During Covid-19, we have witnessed an expedited adoption of technologies such as automation, data analytics and artificial intelligence across supply chains – for example, the pharmaceuticals and biotechnology industries have deployed AI to discover and develop treatments and in the US robotics is being explored to protect food supply.

Yet the truth is while digitisation of supply chains can reduce some of the practical supply chain risks that have been highlighted by Covid-19, it forms only part of the solution to achieving resilient supply chains of the future. A more fundamental reshaping of the infrastructure that underpins modern supply chains will be necessary to achieve the flexibility, diversification and resilience demanded by business, consumers and governments.

In practical terms this is likely to include governments taking a greater role in establishing onshore industrial and manufacturing capability or government policy being re-calibrated to facilitate new industry and infrastructure. Think, for example, about the possibility of governments taking equity interests in businesses in core supply chain industries or removing ‘red tape’ regulation that impedes investment in, and change to, existing supply chain infrastructure.

Ultimately, as organisations look to find pathways towards recovery and resilience, the future structure of supply chains is of paramount importance. Without their evolution, our cities of the future will encounter supply shortages with more frequency and this could lead to declining urban populations.

  David Coulling and Aaron White are partners at law firm Herbert Smith Freehills

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