Nordea: Supply chains must become less lean or improve risk management

Global supply chains are more vulnerable to disruptions like the COVID-19 pandemic than in the past, Nordea Bank Abp warns. The bank suggests companies must choose between reducing the 'lean' efficiency of their supply chains or significantly improving their risk management.

"China's role in the global economy has increased dramatically since 2003, when the SARS epidemic impacted the world. Back then, China accounted for 4 percent of global GDP; today, it is 16 percent," says Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea.

Zekkar emphasizes that China is no longer just a component manufacturer but has climbed higher in value chains, including assembly. This increases vulnerability further. A disruption in China can have rapid and unexpected effects, impacting both developed countries and other manufacturing hubs in developing nations reliant on Chinese raw materials.

Supply chains in the electronics and automotive industries are particularly exposed. Zekkar mentions potential delays in smartphone and next-generation gaming console deliveries. In the short term, companies must monitor changes in production and freight capacity and stay updated on contractual and financial instrument obligations and rights.

In the longer term, companies need to rethink their supply chains to better withstand future crises. Nordea also offers short-term assistance to companies facing financing challenges due to disruptions.