January 28, 2013

Study finds that cutting supply chain barriers better remedy for global growth than ending import tariffs

adopting best practices would expand GDP at much faster rate than tariff cuts

By DC Velocity Staff

Reducing global supply chain barriers through the adoption of best practices could increase annual world GDP by 4.7 percent, expand world trade by 14.5 percent, and be far more effective in promoting growth than removing all import tariffs, according to a study released yesterday at the World Economic Forum (WEF) in Davos, Switzerland.

The study, conducted by consultancy Bain & Co. and the World Bank, found that even taking "half-measures" toward implementing best practices would be six times more beneficial to global growth than eliminating all tariffs. By contrast, the removal of all tariff barriers would stimulate global GDP by only 0.7 percent and world trade by 10.1 percent, according to the report.

The study affirms the broad consensus that supply chain best practices, while well established in North America and western Europe, are very much alien concepts in other parts of the world, notably in fast-growing emerging markets.

The report, called "Enabling Trade: Valuing Growth Opportunities," identified 18 examples of poor supply chain practices, and defined, in broad terms, how cost overruns, product delays and administrative inefficiencies could be reduced by implementing Best Practices. The 18 case studies cut across multiple regions, countries and industries.

For example, the report noted that adopting electronic documentation in the global air cargo industry could yield $12 billion in annual savings and prevent up to 80 percent of paperwork-related shipment delays. The air cargo industry has struggled for years to convert from paper-based to electronic document transmissions; an international air shipment typically takes six days to move from origin to destination, even though a shipper or consignee is paying a premium price for fast transit times.

Ironically, the cargo spends little of that six-day window in the air. The cargo is on the ground for most of that time as it awaits processing and clearance.

"Supply chain barriers can result from inefficient customs and administrative procedures, complex regulation and weaknesses in infrastructure services," according to a statement issued by the WEF in conjunction with the report's release.

The report recommended that governments create a "focal point" to examine regulations that could benefit or harm supply chains. . It also advised governments to pursue a more supply chain centered approach" to international trade talks to ensure that trade agreements have greater relevance to businesses and consumers. The report called for the creation of more public-private partnerships that would quantify, monitor and analyze all factors affecting supply chain performance.

The overarching objective, according to the report, is to develop a "concerted approach" that can dissolve the many policy silos standing in the way of efficient supply chain outcomes.

The takeaway from the 18 studies is that "clusters of policies" conspire to affect supply chain performance, and that small to medium-sized enterprises tend to face disproportionately higher supply chain barriers and costs, according to the WEF statement.

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