Comment on “Geographic Diversification of the Supply Chains of Japanese Firms”

Abstract

The worldwide COVID-19 outbreak has impacted on the domestic and international supply chains of Japanese firms. In particular, internationalized production has been blamed for working as a propagation mechanism in the worldwide spread of negative shocks. Todo and Inoue (2021) extensively review existing studies that have examined the shock propagation through supply chains and what characteristics of supply chains enhance or mitigate the propagation, in the cases of previous crises and the current COVID-19 crisis. Based on their literature review and the data observations on the current characteristics of Japan's supply chains, Todo and Inoue highlight the need for more geographical diversification in suppliers and clients of Japanese firms to build robust and resilient supply chains and improve the firms' performance.In the face of the COVID-19 crisis, there has arisen a renewed argument that shorter and simpler supply chains and reshoring production back to the domestic economy would be less vulnerable to shocks. Against this kind of turning-inward policy argument, Todo and Inoue emphasize the potential benefits from supplier substitutability and international knowledge diffusion through geographically diversified supply chains, which is quite meaningful.Nevertheless, I suspect that geographical diversification of trading partners is not the only way to build a resilient supply chain. A firm's optimal strategy for resilience might not coincide with that for robustness. The concept of system resilience was originated in the ecology literature and was applied to the risk management literature. In the light of supply chain management, resilience can be the ability to resume normal operations after an acceptable period of disruption, while robustness is the ability to maintain operations amid a crisis (Miroudot, 2020).Supplier substitutability appears to be a key to achieving robustness. Maintaining geographically diversified suppliers or alternative locations of production would enable firms to withstand a location-specific supply shock, which leads to the greater robustness. To improve resilience, on the other hand, a firm might rather prefer to develop a

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“…Ayako Obashi (2021) finds Todo and Inoue's emphasis on the potential benefits from supplier substitutability and international knowledge diffusion through geographically diversified supply chains meaningful at a time when there arises a renewed argument that shorter and simpler supply chains and reshoring would be less vulnerable to shocks resulting from the COVID‐19 pandemic. Obashi wants Todo and Inoue to elaborate on the implications of geographical diversification for the robustness and resilience of supply chains by considering carefully the distinction between these two concepts; resilience can be the ability to resume normal operations after an acceptable period of disruption, while robustness is the ability to maintain operations amid a crisis.…”

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“…Risk management involves identifying potential risks, assessing their impact and likelihood, and implementing measures to mitigate or respond to them (Al-Ayed & Al-Tit, 2023). Risk management strategies include diversifying suppliers, developing alternative sourcing options, and implementing contingency plans (Obashi, 2021). By adopting flexible strategies such as agile manufacturing, just-in-time inventory management, and responsive logistics, organizations can better adapt to disruptions and maintain operations (Siagian et al, 2021).…”