As businesses and societies navigate these complexities, adopting a holistic approach to supply chain management is crucial. Lubor Kunc, Risk and Insurance Technique Manager at GrECo International s.r.o, explores how these complex systems shape and are shaped by social, economic, and environmental forces.
Supply chains are an integral part of social transformation. They have a direct impact on economic growth, job creation, consumer habits, and global interconnectedness, all of which drive wider social change. In this article Lubor Kunc, Risk and Insurance Technique Manager at GrECo International s.r.o, explores how these complex systems shape and are shaped by social, economic, and environmental forces.
The Impact of Globalisation on Supply Chains and Workforce Dynamics
Historically, globalisation expanded supply chains into Central and Eastern Europe (CEE) and overseas, where production costs were lower than in Western Europe, North America, Japan, and South Korea. This shift reduced industrial jobs in developed countries, pushing their workforces towards product design and development. Meanwhile, Western companies benefited from increased export and investment opportunities in these newly industrialised regions.
The 2004 tsunami in Asia marked a crucial moment for global supply chains, disrupting IT component supplies and prompting companies to reassess their sourcing strategies. Years later, the COVID-19 pandemic, the Suez Canal blockage, and the Russian invasion of Ukraine further strained global logistics, leading to a shift in investments back to developed regions.
These cycles of globalisation and deglobalisation have profoundly shaped societies, transforming workforces, business practices, manufacturing, logistics, and consumption. Supply chains remain a key component of the global business model, driving economic, environmental, and social transitions.
Effectively Managing Supply Chains in New Environments
Organisations employ two key systems to manage their supply chains. The first is Corporate Management/ESG, which promotes the long-term sustainability of both internal and external company activities. This system also includes subcontractors at all levels, significantly enhancing global supply chain sustainability.
The second system is Risk Management, which complements the Corporate Management/ESG approach. Risk Management addresses daily and strategic issues related to executing management strategies. Although it primarily focuses on corporate risks, every risk has potential financial implications. Therefore, a robust risk management approach prioritises balancing costs and benefits.
Co-existing in physical and virtual worlds
Both systems must adapt to new business environments. The traditional model, where physical properties and real people were involved in buying and selling, has evolved into a “new world” where property, workforce, suppliers, and customers exist in both physical and virtual spaces. This shift complicates supply chain management, as corporations need to develop resilient and efficient strategies for both realms. Additionally, this approach must consider manufacturing, logistics, and consumption within the broader context of social and economic transformation.
Managing this transition is not just about using the latest technologies. It requires a clear definition of the business model for each aspect, integrating key parameters into ESG and risk management systems. We are moving from a focus on geographical factors to a dedicated approach that addresses both physical and virtual segments of business.
Moreover, the challenge is compounded by changes in customer behaviour. Buyers now expect companies to maintain a presence in both physical and virtual worlds, and they increasingly favour renting physical items—such as cars, bikes, apartments, and entertainment tools—rather than owning them outright. They seek to enjoy the benefits of these items only for the duration they need.
The Changing Role of the Consumer
The circular economy will significantly impact the consumption aspect of business models, as customers increasingly choose to rent rather than own items. This shift transforms traditional goods manufacturers into service providers, requiring them to integrate new elements into their ESG and risk management systems. However, this new approach also creates substantial opportunities for manufacturing, trading, and service companies.
In the circular economy, individuals can simultaneously act as service providers while sharing their assets with others. This represents a major shift from the traditional model, where people were either providers of goods and services in their professional roles or consumers in their personal lives, with activities confined to the physical world. Today, individuals can fulfil both roles concurrently in both physical and virtual environments. This change is a key driver of social and supply chain transformation, contributing to a financial volume of USD 339 billion in 2022 for the circular economy.
The Rise of AI to Meet Changing Expectations
Corporations use various flexible tools to meet the expectations of business partners, customers, and society. A major component driving these tools is the shift from static to real-time data. To analyse this data effectively, companies are increasingly employing advanced tools, including those powered by Artificial Intelligence (AI). The AI market is projected to be worth USD 184 billion by 2024, with estimates rising to USD 826 billion by 2030.
This shift is driven by the need for efficient business model management, real-time communication, automatic transaction execution, and transparency in both physical and virtual worlds. Real-time data enables the customisation of goods and services to individual customers and market segments. It also impacts manufacturing, warehousing, and logistics, as traditional centralised production and storage with physical delivery are increasingly being replaced by decentralised systems that integrate both physical and virtual aspects of providing goods and services.
Digital Commerce Continues to Grow
Digital commerce is a key driver of social transformation. The Covid-19 pandemic accelerated online shopping and the use of courier services for both food and retail products. It also increased the popularity of digital downloads and streaming services such as Netflix and Spotify and made working from home a reality. This shift in consumer behaviour has reduced human contact and transformed workplaces, with many employees now working remotely or as digital nomads. As a result, the volume of digitally delivered goods and services continues to grow, with digital commerce expected to reach USD 7.62 trillion in 2024. These virtual activities demand robust cybersecurity to ensure the sustainability of corporate operations, including their supply chains.
Digital Advancements are Revolutionising Supply Chains
Alongside the rise of digital commerce, Blockchain and cryptocurrencies have become substantial players in the decentralised virtual world. Existing blockchain technology currently produces huge financial amounts estimated to be around 19 billion USD (2024) which is predicted to increase to 943 billion USD by 2032. These tools are out of government and central banks control allowing direct payments between individuals and companies.
The Metaverse – a convergence of virtual and augmented reality – is also transforming social interactions and digital experiences. Many companies are already present in this space offering their products and services in the Metaverse to Gen Z consumers. The current Metaverse financial volume is 74.4 billion USD (2024) with an expected market volume of 500 billion USD in 2030.
As Metaverse and blockchain technology converge supply chains are being revolutionised. Enhanced visibility, dynamic pricing, and real-time insights are reshaping how companies manage inventory, collaborate with suppliers, and optimise product flow. This rise in sustainability, transparency, and traceability in the supply chain is enabling companies to see how products are shipped, distributed, and processed as well as how ethical and responsibly sourced materials are. And, with this increased transparency comes a reduction in corruption, fraud, and other illegal business practices, offering organisations security and the ability to foresee and manage risks in their supply chains more easily.
Digital advancements reshaping society and supply chains doesn’t stop there. Since 2019, 3D printing has gained global prominence – The current 3D printing market represents a volume of 13 billion USD (2020). This new technology allows both firms and individuals to create three-dimensional objects at home instead of purchasing physical items. This shift not only empowers consumers but also reduces the need for logistics delivery, resulting in cost savings.
Automation and Robotics Replaces the Need for Humans
Digital advancements are also helping organisations answer labour shortages in Europe, America, and Asia. The labour crisis due to aging populations, education not meeting the needs of the modern world, and Gen Z requiring a more balanced work life balance has led organisations to turn to automation and robotics to make up for the shortfall. Today, more and more automated systems and robotics are replacing human workers in factories, warehouses, and offices to carry out the more the monotonous and routine processes.
Climate change: the slow-moving crisis with an unending impact
Digital developments aren’t the only innovations causing supply chains to transform. Global supply chains are threatened daily by the climate crisis. Ports, factories, and motorways the world over are being repeatedly battered by extreme weather events such as floods, hurricanes and wildfires, and they are under threat from ever-rising sea levels as the world warms. With environmental-disruptions guaranteed to increase and intensify year-on-year, the global economy is repeatedly being shaken by price hikes and resource shortages in all industries.
In response to this slow-moving crisis with an unending impact, organisations are reassessing their supply chain infrastructure and following stipulated climate-change measures in-line with global net-zero goals. Powerplants and factories are looking at alternative energy to fossil fuels. Innovations such as photovoltaic, wind, water and natural gas are being employed globally across industry and society. Nuclear and thermal energy is also being explored and is limited to several areas/countries, where the renewables are efficient and politically acceptable.
The growing need for these new forms of energy supply are shaping societies and changing business and consumer habits. What is more, clean energy availability and the sustainability of existing locations (cities, factories, warehouses, data centres, power plants, etc.) are influencing future investments in the supply chain. Are businesses likely to spend millions of Euros on a new facility when they recognise that the location will be affected in 20-years’ time by extreme weather? It will surely depend on the financial return, but it is very likely that the return would be seriously threatened by climate-related events. Without future investments, the supply chain will become worryingly unstable. Suppliers and logistics companies are having to factor these considerations into their businesses and adapt accordingly.
Increasingly Mobile Populations
One of the major fallouts of climate change is increased migration. People are moving to escape extreme heat, drought, shortages of resources such as insufficient water and food, limited job opportunities, wars, and religious conflicts. Citizens from developing countries in Africa, Asia, and the Americas are seeking entry into the EU and the USA.
There are benefits from this increased fluidity of populations – reduced labour costs in developed countries and fewer local shortages are accelerating social transformation in both the host and origin countries. Striking a balance that benefits all involved nations will be a critical challenge in the decades ahead and supply chains will need to adapt again and again to reach societies changing needs.
A Holistic Approach is Crucial
In conclusion, the dynamic evolution of society profoundly impacts and is impacted by supply chains. From the influence of globalisation and digital transformation to the challenges posed by climate change and shifting consumer behaviours, supply chains have become more than just networks of production and distribution—they are pivotal players in the ongoing narrative of global social and economic transformation. The integration of advanced technologies, such as AI, blockchain, and automation, along with the rise of the circular economy and digital commerce, is reshaping traditional supply chain models, fostering greater transparency, sustainability, and resilience.
As businesses and societies navigate these complexities, adopting a holistic approach to supply chain management is crucial. This involves not only leveraging technological advancements but also adapting to environmental and social changes in real-time. Organisations must balance the demands of the physical and virtual worlds, align with emerging sustainability goals, and remain agile amidst constant geopolitical and environmental disruptions. Ultimately, a comprehensive strategy that incorporates these diverse elements will be essential for building resilient supply chains that can support sustainable development and respond effectively to the needs of a rapidly transforming global society.
Sources:
https://www.statista.com/statistics/1337519/circular-economy-market-revenue/#statisticContainer
https://www.statista.com/forecasts/1474143/global-ai-market-size
https://www.statista.com/outlook/fmo/digital-payments/digital-commerce/worldwide
https://www.statista.com/statistics/1319369/global-blockchain-technology-market-size/
https://www.statista.com/outlook/amo/metaverse/worldwide
https://www.statista.com/statistics/315386/global-market-for-3d-printers/
HORIZON Risk Thought >> Fast Forward
The complexity of today´s risk environment is changing at an accelerating pace, making risk management even more challenging. We have created HORIZON, firstly as a print publication and now as a page for sharing the latest insights about ongoing transformations. Our risk specialists will continue to provide their expertise and knowledge to shine a light on the challenges of the future.
Lubor Kunc
Risk and Insurance Technique Manager
GrECo Czech Republic
T +420 725 565 573
