Why a post-pandemic supply chain will prioritize resilience over efficiency

COVID-19 has forced companies across all industries and geographies to pivot towards a “new normal” related to their supply chains.

• Supply and demand plans became irrelevant practically overnight as companies reprioritized to serve critical needs
• Lean, linear supply chains are losing favor to parallel structures that allow executives to pivot production in response to demand shocks
• Traditional levers of consolidation and rationalization will lose popularity and efficiencies will have to be found elsewhere amid rising costs and condensed margins
• Companies are modelling future scenarios to plan for catastrophic events
• Regulation is widely anticipated to be a global response to the pandemic, as companies will be increasingly scrutinized (and rewarded) for supply chain resiliency

In order to forge a sensible path to this new world, tax teams will need to work closely with business and operations teams and ensure tax efficient measures are considered including evaluating the challenges and opportunities inherent in this pivot from lean to agile.

• Near term: for liquidity and tax liability management, internal reviews of legal contracts and government agreements to find opportunities for flexibility and efficiency
• Medium term: as companies pivot, external evaluation of new incentives as tax authorities seek to help companies cope 
• Long term: as companies move to resiliency, shifts of manufacturing require close evaluation of exit liabilities, IP development and use will require careful review, and indirect tax consequences in the excise, customs and VAT area will require management
• Supply chains optimized for resiliency and customer proximity: dual sourcing of critical materials, redundant production and more safety stock
• Re-evaluation of a range of tax issues: exit, conversion, and disposition matters, decisions regarding where to invest and related incentives, how IP will be developed and managed in the supply chain, and how people’s locations will create risk and opportunity 
• Changing concentration of production: China will fall out of favor due to companies’ preeminent focus on resiliency and agility 
• Scenario planning will be paramount: companies must plan to recognize a catastrophic event unfolding, pivot operations accordingly, and survive the resulting shocks

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