Q. Which of the following is/are ways by which advanced-economy firms can ensure input supply chain resilience?
1. Shifting production to developing countries
2. Having a lower inventory size
3. Diversification of input sources
Select the correct answer from the codes given below:

[A] 1 only

[B] 2 and 3 only

[C] 3 only

[D] 1, 2 and 3

Answer: C

Only statement 3 is correct 

Ways to strengthen supply-chain resilience 

There are three ways firms can make their input supplies more resilient, and only one of them requires government involvement. 

1]. Re-shoring production from developing countries: One option is to re-shore production from developing countries. COVID-crisis, by increasing the relative costs of supply chains, has accelerated a re-shoring trend that began with the 2008-09 global financial crisis. Supply chains have become more expensive. The price of containers used to ship goods from Asia to the West have risen eightfold. 

  • Re-shoring means to transfer a business operation that was moved overseas back to the country from which it was originally relocated. 

2]. Creation of large inventories: A second way for firms to insure against supply-chain shocks is to create large inventories. 

3]. Diversification of input sources: Companies can dual-source or even triple-source inputs, relying on suppliers from different continents to counter the risk. But this diversification strategy has its limits. For example, a highly specialized supplier that invests in research and development for a specific input is not easily replaceable. 

  • Heavy regional concentrations of suppliers also make diversification difficult. Most producers of chips, battery cells, rare earth materials and pharma ingredients are based in Asia.