Reducing supply chain barriers would do more to increase trade than ending import tariffs

Reducing supply chain barriers through the adoption of best practices could increase annual world gross domestic product (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 report released earlier this year at the World Economic Forum (WEF) in Davos, Switzerland.

The report presents the results of a study conducted by the consulting firm Bain & Company and the World Bank. That research found that even taking "half measures" toward implementing best practices would be six times more beneficial to global growth than eliminating tariffs. 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 results affirm the broad consensus that supply chain best practices, while well established in North America and western Europe, are still alien concepts in many 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 US $12 billion in annual savings and prevent up to 80 percent of paperwork-related shipment delays. An international air shipment typically takes six days to move from origin to destination, yet the cargo spends little of that six-day window in the air. Instead, the freight 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.

Moreover, "clusters of policies" conspire to affect supply chain performance, and small and medium-size enterprises tend to face disproportionately higher supply chain barriers and costs, according to the WEF statement.

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 additionally called for the creation of more public-private partnerships that would quantify, monitor, and analyze factors affecting supply chain performance.