The Covid-19 pandemic wasn’t the first disruption to the supply chain, and the recent crisis between Russia and Ukraine makes it clear that it won’t be the last either.
Every fact in the world, no matter how banal – such as the Ever Given ship, which jammed the Suez Canal – can have consequences for the supply chain and international trade as a whole.
In this post, we tell you how the latest conflicts are interfering with the supply of goods; and we provide also some antidotes, in an attempt to get around the times of crisis.
Keep on reading!
Threat to global supply chains and economies
The invasion of Ukraine by Russia – the biggest attack on a European state since World War II – along with the lockdowns against the Covid-19 virus in China, are the current threats to supply chains and global economies.
Russia and Ukraine are major exporters of grains such as maize, barley and wheat. They are also important suppliers of fertilizers and commodities, such as aluminum, steel and platinum.
According to Forbes, the United States and Europe alone have around 300,000 Russian and Ukrainian suppliers, and the impacts of that war will be felt also in countries that have interconnected trade processes.
Tensions between Russia and Ukraine, the trade conflict between China and the US, and the ongoing pressure on supply chains will cause an imbalance between supply and demand, as well as rising inflation and stagnation of the economy.
On a worldwide basis, the trend is for food and energy prices to rise sharply. Oil, which has already risen 20% since the onset of the war, is impacting prices even more than the supply of goods.
The BANI world requires an antifragile mindset.
Uncertain scenarios are more and more present in the supply chain, requiring from businesses a continuous and real-time monitoring of supply chains.
This is the right time to put the teachings of Nassim Taleb, a Lebanese-American author, to the test and be antifragile. That is, trying to find ways to benefit from chaos, to strengthen your business through volatility and uncertainty.
In a post of this blog, we have already explained the difference between being resilient and being antifragile, and how this attitude has everything to do with the BANI world we live in today: Brittle, Anxious, Non-linear and Incomprehensible.
It’s time to rethink strategies
An article from The Wall Street Journal highlights that natural disasters, along with production and transportation capacity, which have been heavily impacted by the Russian invasion of Ukraine, will further worsen problems with globalized supply chains.
These factors are transforming the way supply chains work as a whole. Now, to keep on operating, businesses are rethinking their procurement strategies.
Let’s mention some of them: Just in case, which involves working with intermediate and safety stocks to avoid breakdowns; the use of 4.0 technologies (such as Big Data, Analytics and Artificial Intelligence); diversification of the supplier base; and reshoring, which consists of bringing business operations in-house.
Businesses are considering new supply models: from global to local
In addition to the aforementioned examples, there is also a huge effort to figure out how to strengthen the supply chains. Businesses are then choosing to add more factories, suppliers and sources of materials.
Recently, Michelin announced that it might close some factories in Europe, due to logistics problems caused by the Russian-Ukrainian war.
Volkswagen and BMW are closing assembly lines in Germany, due to a shortage of vehicle parts manufactured by Ukraine.
There is no doubt that, in light of such more recent events, the risks associated with international suppliers will be considered much more relevant than ever before.
In other words, businesses will prefer to pay more for local purchases, rather than run the risk of shortages.
To make these businesses survive and thrive, governments will have to be increasingly involved. The US, for instance, are investing in ports, airports and other local infrastructure.
But until local infrastructure investments take place, all businesses must seek strategies to be more resilient to risk.
In the supply chain, the only certainty is that the challenges for global supply chains will keep on increasing in the future. This is the lesson that we have been learned in recent years.
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