The upheaval to the availability and demand of goods is exacerbating the already untenable human toll of the conflict, which shows no signs of abating.
The February 2022 Russian invasion of Ukraine may are the straw that broke the camel’s back, but it had been hardly the only contributing factor to the current global supply chain crisis, panelists at the symposium said. Significant supply chain disruptions started bubbling up during the warmth of the trade wars in 2018 and 2019 and were pushed into new territory over the course of the COVID-19 pandemic, continuing to the present day.
While the most focus remains as it should on the tragedy of human loss and the destruction of Ukrainian territory, the Russian invasion has triggered sanctions and other obstacles that have hampered critical logistics and trade route operations.
The resulting ripple effects are threatening the availability of key food resources like wheat and raising the possibility of a global famine.
Simultaneously, disruption to the flow of electronics, raw materials, and parts supplies emanating out of China and other locales has seriously impeded global trade positions, forcing companies to recalibrate and in some cases, wholly reconsider their long-standing supply chain and partner ecosystems.
“Supply chain managers have to think carefully about opportunities and risk when looking for new sources while considering how to coordinate the change from one source or mode to another,” said Joachim Arts, a CTL research affiliate and professor at the Luxembourg Center for Logistics and Supply Chain Management. “If it isn’t coordinated carefully, it could lead on to all kinds of bullwhip effects throughout global supply chains.”
Food supply in crisis
One of the most alarming supply chain issues resulting from the Russia-Ukraine war is food shortages, particularly acute in low-income countries in Africa. Ukraine and Russia account for a few third of the world’s wheat and a quarter of barley production, to not mention some 75% of the sunflower oil supply — all critical commodities for keeping humans fed.
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Ukraine and Russia account for a few third of the world’s wheat production as well as about 75% of the sunflower oil supply.
The combination of Russian sanctions, blocked Ukrainian ports, and therefore the inability of Ukrainian farmers to work the fields is creating a perfect storm that requires governments and businesses to find new ways to collaborate to head off a humanitarian crisis, said Chris Mejía Argueta, director of the MIT SCALE Network in Latin America . In fact, Russia’s blockade of Ukrainian ports is taken into account so damaging that EU Foreign Policy Chief Josep Borrell recently dubbed it a war crime.
“If we’ve a scarcity of the most common commodities around the world, including climate change issues, that’s once we need to start changing our mindset and find ways to collaborate with each other to make a difference,” Mejía Argueta said.
That reset entails establishing alternative suppliers, forging public-private partnerships, and leveraging advanced analytics to forecast garbage and identify opportunities to divert resources to shore up global food supplies, he added.
China – Europe routes disrupted
The state of transportation routes connecting China with Europe is another casualty of the Russian invasion. Surging gas prices are increasing freight costs for all modes of transportation. The train route connecting the regions, which became highly competitive during the peak of COVID-19, especially for industries valuing shorter lead times like automotive and electronics, is now stalled. this is often especially true for the primary corridor that traverses Russia, Belarus, and Poland before continuing on to Germany, France, and other European countries.
“If you shifted your product allocation [during the pandemic], you can’t just reverse that call , [which has] caused plenty of trouble in the automotive industry,” said Pascal Wolff, an professor at the SCALE Network’s Ningbo China Institute for Supply Chain Innovation. While some companies are redirecting product traffic to an alternate train route, most are shifting back to ocean freight mode, he said, which takes longer to get goods to market.
Supply chain makeovers about inevitable
Given the hurdles, the panelists contended now’s as good a time as any to reevaluate supply chain positions and make adjustments. They offered the subsequent suggestions:
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The future of supply chains — and the China dilemma
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Consider alternative sourcing. With governments and businesses not able to depend on traditional suppliers, now’s the time to either diversify partners or find alternative sourcing modes. While changes are necessary, there are ramifications. “When you modify suppliers or change your supply mode, your time interval might increase, and when your time interval increases, there’ll be temporary shortages,” Arts said.
Capitalize on new opportunities. For entrepreneurs, there’s a chance to fill the gaps created by the volatility, creating new business models and potentially improving the lives of others.
Companies have to start collaborating through trade coalitions and other joint partnerships to increase capacity, Mejía Argueta said; when possible, they ought to transition from global to a localized set of suppliers, although that’s not always possible or optimal, the panelists acknowledged. “If you recognize you need to collaborate with others in order to increase capacity, start doing it,” Mejía Argueta said. “It’s important to start out working, not in silos.”
Understand that quantitative approaches can help, but there are challenges. While modeling can help optimize supply chain changes, there are limits to the present approach. Most supply chain models assume a gentle state, which isn’t applicable for redesigning something that is in transition. “Decision makers should move to systems thinking and have multiple objectives and KPIs in mind when designing supply chain networks,” Wolff said.
Accept that this is often the new normal. Planning can only get you thus far in a world order that continues to be in constant flux. Therefore, the key to sustaining growth in uncertain times is developing best-in-class agile competencies. “You can’t plan for everything,” Wolff said. “Few saw this war coming or anticipated the pandemic. It’s hard, but enterprises have to work on becoming agile organizations.”