How is the crisis in Ukraine impacting the supply chain?

The COVID-19 pandemic was not the first supply chain disruption, and the recent crisis between Russia and Ukraine makes it clear that it will not be the last either.

Every event in the world, even the most banal, such as the grounding of the Ever Given ship in the Suez Canal, can have consequences for the supply chain and all international trade.

In today's post, we explain how recent conflicts are affecting the supply of goods and provide some antidotes to help you get through these times of crisis.

Read on!

Threat to global supply chains and economies

The Russian invasion of Ukraine – the largest attack on a European state since World War II – and the COVID-19 lockdowns in China are the current threats to global supply chains and economies.

Russia and Ukraine are major exporters of grains such as corn, 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 the war will also be felt in countries that have interconnected businesses.

Tensions between Russia and Ukraine, the trade conflict between China and the US and the continued pressure on supply chains will cause imbalances between supply and demand, rising inflation and economic stagnation.

Worldwide, the trend is a sharp rise in food and energy prices. Oil, which has already risen 20% since the start of the war, is having a greater impact on prices than the supply of goods.

The BANI world demands an antifragile mindset

Os uncertain scenarios are increasingly present in the supply chain, requiring companies to continuously monitor their supply chains in real time.

This is a time to put to the test the teachings of Lebanese-American author Nassim Taleb and be antifragile. That is, try to find ways to benefit from chaos, to grow stronger through volatility and uncertainty.

In a post here on the blog, we have already explained the difference between being resilient and being antifragile, and how this attitude has everything to do with BANI world that we live in today: brittle, anxious, nonlinear and incomprehensible.

It's time to rethink strategies

An article from The Wall Street Journal highlights that natural disasters and production and transportation capacity, which were heavily impacted by the Russian invasion of Ukraine, will further worsen problems with globalized supply chains.

These factors are transforming the way the supply chain operates as a whole. Now, to continue their operations, companies are rethinking their purchasing strategies.

Among them, the just in case, which considers working with intermediate and safety stocks to avoid collapses, the use of 4.0 technologies (such as Big Data, Analytics and Artificial Intelligence), the diversification of the supplier base and the restoring, which consists of bringing business operations in-house.

Companies adopt new supply models: from global to local

In addition to the examples already mentioned above, there is also a broad effort to figure out how to make supply chains more robust. Companies are adding more factories, suppliers, and sources of materials.

Michelin recently announced that it could close some factories in Europe due to logistical problems created by the Russian-Ukrainian war.

Volkswagen and BMW are closing assembly lines in Germany due to a shortage of vehicles manufactured in Ukraine.

There is no doubt that, as a result of these most recent developments, the risks associated with international suppliers will be considered much more relevant than before.

In other words, companies will prefer to pay more for local purchases than to run the risk of supply shortages.

In order for them to survive and thrive, governments will have to become increasingly involved. The US, for example, is investing in ports, airports and other local infrastructure.

But until infrastructure investments in the regions happen, companies must seek strategies to be more resilient to risks.

In the supply chain, the only certainty is that the challenges for global supply chains will continue to increase in the future. This is the lesson that has been learned in recent years.

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