Supply Chain Crisis Worsens As Russia’s War Against Ukraine Continues
As Russia’s war against Ukraine escalates and sanctions by the U.S. and other countries intensify, so does their impact on supply chains around the world.
“Russia’s invasion of Ukraine is an invasion of the global supply chain,” according to Jennifer Bisceglie, founder and CEO of Interos, a supply chain risk management company.
She said her firm’s data shows that nearly 300,000 companies in the U.S. and Europe “have suppliers in Russia and Ukraine, putting their national economies at risk. That’s how interconnected the world is today.”
‘The Biggest Shift In Supply Chains’
Bisceglie observed that “We are experiencing the biggest shift in supply chains since the era of globalization began—perpetual disruption is the new normal. Now and in the future, continuous real-time monitoring of every tier of [the] supply chain will be the norm to help companies get ahead of the next crisis. Additionally, leaders will need to look at investing in new strategies for alternative sourcing which may include a blend of regional and global supply partners.
“Continued pressure on global supply chains will exacerbate imbalances between supply and demand, causing increased inflation and potentially stagflation,” she warned.
Immediate Impact Varies
The increasing strains on supply chains are affecting people and industries in different ways.
Aleksandar Tomic is an associate dean for strategy, innovation and technology at Boston College. He observed that “The effect of the war on the supply chain has differed considerably based on the industry. Food supply chains have gotten very complicated due to Russia and Ukraine’s inability to deliver fertilizer and commodities such as wheat or sunflower oil.”
According to Tomic, “One broad effect is in metals and ores, where Russia and Ukraine are significant producers of commodities such as aluminum, steel and platinum. The largest broad effect comes from the rise in the price of oil, which is more contributing to inflationary pressures than it is affecting the actual delivery of goods.”
Sang Kim is a professor of operations management at the Yale School of Management His expertise includes supply chain management and service operations. Kim noted that the war, “signifies yet another trigger for the movement towards the de-globalization of supply chains.
“Going through recent events like the U.S.-China trade war, Covid-induced disruptions, followed by the major armed conflict, many firms that had been skeptical about the idea of reshoring and multi-sourcing started to reexamine their options,” They “are living through the era of disequilibrium, and all of a sudden ‘just-in-case’ sounds more reasonable than ‘just-in-time,’” he said.
‘After the jolts from these successive events, I suspect that the momentum will be built towards a model of more regionalized supply chains, with weakened linkages in some areas but also strengthened ones in other corners,” Kim concluded.
Thomas Goldsby is the Haslam Chair of Logistics at the University of Tennessee’s Master’s of Science in Supply Chain Management. He said that Russia’s invasion of Ukraine, “has also raised [the] caution [of] high-tech manufacturers of high tech whose product supply has failed to keep pace with demand since the outset of the pandemic.
“Many big tech companies put facilities in Poland and Hungary, for example, and those are quite close to the fire now. It is forcing those companies to shift capacity and volume to safer regions, like North and South America,” he said.
“These considerations lend to the ongoing dialogue we are seeing about seeking safer, more certain havens for supply. This suggests looking for domestic and —if not domestic—nearby sources from safe, reliable, friendly locations,” Goldsby advised.
‘Things Will Get Worse’
Mykola Volkivskyi is a former advisor to a member of the Ukrainian parliament. He pointed out, “Today, Europe and the world are facing a sharp rise in food and energy prices, but things will get worse in the future. The Russian-Ukrainian war will hit consumers around the world and slow the recovery of the world economy.
“We expect significant complications with the profitability of small and medium-sized businesses, with the exacerbation of hunger and malnutrition, problems with sustainable production in mechanical engineering, conventional construction, and more.
“Ukraine remains a key exporter of flat products (metals), ores, ferroalloys, minerals and engineering products, etc. Wheat, honey, sunflower oil, corn, and meat don’t even need to be mentioned—they are so large,” he said.
Advice For Business Leaders
Boston College’s Tomic said,” What companies can do is limit their exposure to Russia and/or Ukraine. This means finding alternative sources and suppliers. In some industries that is not too difficult to achieve. In others, such as agriculture commodities, it might take some time for other regions to sow and grow the impacted commodities.
“In general, production capacity in the West is stretched due to issues such as a tight labor market and uncertainty of how long the high prices will persist. The longer the sanctions on Russia remain and the longer the production capacity in Ukraine is limited, the more likely that alternative sources will be developed in the West.
“However, right now there is a lot of uncertainty which makes Western companies skittish to invest in the capacity necessary to alleviate the current pressures.
Loss Of Life
Ultimately, the supply chain crisis is about how it affects people.
Mark Lowcock is the former UN Under-Secretary General for Humanitarian Affairs and Emergency Relief Coordinator and now a visiting professor at the London School of Economics. He’s of the forthcoming book, Relief Chief: A Manifesto for Saving Lives in Dire Times.
Lowcock observed that “Market disruption and price hikes for food, fuel and fertilizer will increase the number of people unable to secure enough food to survive without international emergency assistance.
“Some 100 million people in countries from Afghanistan to the Horn of Africa, Yemen and elsewhere are at risk because they need large volumes of grain imports, have little ability to finance it themselves and are therefore reliant on international relief agencies,” he cautioned.
“Donors are diverting resources to Ukraine, so there is less for other countries, and what money is available is buying less as prices rise. Unless this is addressed it is quite likely that the largest loss of life attributable to the war will not be in Ukraine but in other places where millions of people are already close to starvation,” Lowcock warned.