The conflict in Ukraine reinforces the imperative for most organisations to have in place more resilient supply chains.
According to the Food and Agriculture Organisation of the United Nations, Russia and Ukraine account for more than 25 per cent of the world’s trade in wheat and for more than 60 per cent of global sunflower oil and 30 per cent of global barley exports. Russia is also a major global exporter of fertilizers, which means any supply shortages, or restricted access, could impact crop yields globally.
While many of the changes required to current global supply chain design and operating practice will most likely take years to implement, there are actions that can be taken right away.
1. Ensure risk management frameworks and systems are in place
Most organisations were not prepared to respond to the COVID-19 pandemic. While it was common to state there was no playbook for COVID-19, the reality is that most organisations did not have any playbook at all. Hence, make sure that the proper risk management tools are in place for the crisis that the war in Ukraine has given rise to. Organisations should focus on risks in the extended supplier network and in relation to the supply and inflationary pressures on key commodities.
2. Use technology to understand risks in Tier 2 and beyond
Visibility is one of the core pillars of a resilient supply chain—and it should extend to the entire network. To get a better grip on where risks lie, consider implementing “control towers” powered by artificial intelligence/machine learning and advanced analytics to provide right-time data visibility, proactive alerts, prescriptive insights, and self-driving execution. Control towers can identify suppliers and/or commodities that pose elevated risk levels in both your direct supplier base and within the extended supply network.
3. Understand and activate alternate sources of supply
For companies that have multisourced key inputs, it is important to move quickly to activate secondary supplier relationships and secure additional critical inventory and capacity. At the same time, companies must take care in choosing alternate sourcing locations for key commodities.
4. Update inventory policy and planning parameters for critical materials
For decades, companies have been implementing practices to reduce inventory across the supply chain, setting a level of safety stock to buffer normal demand and supply variability. COVID-19 was a wake-up call that these traditional inventory buffers are insufficient when a crisis hits. Establishing a policy for “strategic stock” of critical materials should be an essential component of a company’s overall inventory policy.
5. Understand the impact of commodity inflation in supplier and customer contracts
The impact of the Russia-Ukraine conflict was quickly felt by sharp increases across several commodities—oil and natural gas, metal commodities, and agricultural commodities. Resilient organisations will proactively drive down their costs to reflect changes in commodity prices, while working thoughtfully with suppliers who may be struggling themselves. This will enable suppliers to be well positioned for whichever market conditions they face in the “next normal.”
6. Monitor logistics constraints and costs
The Ukraine conflict continues to disrupt traditional supply routes, emphasising the need for logistics flexibility in the design of global supply chains. Even prior to the conflict, most companies were managing their way through complex logistics challenges such as port congestion, container shortages, long lead times, and record-high ocean freight rates. With this conflict, we are seeing additional disruption. Rising oil prices are putting additional inflationary pressure across freight modes. Ocean shipping in the Black Sea has become increasingly challenging. Air-freight availability and lanes are changing, as flights need to be rerouted around closed air space over Russia and Ukraine. Freight trains that were moving goods from China to Europe through Russia, Ukraine, or Belarus may no longer be available.
7. Increase focus on cybersecurity risk monitoring, within your own operations and with key suppliers
Supply chains are rapidly becoming digital, thanks to smart factories, smart distribution centers, and the growth of the Internet of Things where almost every modern device has an IP address. For years, countries and companies have been investing in cybersecurity. However, this conflict has illustrated how digital attacks are now part of modern warfare. State-sponsored and organised attacks have reinforced the critical need for cybersecurity and the resilience of the systems and automation that we are increasingly reliant on.
8. Conduct global scenario planning
The world hopes that this conflict will come to an acceptable conclusion quickly. However, the duration and magnitude of this crisis is uncertain, as are implications for commodity costs and availability of supply and the implications of further potential sanctions and government intervention. Companies should assess scenarios, based on the nature of their exposure to this conflict, to determine the best medium to longer–term course of action.
Conclusion
To conclude, successful leaders will take decisive action to respond to the immediate risks of this crisis and stabilize their supply chain. They will also embrace the long-term view, recognising that this crisis is most likely to elevate the importance of many of the fundamental and structural changes to global supply chains that were already being accelerated as we emerge from the COVID-19 pandemic.
The writer is Partner, Risk Advisory, Deloitte Ghana
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