Blog Post
Supply Chain

Russia-Ukraine Conflict: How to reduce the impact of global crisis on supply chains

Monday, March 28, 2022

Just as the global supply chains were beginning to recover from Covid shocks, Russia’s invasion of Ukraine will likely push things to a more challenging position.

Last year saw companies hit by a perfect storm of pandemic-related pressures, including factory shutdowns and bottlenecks in booming consumer demand. As lockdowns have lifted, demand has rocketed. And supply chains are still facing huge challenges and are struggling to bounce back. Now, the recovery in electronics production has been dealt another blow by the Russia-Ukraine conflict.

For more information, take a look at this article : how to take back control of your supply chain

Globalisation and supply chain bottlenecks

Global value chains, where a product must cross at least two borders, made up 37% of world trade in 1970. This percent rose to 52% in 2008 and has plateaued around that percent ever since. While globalisation has helped create a competitive marketplace, the fact remains that globalisation of the supply chains creates problems as well. The globalisation of the supply chain implies that in case of a breakdown in one part of the globe, the whole network is impacted. 

For instance, because of the Russia-Ukraine war, the delivery of components in the electronics industry is likely to suffer. Ukraine supplies more than 70 percent of the world’s neon – a critical component for lasers used in the manufacture of microchips. Russia is also a large producer of neon. However, trade sanctions do not allow for trade with Russia at this time, leaving the supply chain in a tough position. The ripple effect caused by disruption to neon’s supply could be felt along the supply chain. There are concerns that these shortages could be intensified by a repeat of 2014 when prices for neon gas spiked by 600 percent in response to the annexation of Crimea.

Similarly, the conflict in Ukraine has meant that the supply chains for critical metals such as Palladium, which firms like Intel source from Eastern Europe, have been. In fact, 35% of palladium is sourced from Russia. The intense demand will likely force many factories to limit production or, in worst cases, cease production entirely.

Other industries particularly hit hard by the Russia-Ukraine crisis include natural gas, crude oil, and agricultural commodities. Like the pandemic, the conflict has only highlighted how interconnected and how easily destabilized global supply chains can be.

As firms seek out new sources, the supply chain is in a state of rebuilding to meet growing demand. Companies may turn to China, the United States, and Canada to boost supplies. But this may be a slow path since alternatives are not readily available.

How connected supply chains can reduce supply chain disruptions

At their best, global supply chains lower costs for businesses, often due to reduced labor and operating costs, and can spur innovation and competition.

But the pandemic and the Ukrainian crisis have highlighted deep fragilities in these networks. A disruption in one part of the chain can have a ripple-down effect on all parts of the chain, from manufacturers to suppliers to distributors and consumers. 

Given the complexity and depth of global supply chains, companies must take various measures to safeguard against bottlenecks and increase resilience in their chains. This is where supply chain interconnectivity comes into the picture. 

A connected supply chain means connecting everyone involved in the supply chain, drawing together disparate systems and partner networks to ensure that information can flow end-to-end across the supply chain whenever and wherever it’s needed. A truly connected end-to-end supply chain aims to reach 100% visibility in real-time. This creates an integrated view across the supply chain, making it easier to share data and insights with other supply chain members. Companies can see where spikes in demand are occurring and also use the patterns and trends in supply to accurately forecast the amount of inventory they need at every specific part of the supply chain.

Companies can enable complete connectivity and transparency in their supply chains by using new technologies like the cloud, the Internet of Things (IoT), big data, B2B integration, AI, and predictive analytics. This enables the organisation to predict better and react quickly to supply chain shocks or market changes. 

It also means that manufacturers should veer away from putting all of their eggs in one basket—redundancy with vendors is essential to minimising disruptions in the supply chain. Having a buffer of safety stock, for instance, allows you to continue to serve clients while dealing with supply bottlenecks in the background.

The goal of Peer-to-Peer transaction platforms

Peer-to-peer transaction platforms like AIRENC can help alleviate stalled or stopped operations that directly result from disruptions in the supply chain. Members can offset losses stemming from supply chain interruption by leveraging the platform to source critical components while strengthening the resilience of their supply chains

AIRENC facilitates seamless collaboration and information sharing among supply chain partners, helping organisations combat bottle-necks and build resilience. As a member, you can source and buy critical components in shortage and build your inventory capacity during a crisis. By promoting cooperation among supply chain partners, OEMs and EMS companies can remain functional and profitable, despite disruptions in the supply chain. Companies can also be better prepared for unexpected events like the Russia-Ukraine war.

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