Not everyone understands the journey a product takes to get from the manufacturer to the customer. With suppliers spread across the world, travel can be disrupted by a variety of factors.
Supply chain delays have slowed business down and increased the price of goods. With limited supply and high demand, inflation rises. Companies are unable to receive the items needed to onboard new employees or replace necessary hardware, delaying productivity.
A recent study by GetApp stated, “78% of businesses have experienced moderate to significant supply chain delays for IT hardware in the past 12 months.” The same study found that 71% experience shipping delays of up to 6 months. These supply chain delays lead to high costs and lower inventory.
Unfortunately, there are two types of relationships impacted by this. Companies have to decide between keeping strong relationships with suppliers or their customers. If they change suppliers to work around supply chain issues, they risk losing that business partnership. On the other hand, businesses risk losing customers and profit if they aren’t able to fulfill orders.
Supply chain issues have been occurring for years, but COVID-19 exasperated the issue. Russia’s war on Ukraine has caused a lot of disruptions as well. With no clear end in sight, businesses need to formulate new, long-term strategies to overcome supply chain delays.
China’s “Zero-COVID” Policy
COVID-19 launched major distribution issues due to differences in work regulations. A significant amount of American businesses get their supplies from China. In fact, China accounts for 12% of global trade.
Since the virus originated in China, their COVID-19 regulations were and still are incredibly strict. China has a zero-COVID policy. These limitations have created a major impact on supply chain distribution.
Major cities in China are putting their citizens on lockdown and into quarantine facilities to mitigate the outbreak. The government is still shutting down manufacturing facilities and keeping shipments from leaving ports.
With the continuation of COVID outbreaks in China and their incredibly strict COVID policy, there is little hope for recovering supply chain issues in 2022.
U.S. companies may need to look locally for distribution and reduce their trade dependency on China.
Russia’s War on Ukraine
In February 2022, Russia invaded Ukrainian soil. This tragedy has triggered economic impacts internationally. Trade routes connecting Europe and China have been disrupted by the invasion.
Many use Russia to transport supplies back and forth from Asia to Europe. The danger of traveling through Russia or flying above it has forced suppliers to use alternative routes that are longer and more expensive. The invasion has also led to an increase in gas prices, causing transportation costs to go up. In fact, Russia supplies 40% of Europe’s gas. Russia is also the second-largest exporter of oil in the world. Both Russia and Ukraine export a large number of raw materials.
Additionally, Ukraine supplies 50% of the world’s neon gas. This is used to make semiconductors or chips. Chips are used in iPhones, computers, cameras, and cars. There has been an ongoing international chip shortage for the past few years. The war in Ukraine has the potential to extend the shortage even longer. Chips are a major part of automotive manufacturing and other hardware. Fewer chips mean higher demand and higher prices.
Government sanctions on trade between Russia and other countries will also impact supply chain distribution. There is a lot of uncertainty when it comes to war. It is hard to tell how long it will last and what the outcome will be. Since we are unsure what the future holds, businesses need to start planning to work their way around supply chain delays and increased costs.
Shopping locally is now a necessity for those relying on Eastern Europe, Russia, and China for goods. Businesses need to look within their own borders to supply materials.
Supply Chain Risk Management
There is a model called the PPRR risk management model. This is a global supply chain risk management approach.
PPRR stands for:
Prevention: Be proactive by taking steps to mitigate the chance of future supply chain disruptions.
Preparedness: Create a plan of action and recovery in case of an incident.
Response: Carry out the recovery plan to contain and reduce the impact of an incident.
Recovery: Get back to “normal” business operations as quickly as possible.
Following the PPRR model is a great framework for managing risk.
Another way to mitigate the impacts of supply chain disruptions is by having multiple suppliers. Take inventory of your suppliers and the potential environmental impacts that can occur. Have backup suppliers that can meet the same needs just in case. When environmental risks arise, stockpile inventory if possible. Creating a buffer for high-demand products is a good strategy to decrease the impact of supply chain blockages.
An obvious choice for supply chain management is to find suppliers within your own borders. Although it can be more expensive, the benefits outway the costs when you consider the increase in transportation costs, loss of customers, etc.
Implementing multiple strategies will help cushion the blow of supply chain disruptions and prepare for risks.
One final strategy to take when overcoming supply chain issues is to organize and consolidate data. It is easier to keep track of suppliers, freight times, etc. if your data is centralized. Take advantage of predictive analytics and modern technology to stay organized and proactive.
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