Supply chain management risk in times of conflict

The ongoing Russia-Ukraine conflict has shed light on the critical importance of Supply Chains and the wider economy. From increases in food commodity costs to impacts on energy and fuel costs, the relatively stable global economy has suddenly had an injection of inflation and scarcity. And some business partners have unexpectedly become unavailable due to sanctions being applied.

This is on top of the challenging disruptions caused by Covid which have already influenced many companies’ attitude to risk and long-distance supply chains.

In addition, Brexit has had a significant impact, with various companies re-modelling their Supply Chain to minimise impact and maximise their potential opportunity.

Even the Ever-Given blockage of the Suez Canal highlighted the vulnerability and criticality of supply chains.

Is this a perfect storm or a massive opportunity? What does it mean to businesses?

It means they need to be able to easily understand what risk they are exposed to by continuously monitoring change. It means each business needs a detailed understanding of who its partners are, where its stock is, and its ability to mitigate price changes and product/resource availability.

To address these independent challenges requires joined up thinking and the ability to leverage systems and processes.

If the Ever Given happened to block the Suez Canal again, do you know the consequences for tomorrow? If a new conflict arose, would you know which partners are unlikely to be able to deliver next week? If a harvest failed in a critical ingredient how quickly could you find replacements?

How do you understand this?

You need a clear view of inventory, commitments and orders. You need to be able to understand it quickly and be able to make decisions quickly. This is where an inventory management “optimiser” or Supply Chain control tower comes in.

How do you manage it?

By managing your source of supply and dual or multi sourcing products so you can switch suppliers under times of stress quickly. Don’t forget to make sure that these alternative suppliers have exposures to different risks than the “prime” supplier…

Or – if you have some materials/ingredients that can’t be mitigated then the only way to be sure is to hold additional ingredient/material inventory. I’ve seen clients that have needed to hold 18 months of ingredient stocks just in case a sensitive harvest fails.

Transport is a major cost but also a way to mitigate risk. It may not need to be a binary decision to sea or airfreight goods, but might be pertinent to use both methods. Ship your baseline demand via sea and then manage the variability via air? This maximises your ability to respond while reducing your overall stock cost (but increasing transport). Obviously a balanced view should be taken according to the profitability of your portfolio and the bulk/value density of your products. Again, managing this transport, highlighting shortages, and understanding the costs of shipment are key components of the Microsoft Dynamics 365 solution. Leveraging them together can provide you with some powerful information to make informed decisions and improve your cost/risk position.

As you can see, your systems are key to consolidating information, and leveraging tactical alerting can make sure that your company stays on the front foot through times of disruption. Leveraging the information that’s already available to you about your Supply Chain can help you identify challenges, highlight and mitigate risks, and work through unexpected and unpredictable challenges.

If you have questions or would like help to address these challenges, then please contact HSO.