If you can still manage the stress of looking at the world news, you’ll have noticed that the supply chain is a frequent story. Over the last two years, it has taken a pounding from the pandemic, labor shortages, lockdowns, environmental disaster and geopolitical hostilities. Dealing with one of these events at a time is serious enough but dealing with all of them at once has essentially blown apart the global supply chain as we knew it in 2019.
The supply chain itself is somewhat to blame for this. The traditional approach to global logistics has prioritized profit over resiliency, including single-sourcing of critical components, vast networks of unstable offshore suppliers and an emphasis on just-in-time principles of low inventory without a crucial understanding of lean principles. While this approach worked well enough during times of stability, the incessant barrage of current crises has overwhelmed the supply chain’s ability to react.
As COVID-19 continues to flourish in the form of new variants and subvariants, the global supply chain faces near constant disruption, including manufacturing shutdowns in China, skyrocketing shipping costs and labor shortages. Critical technology components like semiconductors continue to be in short supply, which has a knock-on effect on production and distribution of everything from home appliances to mobile phones.
Rising global temperatures have been producing severe weather events that threaten to permanently disrupt both the supply chain and the global community. This spring, temperatures in India and Pakistan reached as high as 50 C, with experts predicting that this could become frequent enough over the next few decades that parts of the region could become uninhabitable. Scientists have also pointed to the 2021 heat wave in western North America as one of the hottest ever recorded. These events, along with more intense storms and flooding, have the potential to cause significant disruption to the global supply chain unless we identify ways to get climate change under control and build resilient supply chain measures that can react quickly to severe weather events.
On the geopolitical front, Russia’s invasion of Ukraine has caused global chaos on a scale not seen since the Second World War, imperiling the supply of energy to countries around the world. The interruption of Ukraine’s production of neon gas for manufacturing semiconductors threatens to exacerbate the technology crisis, while the disruption of Ukrainian wheat supplies could lead to food shortages and even starvation in the countries that rely on it.
Finally, ESG (environment, social and governance) considerations will continue to force organizations to increase their reporting and stakeholder transparency along the entire supply chain. The proposed rule changes from the Securities and Exchange Commission (SEC) will mean that many organizations will soon be responsible for reporting Scope 1 (emissions resulting from direct operations), Scope 2 (emissions created indirectly as a result of purchased energy) and Scope 3 emissions (emissions further down the supply chain, such as those generated by suppliers or from use and disposal of the organization’s products). While this is a positive step in the fight against global warming, the reality is that this will create a significant reporting responsibility for every organization along the supply chain.
How to Build Resiliency
During times of crisis, everyone just wishes that things would return to the way they were before, back to what they consider normal. However, the reality is that this new world of disruption and stability is normal. We need to prepare not for the world to return to the normal we knew in 2019, but for a more dynamic and challenging world that can turn our lives upside down without warning.
Fortunately, we can build resiliency into our supply chain to meet that challenge. By diversifying suppliers, sharing information along the supply chain and developing regional solutions augmented by technology and real-time data, we can have flexible supply chains that respond to rapidly evolving crises in a way that guarantees the flow of critical components for manufacturing and products to consumers.
Our Insight Report The Breakdown of the Global Supply Chain: Surviving the Present and Preparing for the Future provides a deeper look at these issues and highlights how we can respond in a way that protects the global community and reinforces the global supply chain. We might not be able to predict the future, but by looking at our present, we can learn how to be better prepared for it.