Global Supply Chain Leaders Reassess in Wake of Covid, Ukraine
In the past year or so, most people – even those in the business world – have added supply chain operations to the list of things that they never really had to think much about until they went wrong. As businesses reopened, people returned to work, the need for people and supplies created challenges. Entire industries that shrank during the height of Covid-19 tried to get up and running in mid-2021. Some didn’t have enough employees. Others had a hard time procuring enough stock. And those businesses with complex supply chains found that their production was particularly vulnerable because they relied on input from other businesses.
Meet the supply chain.
Most mentions of supply chain issues have to do with high-tech products or cars or building supplies. But supply chain concerns vary. They are anything that disrupts the logistics network between a company and its suppliers to produce and distribute a specific product to the final buyer. Goods may be delayed or not available at all. Or the balance between supply and demand may have helped push the price too high.
Finding Kinks in the Supply Chain
Between May 2020 and May 2021, prices of commodities tracked within the U.S. Producer Price Index rose by 19 percent, the largest year-over-year increase since 1974. Abrupt price increases on part of a project or raw materials can have a significant ripple effect on the overall price. And during the pandemic, that’s just what happened.
Many recent price hikes can be attributed to inflation stemming from the pandemic and its impact on the global supply chain. A shortage of lumber in the summer of 2021 shot the price of framing a typical new home from an average of $7,000 to $27,000.
For much of 2021 around the world, almost every car company had to curtail production. Assembly lines went quiet, workers were sent home, and dealerships began compiling waitlists. Consumers shopping for cars found fewer choices and higher prices. Blame snarled supply chains. A lack of parts, especially semiconductor chips, has limited how many vehicles automakers can produce.
During the early days of the epidemic, stay-at-home workers demanded the fluffier, softer kind of toilet paper we are all used to at home. This change in behavior resulted in a 40% increase in demand for consumer rolls rather than the coarser kind you find in the office, according to the Wall Street Journal. Rather than retool their 4-story-tall machinery, manufacturers got as much out of their existing manufacturing processes as possible. They turned plants up to nearly 100% capacity and streamlined their product offerings.
These sorts of resilient responses fall under the category of smart supply chain management (SCM) or demand management – a quality that will be increasingly important as the world moves away from the pandemic.
Impact of Covid and Conflict on Global Supply Chain
Although some bottlenecks are easing, industry experts warn that the supply chain crisis prompted by the coronavirus could last for many more months and even up to two years. Many businesses appear to have seen little improvement in supply chain problems – costs are rising, and the result is higher sticker prices for consumers.
Fueled by the stubborn issues of the pandemic, supply chain issues, and labor shortages, the prices of many consumer products continue to be on the rise as manufacturers announced early this year that they had plans to boost U.S. prices further or more broadly than they had previously expected.
In early 2022, Clorox said it plans to raise prices on 85% of its products by the end of June, up from a previously planned 70%, with some of the company's brands set for multiple rounds of price hikes. "I do think it's going to take several years for us to rebuild margin (to pre-pandemic levels)," said Clorox CFO Kevin Jacobsen on a call with analysts about proposed price increases.
Already weakened by months of shipping backlogs, problems with the supply chain could persist in the finely calibrated network of world trade. Shipping accounts for the movement of at least 90% of goods around the world and the cost of transporting things by sea has rocketed in the past year.
The Drewry world container index measuring the cost of moving a 40-foot container is 170% higher than it was a year ago. The price on some particularly in-demand routes such as Shanghai to Rotterdam has increased by almost 200%; in the case of the Dutch port to New York, the cost has risen by 212%.
“It will take time to get better, for companies to adjust, and for the legal framework to adapt,” said Tiffany Compres, an international law attorney based in Florida. “To add to the challenge, this is very much a political issue, and nations will need to cooperate to really get us to a new sustainable way of operating the supply chain. It seems to be a tall order in our polarized era.” She shared those thoughts with The Guardian before the Russian invasion of Ukraine.
The Russian invasion of Ukraine has also rattled global supply chains that are still in disarray from the pandemic, adding to surging costs, prolonged deliveries and other challenges for companies trying to move goods around the world. The conflict is also setting off a scramble among global companies as they cut off trade with Russia.
Supply Chain Goals: Management and Operations
In a world where it is increasingly difficult to make or stick to plans, supply chain organizations do just that: Plan.
Their goal is to plan for the resources and capacity that is needed to meet customer demand, while optimizing for cost, service, inventory, resilience, sustainability or other objectives.
When supply chain management systems are working smoothly, the manufacture and delivery of products and services are efficiently and actively streamlined to maximize customer value. In short, it’s about efficiency in the process of delivering a product from raw material to the consumer and, if necessary, dealing smoothly with returns.
In ‘What Is Supply Chain Management,’ Gartner researchers spell out the key supply chain processes:
- Source and procurement
- Supply chain planning, which includes production planning, demand forecasting, network modeling, and supply and demand optimization
- Transportation management distribution (inbound and outbound), which spans importing, cross-border and exporting (global trade management (GTM)) falls under importing or exporting)
- Warehousing and distribution, which includes receiving, stocking, picking, packing and shipping inventory
- Manufacturing (some enterprises include production in their supply chain scope)
- Store operations
- Services such as aftermarket, returns, repair and upgrades of physical and digital products
Through these processes, supply chain organizations manage how they forecast demand and the best way to select suppliers. Supply chain managers help companies acquire materials to manufacture products, find the most efficient ways to store and deliver finished goods, and manage products that are returned.
Assessing and Recovering from Disruptions
A resilient supply chain is able to avoid, absorb and recover from the business impact of major disruptions and continue to operate under stress.
To ensure resilience, supply chain leaders must balance the risks and costs across supply chain strategy, product and network design to ensure the system can function under stress and bounce back from disruption.
Most experts believe that as restrictions related to Covid-19 lift, consumers will shift their spending back to services rather than goods. This should reduce some of the pressure on the need for supplies. It will also create opportunities for supply chain leadership.
Abe Eshkenazi at the Association for Supply Chain Management (ASCM) says 2022 will provide an opportunity to invest in people, because the traditional way of managing supply chains may no longer be relevant. He told Bloomberg, “I believe we will see a convergence of training, better pay and benefits for existing employees, as well as hiring new talent with foundational skills in data analytics and automation to better support logistics and shipping operations.”
A Holistic Approach to Preparing for Disruption
One thing we’ve learned from the one-two punch of the coronavirus pandemic and the Russian attack on Ukraine, is that we may not return to a time without crises. Businesses should expect disruption to the global supply chain and challenges to supply chain management leadership. There is a pressing need for businesses to build long-term resilience in their value chains for managing future challenges.
Companies must build in sufficient flexibility to protect against future disruptions. They should also consider developing a robust framework that includes a responsive and resilient risk management operations capability.
Researchers at Accenture recommend a holistic approach to developing and managing supply chain systems. Responsive and resilient supply chain operations will be best if they are “technology-led, leveraging platforms that support applied analytics, artificial intelligence and machine learning. It should also ensure end-to-end transparency across the supply chain. In the long-term, risk response will need to become an integral part of business-as-usual protocols.”
Risk Anticipation and Risk Response
Risk assessment and response may have moved higher on the list of priorities in supply chain operations. Within days after Russian troops crossed into Ukraine, BMW closed factories in Germany, Austria, and Britain because of part shortages, particularly wiring systems made in western Ukraine. Supply chains were already severely strained by shortages of semiconductors and other parts.
The conflict in Ukraine has underlined the idea that countries that once seemed safe may not always be. And although leaders in the world of supply chain management may have lots of recent practice dealing with logistical chaos because of the pandemic, they are also now fully aware that it is not yet time to rest.
Accelerate Your Career
The demand for supply chain professionals is currently at an all-time high. Accelerate your career and learn the latest integrated sourcing strategies, master supply chain concepts for solution development, realize critical elements in strategic cost management, and much more at the Thunderbird School of Global Management at Arizona State University.
Thunderbird’s online Executive Certificate of Supply Chain Management Fundamentals provides executives, entrepreneurs, and other leaders with foundational knowledge, tools, conceptual mastery, and hands-on skills to thrive in the world of business and supply chain management. Whether your goal is to incorporate these skills into your current career or position yourself for a transition into supply chain and logistics, this three-course online professional development program will give you the confidence and capabilities you need to conduct business globally.
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Supply Chain Management Fundamentals Certificate
15 weeks, online, self-paced
Supply Chain Operations Management
Delineate and map real manufacturing and service processes.
Module 1: Processes and Managing Their Capacity
Module 2: Managing Inventory
Module 3: Managing Quality
Module 4: Managing Sustainability
Supply Chain Procurement Strategy
Evaluate, manage, and develop different resources, suppliers, technologies, and skills to achieve strategically aligned supply management objectives.
Module 1: Global Supply Strategies
Module 2: The Sourcing Decision & Supplier Evaluation
Module 3: Leveraging Information Technology in Procurement
Module 4: Leading the Supply Function
Supply Chain Logistics Management
Examine tools for designing a good logistics system
Module 1: Logistics Networks in Supply Chain Management
Module 2: Operating the Network
Module 3: Forecast Management
Module 4: Inventory Management
For more information and to download the brochure:
Thunderbird Executive Certificate of Supply Chain Management Fundamentals