On Thursday, February 24th, the nation of Russia invaded Ukraine. This action put not only the citizens of both countries into a frenzy, but also global supply chains. The Russian invasion of Ukraine means that supply chains, which were already strained due to the COVID-19 pandemic, may take even longer to alleviate.
Combined with the China-U.S. trade war, the invasion of Ukraine by Russia and sanctions imposed on it for doing so could accelerate the movement by Western companies to reduce their dependency on both China and Russia for goods and raw materials.
What good and raw materials can we expect to be impacted?
Food: Both Ukraine and Russia are large suppliers of grains such as wheat, corn and barely, putting even more strain to an already deflated food supply.
Oil/Gas: Russia is the second largest oil producer in the world behind the U.S. Sanctions have already impacted the cost of natural gas and petroleum, which has a ripple effect. Increasing gas prices also make things like transportation, manufacturing, and logistics more expensive.
Semiconductor Chips: Ukraine supplies about 50% of the world’s neon gas, which is used to produce semiconductor chips. Semiconductor chips are used in televisions, smartphones, and computers. Since the conflict began, semiconductor chip prices have dramatically increased, and large companies are now scrambling to obtain alternative supplies.
Cars: Surprisingly, the conflict in Ukraine is having a large impact on European car manufacturing. Wiring harnesses manufactured in Ukraine are used in assembly lines in Germany for Volkswagen and BMW cars, but there is now a shortage due to the conflict. Additionally, the tire manufacturer Michelin announced it could close plants in Europe due to logistics issue created by Russia’s invasion.
How can companies prevent downfall during a supply chain disruption?
Companies need to diversify their suppliers in order to avoid significant damage when supply chains are disrupted. Diversifying suppliers opens the door to a variety of sources that can be utilized at any given time. It can also help you find new, efficient ways to produce, manufacture, and deliver your products.
Keeping up with your environmental, social, and governance (ESG) goals can also help. With Russia’s invasion came a social responsibility for many companies in Russia to pull out or halt services. Some companies who refused to act or did not act fast enough faced risks to their reputation—which is always bad for business.
Next, companies should always have an effective risk management plan in place. Companies who have an efficient risk management plan in place can quickly and effectively respond to changes in supply chains, consumer behavior and more.
A supply chain risk management plan is a strategy used to predetermine any possible incidents to minimize disruptions to the supply chain if they were to occur. Risks can stem from previous learned experiences or from common industry incidents.
Avetta is here to help companies with their biggest supply chain goals—from risk management to ESG to supplier qualifications, Avetta helps some of the largest companies stay prepared.