Responding to crisis

From the April 2022 print edition

The world’s supply chains were already strained from the COVID-19 pandemic when Russia invaded Ukraine on February 24. The conflict is now the latest event to snarl global logistics, destabilize prices and raise the possibility of shortages of goods and commodities. How can supply professionals mitigate the conflict’s effects? How can they prepare for the next shock?

“It’s a continuation of the exacerbation that started before COVID-19 that made COVID-19 worse,” says Johnny Rungtusanatham, Canada research chair in supply chain management and professor of operations management and information systems at the Schulich school of business, York University. “Now we’ve got this additional human-made event that’s creating more stress points
in the global supply chain.”

The conflict brings fresh challenges. Cargo must be diverted from areas where goods aren’t being flown, increasing costs. Buyers must find alternative sources. All this means supply chain stress, Rungtusanatham says.

While the invasion is a unique event, it’s one in a list impacting supply chains.

“What we need to learn from all these past (events) is to come up with time-tested capabilities and mitigation plans that we should be thinking about at an individual level, company level and country level,” Rungtusanatham says.

Another layer
The Ukraine conflict is simply the latest layer of challenge and complexity for supply chains, says
Joy Nott, partner, trade and customs practice at KPMG Canada. Yet many organizations remain
in a “wait-and-see” mode.

But there will be no return to “normal” for supply chains, she says. A new version of normal has emerged to grapple with as we move forward.

Many of the big-picture decisions surrounding today’s supply chains were made in the mid-to-late 90s and early 2000s, she says. Companies decided then, for example, to make parts or products in Asia, then ship them to North America, Europe and so on. In 2022, the world is a different place, she notes. Now is the time for many organizations to look at how those supply chains might be altered to ensure flexibility going forward.

“What that new normal is going to look like in its final, end state is to be determined,” Nott says. “But we’re definitely in a state of flux for the foreseeable future and that holding off on making major supply chain decisions is holding off on future success.”

Major global events like the Ukraine conflict highlight why supply professionals must stay abreast of global events, develop countermeasures to soften their impact and protect supply chains, says Tim Moore, president of Tim Moore Associates – CANADA’s Supply Chain Recruiters. He agrees that supply professionals can no longer take a wait-and-see approach to dealing with global events, noting that “proactive trumps reactive.”

“Whether or not you’re impacted by the war in Ukraine, a knowledge of geography can be of primary importance,” he says. “What physical constraints might there be in dealing with a region, because of their natural resources? How easy is it to gain access to the outside world by using existing transportation systems? Is the country or region essentially landlocked?”

Do the risks of the Ukraine conflict and other crises spell the end of just-in-time (JIT) inventory management and reshoring of manufacturing? The last 20 years have seen supply professionals chasing short-term profits with cutting inventory as the easiest way to do that, says Rungtusanatham. This led to the faulty implementation of JIT, in which many organizations worked to cut as much inventory as possible. The least powerful player ended up keeping the most inventory.

“Nobody ever said that just-in-time means everybody cuts inventory or removes flexibility,” he says. “Just-in-time simply said, figure out where in your supply chain is it most efficient and most flexible to keep inventory so you can react fast when there are changes in demand or changes
in the supply condition.”

And while reshoring certain goods, especially essential ones like medical supplies, makes sense theoretically, it wouldn’t work for all products, Rungtusanantham says. Canada isn’t competent at making all products domestically and the practice would lead to higher prices than consumers would be unwilling to pay.

To deal with global risks, Moore advocates hiring staff with specialized knowledge of geopolitical issues and regions. Such staff can research and understand cultures, geography, industry, transportation routes, governments and economics, he says.

“A bachelor’s degree in international affairs, political science and perhaps even a master’s degree or a PhD. may be required for more extensive research and analysis on assets, trade agreements or high monetary or capital equipment investments,” he says.

And while the Ukraine conflict and other geopolitical events create instability, they also offer supply professionals opportunities to make positive changes, says Nott. Now could be the time to address sustainability, weed out modern slavery or shore up governance.

“There are opportunities now to work these things into the supply chain,” she says. “If you’re going to go to that proverbial whiteboard, there are opportunities to layer these positive things into the supply chain at this point.”