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Beyond Borders: The Interplay of War, Climate and Pandemics on Supply Chain Stability


“Our empirical analysis suggests that Supply Chain Shocks account for around one-third of the strains in the Global Production Networks.” – European Central Bank.

Conflicts between Nations

In today’s complex world, where conflicts between nations arise frequently, the impact of these wars are not limited to the immediate battlegrounds, the impacts are tangled with the web of the Global Supply Networks. During wars trade routes are disrupted and become less safe resulting in higher delivery times and increased cost of transportation. As some of the ships divert to take longer routes which results in higher consumption of fuel and thus, increasing costs of a commodity. Higher scrutiny and security checks cause delays further increasing costs and sometimes the shipment may spoil, rendering it unsuitable for use. Bilateral trades are profoundly influenced by the disruptive Specter of warfare.


For example, In 2022, oil prices were high because Moscow’s invasion of Ukraine had led to sanctions against the Russian Federation, cutting off the world’s second-largest oil producer from global supply chains. Countries trying to get their hands on oil elsewhere were then having to pay a premium for it.The higher cost of oil also affects other modes of transportation. The price of airline tickets tends to increase, as does the cost of moving goods – whether it is by truck, ship or plane. The cost of manufacturing also grows.



The war broke out on 24th Feb, 2022 and within 12 days the price per barrel rose from $89 to $128, showing sudden movement in Price change due to the conflicts between nations.


Climate Change

A report from the United Nations says that Workplace disruptions caused by climate change could lead to more than 2 trillion Dollars in productivity losses by 2030.


Climate change is a long-term and slow-moving problem; correcting it will require a change in our core beliefs and values. Climate change affects Production as well as Inventory and mainly logistics of almost all sectors. Flooding, heavy rains, cyclones and the rising sea levels all affect the Global Supply Chain. Flooding in Warehouses can cause Inventory disruptions. Whereas, heavy rains and cyclones are one of the biggest challenges for logistics.


Pandemic

Moreover, we just saw one of the biggest Pandemics of the Century. During Covid-19 we saw National lockdowns, temporary stops to the flow of Raw Materials and finished goods. The Pandemic affected many consumption opportunities in the services sector, particularly in Travel, Tourism and Recreational Activities. This Pandemic brought to light many underlying issues in the Global Supply Chain.


For Example, The chart below shows how the disruption of Supply Chain operations is attributed to three interconnected factors: alterations in the supply, variations in demand, and the responses of governments and nations in addressing the pandemic.

Source: NCBI




Navigating Complexities

Strategic Planning is necessary to mitigate the risks of Supply Chain Disruptions;


  • Identification of Risk: As we have seen, supply chain disruptions can arise from many factors; the organizations must understand these factors. These are some of the factors that must be kept in mind; Climate Change, Changes in Government Affairs (Political) and other Macroeconomic variables.

  •  Assessment of the Impact: Every Organization must do a separate assessment of the impact of the risks associated with the disruptions in Supply Chain as some are more Vulnerable than others. These events can increase cost of raw materials, challenges in Delivery and increase the risk of suppliers.

  •  Action: Organizations need to make robust but flexible supply chain operations so that they can sail through during the harsh winds. The development of the model should take into consideration various factors such as transportation costs, the accessibility of raw materials, and so forth.

  •  Bridging the gaps with suppliers to make sure the conversation is strong during the Climate Crisis and having some number of products in reserve as a contingency. Also having back-up suppliers in case the main ones fail, should help reduce the risks.


Opportunities!

Though, Supply Chain disruptions are seen as a hindrance, they offer great opportunities to the emerging economies like India. The gaps between the markets present India and other emerging economies to fill those gaps by becoming exporters and thereby making their presence known to the world.


The graph shows how supply chain disruptions affect the advanced economies more than Emerging economies. Source: European Central Bank 


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