The conflict in Ukraine is only the latest jolt to global supply chains. Disruptions caused by the Covid-19 pandemic, climate-related events, and geopolitical tensions were already undermining their rationale
FREMONT, CA: Managing the flow of materials and resources through value-adding phases until they are transformed into finished goods and services and delivered to customers has historically been the main emphasis of supply-chain managers. However, the Covid-19 outbreak, the increased pressure to reduce greenhouse gases, geopolitics, and the Ukraine conflict have all led to light the vulnerability of global supply chains. Managers must consider factors other than product costs and supplier options to negotiate this dynamic.
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Geography and Geopolitics
In the past three decades, businesses have used low-cost labor in Asia to supply a wide range of goods to far-off markets by utilizing dependable, affordable transportation and a favorable trading environment. But as localized production becomes more prevalent, supply-chain resilience is entangled with economic and technological sovereignty. Early in the pandemic, export restrictions on vital medical supplies and vaccines delivered a clear message to unprepared governments. Officials of one small nation told me that their neighbor had limited their access to fresh produce, which led them to question their food security.
Even short-term trade restrictions undermine trust and justify nations to enact industrial policies in the name of adaptability and self-sufficiency. Recently, the conflict in Ukraine has brought the supply of raw goods, including metals, noble gases, and agricultural products, back into focus.
The demand to change supply chains is best demonstrated by the widespread effects of the pandemic's shortage of semiconductor chips. The loss of American leadership in sophisticated semiconductors has caused this issue to be confused with that problem in the United States, which has resulted in significant legislation to encourage domestic investment. The European Union and Japan have also rebuilt their global chip production shares.
Logistics
The logistics connections that join the many components of global supply chains have historically been taken for granted or, at the very least, have not got the attention they probably needed.
Because of the predictable pricing and performance of ocean and air freight, businesses could reliably create globally dispersed supply chains that took advantage of the scale or cost advantages of Asian manufacturing. When deciding on product sourcing strategies, managers didn't consider distance and shipping; instead, they merely believed that everything would be completed. The breakdowns during the past two years brought on by climatic disasters, pandemic-related interruptions, and mishaps like the Suez Canal blockage have shown a dichotomy.
