US house speaker Nancy Pelosi and president of Taiwan Tsai Ing-wen © Photo by Chien Chih-Hung/Office of The President via Getty Images
US house speaker Nancy Pelosi and president of Taiwan Tsai Ing-wen © Photo by Chien Chih-Hung/Office of The President via Getty Images

How ‘greater political priority’ will help supply chains overcome threats

23 August 2022

Industry leaders are warning of elevated disruption from geopolitical events in Taiwan and Ukraine through 2022, and say supply chains and businesses must be protected from inevitable shocks.

China’s decision to hold military drills near Taiwan in response to US house speaker Nancy Pelosi’s visit to the island inflamed poor relations between the two countries, causing the blocking of key supply routes and driving up prices of goods produced in or transported through the region.

As such, supplies for electronic devices will “likely be constrained throughout 2022”, according to research by analytics company, the Smart Cube.

Commodity prices will “continue to rise” across electronics, food and consumer packaged goods, according to the firm’s research due to the impact of tensions between China and Taiwan, plus Russia’s war in Ukraine, and the subsequent reduced access to critical supply routes.

Prices are already rising, with neon – a critical element in the production of semiconductors – up ten-fold, and research predicting that a rise in energy costs may lead to a 5-10% increase in cement prices through to at least December 2022.

John Manners-Bell, chief executive of Transport Intelligence and founder of the Foundation for Future Supply Chain, told Supply Management: “Supply chain and logistics have been really ignored for decades, it was always seen as something which just worked. It was always there, you could always rely on it.

“What's been shown in the last couple of years, including Covid and everything that we've seen, is that it has to be nurtured. And it has to be given a higher political priority than it has been.”

In a meeting with US state governor of Indiana Eric Holcomb on the stability of semiconductor supply chains, Taiwan president Tsai Ing-wen said as the “expansion of global authoritarianism” threatens global supply, “democratic allies must stand together and comprehensively strengthen cooperation”.

Microchip supplies are particularly vulnerable to disruptions in the region, which controls 63% of the global market.

Ing-wen said: "Economic security is an important pillar of national and regional security. Taiwan is willing and able to strengthen cooperation with democratic partners in building sustainable semiconductor supply chains.”

Rashi Singh, associate vice-president of procurement and supply chain at the Smart Cube, said it is “crucial” businesses adopt a “multi-pronged” strategy to mitigate supply chain disruptions as much as possible.

She said businesses must evaluate multiple suppliers and identify alternative sources for procuring products and services: “They should support essential suppliers financially through supply chain and working capital financing.

“It’s vital that businesses conduct a comprehensive review of their exposure to Russian, Ukrainian, Taiwanese and Chinese suppliers on raw material procurement. By mapping suppliers on a tiered basis, they can get a clear picture of critical raw materials at risk.

“Businesses must also continuously monitor the events that could impact the supply chain and liaise with suppliers to identify alternative payment methods to ensure business continuity,” she concluded.

Procurement teams are being urged to carry out detailed assessments to evaluate the required levels of inventory and labour in the short-to-medium term and ensure sufficient inventories are in place to account for disruptions.

“Businesses need to allocate provisions for high prices of utilities and certain raw materials, and anticipate higher borrowing costs amid interest rate hikes. As the situation evolves, they should eliminate or freeze all non-essential spending. Equally, they should review financial hedge positions in light of the volatile currencies and macroeconomic environment,” said Singh.

Further, she recommended that businesses identify and minimise vulnerabilities in cybersecurity to avoid additional disruption to their operations.

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