US troops have arrived in Poland to bolster NATO's eastern flank © WOJTEK RADWANSKI/AFP via Getty Images
US troops have arrived in Poland to bolster NATO's eastern flank © WOJTEK RADWANSKI/AFP via Getty Images

What does a Russia-Ukraine conflict mean for supplier risk?

21 February 2022

The Russia-Ukraine conflict has highlighted the need to consider geopolitical instability when choosing suppliers, experts have warned. 

Speaking at a roundtable on conflict's impact on supply chains, Atul Vashistha CEO of analytics company Supply Wisdom, said the conflict was adding to already strained supply chains and highlighted the need to avoid a high concentration of critical suppliers in politically unstable areas.

Vashistha said Ukraine was critical to global supply chains. “Ukraine has the highest recoverable reserves of uranium in Europe. It has one of the largest sources of titanium, manganese, iron ore. And when you start looking at arable land, agriculture, it's the first in Europe. It has some of the most fertile soil. It is a tremendous exporter of sunflower, sunflower oil, barley, corn, potatoes, rice,” he said. 

“So you start to recognise that there is a lot of resources and capability and exports that this country has, that you can then start to imagine what would be the second and third order of impact if there was any disruption around there.”

He added: “More and more companies as they are thinking about their not just their own location strategy, but their supply chains are pivoting to saying that our future needs to pivot towards cities and countries that have lower risk ratings, but also understanding what is the fourth party – the nth party – impact some of these locations that might have on my enterprise?”

Vashistha argued risk assessments were currently too limited in scope and needed to give greater consideration to the impact of political instability in key sourcing regions on production. 

Companies also need to be aware that conflict in one country can impact supply chains in surrounding areas. Vashistha said suppliers in Poland and Romania are currently being impacted by the tensions in Ukraine. He said: “We're definitely seeing kind of the cascading effect of security and instability or challenges rise in some of the neighbouring countries. 

“Instability in a region, challenges in a region often start to impact even the neighbours, and of course when you have an area that has a significant supply chain nexus or a talent nexus, that itself can exaggerate or enhance that negative impact to the rest of the supply chains.”

Victor Meyer, chief operating officer at Supply Wisdom, said companies had not fully considered risk when moving supply chains to lower cost regions.

He said: “As companies stripped excess capacity out of supply chains, they moved production and service provisions to countries with lower cost profiles, but those locations almost all of them were more exposed to natural hazard and political instability. 

“From a concentration risk point of view, the first deployment of services into a location that has a high inherent risk profile for geopolitical risk you might get away with, but as more critical services are deployed and a greater concentration those services are deployed, then you back into a greater exposure to political related disruptions.”

Meyer said if an armed incursion of Ukraine were to occur, he’d recommend procurement teams to “rather strongly unwind any exposure to that supply base”. 

Greater transparency and a greater understanding of your suppliers and where your critical components are being sourced is fundamental to planning around geopolitical disruptions to your supply chains. Meyer recommended digitalising supply chains and having a strong intelligence system in place to mitigate geopolitical risks.

He said: “It’s important to have a good intelligence up front so you know when your risk exposure is changing, a good assessment of your controls environment, continuously monitoring the effectiveness, the presence and effectiveness of those controls, and then putting in good contingency plans in place.”

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