The war in Ukraine has created a “dire” position for global supply chains and buyers should prepare for an additional 12 months of disruption following the end of hostilities, according to an analyst.
Katie Tamblin, chief product officer at data company Achilles Information, told Supply Management even if the war were to end tomorrow, global supply chains would see inflationary effects for 12 months, and warned this may even be a conservative estimate.
She said: “I've worked with procurement supply chain professionals for almost 20 years and I can't think of a time in which there has been this magnitude of disruption for this prolonged period.”
According to research from Achilles’ Supply Chain Resilience Report, global supply chains had begun to show signs of plateauing following two years of Covid-19 disruptions.
But Tamblin said: “Russia then invades Ukraine, energy prices go back through the roof, as well as commodity price volatility that we thought would be easing off all of a sudden goes back on to high alert, and that just throws everything back into a tailspin. It's pretty dire.”
She added: “If for some reason the conflict were able to be resolved tomorrow, it would take up to 12 months for the ripple effects of these price increases and shortages to filter through supply chains.”
This is because it typically takes around three months for supply and price impacts to roll through each level of the supply chain.
“If the crisis goes on for another six months, then you still get these commodity price increases for six months, and you could expect another 12 months after that before things really resolve themselves. I would be very, very surprised if we see any kind of real relief on inflation this year, I just don't see how you're going to get any kind of serious inflation relief. I expect prices to stay quite high.”
She recommended companies that are in the position to boycott Russia within their supply chains do so, but she added: “We have to understand that some companies may not have the luxury of not sourcing for Russia.”
She warned that if a company intended to boycott Russian it should be prepared for even higher commodity prices.
However, despite this, she said global supply chains were in the best place they’ve ever been to deal with the crisis.
She continued: “We're in unprecedented times. But I think supply chains are better equipped to deal with these large disruptions than they probably ever have been, because so many of them are digitised, and there's so much information flowing off the back of globalisation.
“When supply chains first went global, there just wasn't very good documentation and there were paper trails and all of that. Since globalisation, we're probably in the best situation as far as we could possibly be in order to manage and mitigate risk. But there's still a lot of issues with the information and being able to identify who's in the supply chain and what impact they may have on you.
“While I want to be optimistic that we're in a decent position to manage it, I think it's going to be a very bumpy, rocky road over the next 18 months while we try to manage how this crisis then compounds on all of the disruption we saw off the back of Covid.”
These were the main priorities Tamblin said procurement teams should focus on in order to mitigate risk:
“The more visibility you can drive into your supply chain, the better,” Tamblin said.
“It’s all relative. If you are a company who is a large, complex multinational, who doesn't even have a handle on who their tier one suppliers are, start there,” she said. “If you already know all your tier ones, then start to map in your core product lines, who are the tier two, tier threes to try to drive that risk.
“And that's all about gaining visibility, what are the products you depend on? Who are the suppliers you depend on, and who are the potential tier two, tier three risks in your supply chain?”
Tamblin explained that once procurement teams have better visibility over supply chains and those which are vulnerable to disruptions from Russia, they should look at putting plans in place to manage disruption.
She said: “For example, if I buy aluminium siding, then I am going to as a category manages start looking at who I buy from, where they get their raw aluminium, and how to potentially help manage my supply.
“Maybe that means that I purchase more than I need if I have a way to store it and I've got the money to fund it. If I don't have that luxury, then maybe I line up additional suppliers of the same goods so that if I can't get them quickly, then I have multiple options for trying a different supplier.”
It is important for procurement teams to be agile and open to responding to quickly-changing circumstances and disruptions, Tamblin said.
She said procurement teams need to ask themselves: “'Can I shift production to something else for a short period of time? Or can I find an alternative?' It's about understanding where you have agility, in your own production, to be able to cope with shortages.”
Tamblin said she expected nearshoring to increase because of Covid and Russia-Ukraine disruptions.
She said nearshoring can aid visibility and stability efforts by allowing procurement teams to "get closer" to supply chains.
Meanwhile, in other developments related to the war:
Brent crude oil prices reached $139 last night – the highest level for almost 14 years.
US secretary of state Antony Blinken told CNN the US government is looking at a “coordinated” response with its European partners over banning Russian oil.
Gold prices hit $2,000 an ounce for the first time in almost 18 months.
Oil firm Shell has controversially announced it will continue to buy Russian crude oil, despite saying it is looking to terminate its relationship with Russian gas firm Gazprom. The company said in a statement: “We will continue to choose alternatives to Russian oil whenever possible, but this cannot happen overnight because of how significant Russia is to global supply.”