What do you foresee about the impact of increasing tension of the global Geopolitical (wars, political conflicts, humanitarian crises, rare earth metals & elements, clean water & air, food supply, etc.) on supply chain risk management and disruptions, and what should we do to overcome or prepare for?
thank you for sharing your insights.
Indeed, mining is not always as organized and clean as the ideal outcome. Sadly, most businesses are still focusing on profitability and turn away from the impacts on the communities, environment, and social responsibility. Hopefully, this will progress in a much more positive way in the near future.
Life in many regions of the world is already hard enough without wars. The world has become more civilized and modern and yet, morals and ethics seem to dim as we witness unnecessary wars and conflicts.
Geopolitical certainly has impacts on supply chain risk management and the preparation we have to do to mitigate risk and disruptions. Agree, that some companies are strategically planning and moving to near-shoring, friend-shoring, and more of the local supply chains, not only trying to shorten and simplify the supply chains but also avoiding the disruptions that may occur any moment when the conflicts are out of control.
Hopefully, others could shed more light on different perspectives on how those wars and geopolitical disruptions have impacts on supply chain risk management and what supply chain practitioners can do to prepare for them or mitigate risks/disruption as well.
Thank you again for sharing your thoughts on this.
Your welcome. As someone (and I'm sorry to say that I can't cite them) put it, we're moving away from supply chains and towards supply webs. Chains are only as strong as their weakest link.
I share your concern about profitability but if the past few years have taught us, it's that when there is a shortage, suppliers have pricing power. We've seen this with cars and even toilet paper. Discussions about supply chains and resiliency used to occur and stay at the Managerial level and usually stayed within procurement. Sometimes they went into operations. Once Covid-19 hit, these discussions have shifted to the board level.
I believe it was the CEO of Citi who said that, prior to the credit crisis, Legal was a department under the CFO. Typically they took care of a few things and they were occasionally consulted about a mater here or there. After the credit crisis Legal raised in prominence and the firm had a CLO (Chief Legal Officer.) Suddenly the value set aside for legal issues had a significant impact on the overall firm. Revenues and profits may be up but if the expected outcomes of lawsuits turned worse then the successes of the rest of the firm could be negated. The last few years have taught us that we can't take the reliability of supply chains for granted and the impact that this can have on the company's profitability. I think that most firms are acutely aware of the cost of supply chain disruptions now and are ready to invest to mitigate this. I suspect that this will be the case even in the next 5 years.
great insights. Thank you for sharing.
Indeed, many factors affect and need to be taken into consideration regarding supply chain risk management and disruptions from the strategic planning and operational execution level.
Geopolitical continues to put stress on global supply chains. Strategic sourcing is important but I feel that it is just a temporary solution. Some organizations have moved away from long supply chains and tried their best to avoid the potentially troubled areas. However, it takes time for other regions to develop technological and workforce readiness if the cost of labor is still competitive by then.
@Brad Elhart, great insights, thank you for sharing. Indeed, local suppliers definitely provide a more secure supply source. Yes, I remember that Texas froze in 2021.
However, a single-source first-tier supplier even in the same country seems risky in my opinion, not to mention if their suppliers are also located in the US and if any of those second-tier onward suppliers need raw materials from outside the US that can potentially be impacted by the geopolitical tension. If not, then it is great to have a local supplier that is not dependent on a long global supply chain.
We've had wars, political conflicts, humanitarian crisis etc. for a while. These events may have occurred elsewhere and they may or may not have involved larger players or larger players through proxies. If you aren't sure about this you can google wars by year for an example.
Going forward I think that we are moving towards regional trade blocks. This is one theory that I hear. That said for things like rare metals this is more of a challenge. China dominates this field partly through luck (i.e. they have a lot of rare metals) and partly, well to be frank because no one else wants to. Rare earths aren't rare and many are produced as a byproduct of refining other more common items. However, the refining process takes a lot of energy and can be very dirty. Most people don't really want a mine or a smelter near them and to try to clean up the process will take technology and much more likely cost a great deal of money. I think we will see some small scale operations but if things in China change we could see things go back.
We last had a major global trade shift in the 80s/90s and we're probably heading there again. The last time we had a sharp recession and many people are certainly expecting one soon. The thing with recessions is that they can be self-fulfilling, we expect them to happen, so we curtail spending and they do happen. They can be a surprise to some people.
One major item that you've left off your list is demographics and I suspect that will have a larger role to play that you think. I would also add gender ratios. If China's economy is 30% smaller than its reported to be, it will still be the second largest economy in the world. That said if there are 30% fewer people in China that could be a challenge. If the Chinese economy slows down which I suspect that it has done and will continue to do then expect to see more challenges. This is why some factories are leaving China. Its harder to find workers and they're looking further afield, i.e. Vietnam, India etc. Adding to this are some countries who want a counter balance to China.
When it comes to wars, I'm not sure if you're referring to the Ukraine/Russia war or the current issues in Gaza. Amongst people whose views I trust, they tell me that this is Russia's last great war. The demographics look horrible for the country. Things will have to change soon enough. For Gaza this could be one of the last hurrahs and the big question is going to be how Iran/Hammas/etc. deal with this on the middle eastern chessboard. Its a crowded chessboard and this may be the "middle game" where pieces are traded back and forth and the question is who comes out on top. I don't think that the Russia/Ukraine conflict is in the same league of complexity but it can get there. You've got Russia, a great power (at least one that was) and its floundering. Russia's future may lie as a collection of more independent states, i.e. one that disintegrates further. The issue is that based on my (albeit limited) understanding of Russian geography, it will be hard to set boundaries. Besides, landlocked countries with hostile or unfriendly neighbors do not do well economically.
Throughout all of this, China will be interesting. Power is starting to become more concentrated and politics can literally be a bloodsport, a game of life and death. What happens after Xi and after Putin are questions people don't want to ask but are clearly worrying about. I suspect that somethings may "reset" after a generational change in leadership but it will be interesting to see rapprochement coming from the "East" (i.e. China/Russia) as opposed to the US.) I'm sure that the history books and press will have their own spin on it but we'll see.