icon29 Mar, 2023
How Geopolitical and Global Economic Issues Affect the Supply Chain
By taking time to understand how these issues affect supply chains, companies can take steps to mitigate the risks they present to build stronger, more resilient supply chains.
Geopolitical and Economic Crises Disrupt Supply Chains
The past several years have presented us with plenty of clear-cut examples of how geopolitics and global economics can affect supply chains from a world away.
Trade Contentions
In 2020, the US’s trade war with China created a lot of strife in supply chains. New tariffs were put into place, creating a panic that led to companies working to shift supply lines out of China and into more trade-friendly countries.
Geopolitical Conflict
The Russia-Ukraine war has shown the entire world the damage that war in a far-off nation can do to supply chains everywhere in a globalized economy. Shortages of oil, semiconductors, and grain created a ripple effect that resulted in unstable prices and supply chain hiccups across the world.
Global Health Crises
The magnitude of the supply chain repercussions related to the Covid-19 pandemic caught a lot of people by surprise. The sharp drop and then rise in demand for products created issues with the flow of supplies, and worker and equipment shortages compounded problems.
Recession and other Economic Issues
Over the last decade, several countries like Greece and Venezuela, important parts of the global economy, have experienced their own internal crises. As we’re staring down the potential for a global recession thanks to the economic rebound from the pandemic, global and local economic issues take on an even more important role in supply chain management.
Supply Chain Issues Created or Exacerbated by Geopolitical or Economic Tensions
The above-named events themselves aren’t really the issue. It’s the more far-reaching issues those events cause that muck up supply chains. Keep in mind this list is not exhaustive.
Limited or No Supply
We’ve all seen this during the pandemic and beyond. First, it was the toilet paper, then it was the meat and condiments. Eventually, it was big-ticket items like cars and electronics. Events that create supply chain disruption can result in little to no supply of either a specific product or more generalized shortages.
Price Hikes
When products are difficult to obtain, the laws of supply and demand dictate that prices rise. Logistics costs rise, as well, as we’ve seen over the past few years.
The Need for New Suppliers
Geopolitical and economic issues can put supply lines from a certain supplier, a certain region, or a certain country in jeopardy. That leaves companies scrambling to find new suppliers in order to continue to service their customers.
Reputational or Legal Ramifications
Trade conflicts and humanitarian issues can spell big problems for companies if they don’t navigate them perfectly. For example, if a company uses a single supplier for a certain item in its supply chain and that supplier is found to be in violation of human rights issues, the company may have to voluntarily cut off its own supply lines to stay out of legal and reputational hot water.
How Can Companies Cope?
The combination of events that have occurred over the past several years has opened a lot of eyes, even those of the general public, to the risks involved in keeping supply chains running smoothly.
It’s important to remember that even small-scale, local issues like extreme weather or local political discourse can disrupt supply chains. That’s why simple workarounds can’t always account for disruptions and over-arching strategy changes may be necessary to build supply chains that can stand up to any type of trouble.
Here are some ways companies can get a top-down view of potential risks and mitigate them before supply chain woes become their woes.
Work Towards 360 Degree Visibility
Visibility has become something of a buzzword in the supply chain, but that’s merely because it’s a key component in a modern, rock-steady supply chain. Without full visibility, companies can’t assess what’s already happened, nor can they look into the future effectively.
Companies can establish better visibility by using technology to connect their entire supply chain, offering real-time data and automatic updates to facilitate agility and resilience.
Prioritize Resilience Over Economy
In an age where pleasing shareholders is king, it’s easy for companies to find the cheapest option and stick with it. However, the cheapest option isn’t always the best option in terms of producing revenue or providing the best possible service to the customer.
To overcome the geopolitical and economic risk, companies must prioritize resilience over economy, or at the very least, learn to balance it better. They can do this by diversifying suppliers (even if it means paying a little more), shifting operations closer to home (nearshoring), and investing in resilient technologies.
Remember That Redundancies are Only Redundant Until They Aren’t
While the lean supply chain still has its place, redundancies are a necessary part of resilience. Since it’s not a matter of if things will go wrong, but instead when and where they’ll go wrong, having a backup plan can be the difference between sinking and floating in today’s competitive marketplace.
Will redundancies cost more? Maybe. Will they require more effort? Almost definitely. If keeping your supply chain moving is a priority, redundancies are still worth it.
Call In the Supply Chain Pros When Necessary
If your company needs help navigating the global supply chain or bringing production closer to home to promote resilience, reach out to the team at NEWL. We offer a full complement of 3PL services and can design customized logistics solutions to suit your business needs.