Supply chain implications of the Russia-Ukraine conflict has been saved
Cover image by: Matthew Lennert
Supply chains are once again being tested, this time by the extraordinary events in Ukraine. The time has long since passed when supply chain disruptions can be treated as one-off events, with organizations scrambling to mitigate the disruption to their business and to keep goods, funds, and information flowing across the supply chain. The conflict in Ukraine reinforces the imperative for most organizations to have in place more resilient supply chains.
Among the most pressing vulnerabilities is an overreliance in Europe on natural gas and crude oil from Russia, as well as dependence on both Russia and Ukraine for key agricultural commodities. According to the Food and Agriculture Organization of the United Nations, Russia and Ukraine account for more than 25% of the world’s trade in wheat and for more than 60% of global sunflower oil and 30% of global barley exports. Russia is also a major global exporter of fertilizers, which means any supply shortages, or restricted access, could impact crop yields globally.
It’s not just oil and agricultural commodities that are under stress. As Deloitte noted in a recent report, “The principal reason that Russia plays above its weight is that it is a major exporter of some of the world’s most important commodities.”1 Russia is a significant source of many of the 35 critical minerals that the US Department of the Interior (DOI) deems vital to the nation’s economic and national security interests, including 30% of the globe’s supply of platinum-group elements (including palladium), 13% of titanium, and 11% of nickel. Russia is also a major source of neon, used for etching circuits on silicon wafers. Palladium, a critical component of catalytic converters for cars, has climbed as much as 80% in price since the conflict started. Moreover, as a result of the Ukraine conflict, LMC Automotive has cut its forecast of light vehicle sales in Europe by 2 million units a year over the next two years.2
The interconnectedness of economies and businesses has both exacerbated the growing supply chain crisis and to some extent masked it. According to Dun & Bradstreet, there are fewer than 15,000 Tier 1 suppliers in Russia. Dig a little deeper, however, and there are 7.6 million Tier 2 supplier relationships with Russian entities globally.3 More than 374,000 businesses—90% of which are in the United States— rely on Russian suppliers. Now consider that in Deloitte’s most recent annual survey of chief procurement officers, while 70% believed they had good visibility into risks in their Tier 1 suppliers, only 15% had the same confidence about Tier 2 and beyond.
While many of the changes required to current global supply chain design and operating practice will most likely take years to implement, there are actions that can be taken right away.
Successful leaders will take decisive action to respond to the immediate risks of this crisis and to stabilize their supply chain. They will also embrace the long-term view, recognizing that this crisis is most likely to elevate the importance of many of the fundamental and structural changes to global supply chains that were already being accelerated as we emerge from the COVID-19 pandemic.
Ira Kalish, How sanctions impact Russia and the global economy, Deloitte Insights, March 15, 2022.View in Article
LMC Auto Blog, “European market outlook worsens,” March 17, 2022.View in Article
Dun & Bradstreet, Russia-Ukraine crisis: Implications for the global economy and businesses, 2022, p. 4.View in Article
Cover image by: Matthew Lennert