Reuters Events | Supply Chain & Logistics Business Intelligence

An increase in international tensions is reshaping increasingly volatile supply chains say experts

Supply chains need to react to demand that is being shaped by rapidly shifting consumption patterns all while facing increased pressure from rising geopolitical tensions and the need to keep costs strictly under control.

These are the primary risks highlighted by a panel of supply chain experts in a joint white paper from Reuters Events and DP World, which can be downloaded for free here.

Geopolitical tensions are creating waves of disruption

“Geopolitical volatilities, such as the war in Ukraine, Red Sea crisis and intergovernmental trade tensions, are increasingly disrupting global trade and pushing up supply chain costs,” outlined Beat Simon, Group Chief Commercial Officer, Logistics, and Group Chief Operating Officer, Logistics for international logistics company DP World.

“There is general disruption. It’s captured in geopolitical tension, but also climate-related conflict,” agreed Head of Personal Health Integrated Supply Chain for Philips Jeroen van Weesep. “Some of those issues are not easy to notice early on, so they come as nasty surprises sometimes and I think that’s requiring a rethink.”

As we enter an era of fragmentation, defined not only by disruption but an increasing tendency towards protectionism ... adaptability, resilient infrastructure and the right logistics partner are essential

Simon called the current environment “an era of fragmentation, defined not only by disruption but an increasing tendency towards protectionism.”

He notes that “a pertinent example is the China Plus One strategy, which has seen many DP World customers shorten supply chains whilst reducing overreliance on one market to sustain inventory supply. This has also been a response to Taiwan – particularly for industries impacted by the semiconductor shortages – to navigate the potential impacts of a 'quarantine effect' that isolates key supplies. We have seen Vietnam and Mexico benefit as a result, with Mexico overtaking China as the largest trading partner to the United States and Vietnam increasing its global footprint by diversifying its trading partnerships and reducing its dependency on China. These trends are posing an interesting challenge to supply chain and logistics providers.

“In this context, adaptability, resilient infrastructure and the right logistics partner are essential,” he concluded.

Heightened volatility in supply and demand

Similarly, companies are having to adapt to volatility in demand as well as on the supply side.

“If we look downstream, there is big volatility on both the forecasting and the demand sides,” outlined Susanne Waidzunas, Global Supply Manager for Inter IKEA Group. “On the demand side, we see different patterns than before, and the shift towards a more omnichannel reality.”  

Customer confidence has declined, and people have less money in their wallets

Paolo Galli, VP Group Logistics for Electrolux Group likewise thought that “before, demand was more spread and definitely [more centred] on premium products. Now, it’s more on mass products, and so it’s not only volatility, but also different focuses of demand.”

“The elasticity is also different from before,” agreed Waidzunas. Additionally, “customer confidence has declined, and people have less money in their wallets,” she noted, leading to different consumption patterns and a need to adjust strategy.

Rising costs

These cost pressures on consumers have changed buying patterns, but also put pressure onto businesses to be more cost-conscious, with supply chains at the forefront of this focus.

Cost is probably the real stress we have in the overall supply chain at the moment

“Whereas during and after the coronavirus, the emphasis was towards risk mitigation and having backups etc., now the importance of striking a balance between the best service and being responsive and cost competitive all at the same time is bigger than ever” commented Philips’ Jeroen van Weesep.

“Cost is probably the real stress we have in the overall supply chain at the moment,” concurred Electrolux’s Galli.

He noted that “Western companies in Europe and North America have suffered more over the last few years from inflationary impact. That has created an even bigger competitive gap to other geographies, which have had a bit less of an impact from inflation, meaning there is even more need to catch up on the cost side in those locations.”

The solutions

To combat these challenges, the experts interviewed for the white paper centred on having strong data management processes through unified, business-wide platforms that can then share supply chain data and power predictive analytics.

We must invest much more in data and having the ability not only to analyse the data, but also to gather data in a structural way

“We must invest much more in data and having the ability not only to analyse the data, but also to gather data in a structural way because analysing is easy, but gathering the data is more complicated,” advised Galli. “The idea is not to use separate information, but to use the same profit & loss information, so that we all work from the same data set. [In other words], no longer working with email and Excel, but working with the same data.”

Through this companies can derive insights from the data with increasingly powerful tools. The interviewees in the white paper highlighted digital twins and automated stock procurement as tool examples.

Philips’ van Weesep said that automation had made a significant impact in their stocking strategy, freeing up time for planners who were further assisted by artificial intelligence, where “the system advises planners or operations people what to pay attention to because circumstances have changed. I think that’s where the long-term future lies.”

To read the complete insights from these supply chain experts, download the entire white paper here for free.