There are mountains of geopolitical threats going on with significant impact on the supply chain. Most, if not all of these also relate to natural resources. For example:
- China’s threats to Taiwan: China has gone beyond tensions with Taiwan to threatening Taiwan. In the Taiwan Strait, China has normalized incursions into Taiwan’s Air Defense Identification Zone. The number, frequency, and danger behind these incursions have increased dramatically, and now China is conducting naval operations just outside Taiwan’s contiguous zone. Since Taiwan produces 90% of the world’s computer chips, you don’t have to think hard as to one of the reasons why. Not only is China #1 in the world in manufacturing including several products related to healthcare, other critical industries and national security, but its control over the South China Seas can impact the supply chain in a far greater way than the pandemic. Listen to a Supply Chain Chats video on this topic.
- Russia and Ukraine: The war has been going on for over a year and there is no end in sight. Russia and Ukraine produce many vital items for the U.S. and the world including oil (which relates to countless critical products), food and fertilizer, and several key commodities such as aluminum, nickel, and copper. These are used in products considered critical and related to national security. Listen to a Supply Chain Chats video on this topic.
- China’s Belt & Road Initiative & shopping spree: China has been investing in infrastructure and going on a shopping spree around the world in strategic places with the goal to “control” the world. For example, they are buying terminals at key Latin America ports, investing in infrastructure in places with natural resources, and buying up U.S. farmland at alarming rates. Clearly, these moves are gloomy for the outlook in supply chain.
- China’s water: China has a horrific scarcity of water in their Northern China Plain. Water is required for manufacturing, electricity, drinking and more. If China doesn’t figure out how to resolve these issues while keeping their manufacturing base intact, they might look to the water nearby in India. What will that mean for the robust manufacturing activity going on in India? Read additional details about the China water situation in our blog post.
- The need for natural resources & rare earths: Given advances in civilizations, industry, and consumer’s expectations, there is a ridiculous need for rare earths and natural resources. For example, in rare earths, we will need in next 27 years more than has been mined in the last 3000 years. Regarding copper, we will need more copper in next 10 years than we would have consumed in history of mankind. Not only are there vast shortages with these figures, but the areas related to geopolitical threats are the ones producing/ mining these items currently.
I discuss these issues at length in a recent webinar for Supply Chain Brief: Brief: Geopolitical & Regulatory Issues: The Path Forward in Supply Chain and Logistics (link direct to webinar below).
Action Plans Related to the Supply Chain
Clearly, hiding your head under a rock will not resolve these issues. Instead, we must immediately take action.
- Assess your risk: Rapidly perform a supply chain assessment. Your assessment should include your manufacturing operations (including offload suppliers, outsourced products, contract manufacturers, and internal sites inclusive of their dependency on their supply chain), suppliers (including your suppliers’ suppliers and further into your extended supply chain, your backup suppliers, etc.), your logistics (transportation, distribution, warehousing, e-commerce) partner network, your customers (and their dependencies), your infrastructure, etc.
- Upgrade your processes/ systems to proactively manage your supply chain: Roll out and/or upgrade your SIOP (Sales Inventory Operations Planning) processes, execution planning systems (demand, production, labor scheduling, distribution, replenishment, transportation), manufacturing operations and logistics capabilities, supply chain visibility and related processes/ systems. You will have to stay on top of issues, potential bottlenecks, and current status of your supply chain and be able to quickly pivot to address changing conditions.
- Supply chain control tower: Hand-in-hand with upgraded processes/ systems, you will need a supply chain control tower to understand your footprint and timely status of materials and products in your end-to-end supply chain.
- Find new sources of supply & source backup suppliers: In addition to the clear need to find / expand new sources of supply, ensure you have backup suppliers. Backup suppliers are always critical. These suppliers should not be “in name only”, meaning you need to continuously purchase a small percentage from them. For example, when VP of Operations & Supply Chain for a mid-market manufacturer, we purchased 20% of our needs for a critical raw material from a backup supplier. When that material went on allocation, we were able to source from the backup supplier and beat out larger companies because we had an ongoing relationship.
- Reshore, nearshore, friendly-shore, and expand manufacturing and mining: No doubt about it. We need to increase manufacturing capabilities near our customers and consumers. Producing to scale will be the key to success – in a site and logistics network we can “control”.
- Proactively manage demand and supply: Prioritize your SIOP (Sales Inventory Operations Planning) / S&OP process to not only align demand with supply and Sales with Operations, but, more importantly, to alert your team to strategic decisions that must be made to serve your customers profitably while maintaining your working capital so that you can invest/ expand and take advantage of upcoming opportunities. Learn more about SIOP in our newly released book, SIOP: Creating Predictable Revenue & EBITDA Growth.
Please contact us with stories, issues, and opportunities on what you’re doing to succeed and how these issues will impact your business. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our recently released special report: The Road Ahead: Business, Supply Chain & The World Order.