Israel was attacked by Hamas, and the world has another war in another region of the world. Since the global supply chain is interconnected, in addition to the devastation in the region, supply chain impacts will emerge. As I discussed with the Los Angeles Business Journal earlier this week, supply chain disruptions will impact every partner connected to the region in the end-to-end supply chain and/or those that must travel through the region.
Israel is already affected as companies are saying that employees are part of a mass call up of army reservists. Labor shortages were already causing challenges throughout the world; as key high-skilled labor must participate in the war, businesses will be impacted. In addition to labor shortages, Israel is a hub for advanced computer chips. In fact, it is one of the key regions aside from Taiwan for advanced chips. Intel produces chips for AI and self-driving cars. Nvidia produces chips for AI, and Apple designs some of its silicon in Israel.
Hub for Advanced Computer Chips
In addition to labor shortages, Israel is a hub for advanced computer chips. In fact, it is one of the key regions aside from Taiwan for advanced chips. Intel produces chips for artificial intelligence /AI and self-driving cars. Nvidia produces chips for AI, and Apple designs some of its silicon in Israel.
Import/ Export Impacts
Israel’s imports and exports are impacted. For example, Israel has significant trade with India, increasing from $200 million in 1992 to $101 billion in 2003. Israel exports fertilizer, electronic components, petroleum, and agro-chemicals. Other import/ export items include chemicals, plastics, metals, medical and industrial equipment and more.
Israel is in a critical region of the world known for producing oil. Since energy is vital to fuel manufacturing and supply chain, it is important in fueling the world. If the war in Israel expands beyond the country’s borders, it can pose a risk to two key shipping choke points: the Suez Canal, a key waterway for all types of commercial container ships, and the Strait of Hormuz, which is pivotal to oil and gas shipping.
Impacts on the Supply Chain
In thinking about Israel’s impact on the region and the world, it is clear that many supply chain disruptions are likely to emerge. If your supply chain is dependent on a trading partner of Israel such as India, you could be affected. If you are dependent on advanced computer chips, your supply chain will be impacted, even if you get your chips from Taiwan.
Anytime there is a disruption in one node of the supply chain, it can expand to all nodes connected to that node. Almost every manufacturer and logistics organization is dependent on oil and natural gas and will be indirectly impacted with higher prices at a minimum. Equally concerning would be an expansion of the war that impacts the Suez Canal. We have evolved into a globally-connected supply chain, and successful executives will rapidly determine their risks and mitigate them.
Strategies for Success
Every forward-thinking organization is getting on top of their end-to-end supply chain. You need something like a supply chain control tower to keep track of potential risks and impacts with changing conditions so that you can successfully navigate changing circumstances. It is no longer for the large global organizations. If you want to succeed, you will dedicate resources to monitoring your supply chain.
Uncommon common sense will prove essential in the years to come. Sourcing backup materials and logistics suppliers is simply required. Knowing your partners will be essential. Since your viability might be dependent on your suppliers, you should determine if they are trustworthy, financially viable, and innovative. Thus, although having access to multiple suppliers in various regions is important, you will also have to consolidate efforts to just those that meet your requirements as a partner, not just a transactional vendor.
Smart executives are also pursuing reshoring, nearshoring and friendly shoring programs. To learn more about what the most successful companies are doing, read our special report, “The Road Ahead: Business, Supply Chain & the World Order“. Unless you can afford to risk your customers, you must take control of your supply chain. Don’t forget to evaluate geopolitical risks, energy, natural resources, and supplier networks as you pursue these strategies.
Following a SIOP (Sales Inventory Operations Planning) process that is forward-thinking and predictive to develop demand plans and sales forecasts is becoming even more vital. With heightened supply chain and geopolitical risk, the lack of resources and labor shortages, and escalating costs, only those that look forward and plan for how they will fulfill their orders profitably and with high service levels will succeed. They will be evaluating customer and product profitability, manufacturing capacities and capabilities, supply chain networks, pre-positioning of inventory and capacity, and the required resiliency to best support customer needs.
The Bottom Line
The supply chain is interconnected globally. A ripple in China can impact Europe. A weather event in Japan can influence the U.S., and a war in the Middle East will impact every region of the world. Assess your supply chain, its interdependencies, and your alternative and backup options. Put it together into a strategy and path forward to ensure you can meet your customer needs and deliver bottom line results.
If you are interested in reading more on this topic:
Supply Chains are on the Move