Geopolitical tensions have led companies to nearshore supply chains but procurement teams should be aware of unexpected consequences of such strategies, a webinar was told.
Russia’s war in Ukraine and China’s military exercises around Taiwan are prompting reappraisals of procurement strategies, but changes can create problems of their own, according to Victor Meyer, chief operating officer at risk management company Supply Wisdom.
Speaking during a webinar, Meyer said: “The vulnerabilities in the supply chain over the last couple of years have resulted in efforts to re-engineer supply chains and to reshore certain activities. However, that further destabilises the supply chain and requires continuous monitoring of potential deteriorations if a catastrophic supplier loss happens with no previous warnings.
“If companies do nearshore something for example from Russia or Ukraine into Eastern Europe, you see material, real estate inflation and and wars on talent as everybody’s competing for the same talent, therefore wage inflation rates go off the chart. So ultimately, the location risk component, and the overall risk profile is extremely important.”
Meyer warned companies must expand their definition of risk following geopolitical tensions and consider how the location of key material supplies may be opening supply chains up to vulnerabilities.
Meyer said: “Unfortunately, [companies] have largely confined their attention to cybersecurity and to financial risk, as we see every day with climate change, as we saw with the pandemic, with Russia and Ukraine, and now China and Taiwan, it’s necessary to look far beyond just a narrow risk aperture, and into the area of geopolitical risk, and indeed, business and operations risks.”
Atul Vashistha, chairman at Supply Wisdom, argued procurement teams were too slow to respond to risks posed by geopolitical tensions.
Vashistha said: “These are not black swan events. You literally can see them coming. When you think about right now live fire exercises that China’s conducting around Taiwan and now cyber attacks, well we knew this could happen. We knew that one of the factors that would take place would be tariffs.
“We know one of the vectors that’s going to take place is threatening, like Russia, to not provide power to certain countries, or the fact that there’s potential cyber attacks that are occurring. We know that certain things you can predict and if you prepare for it, you can be resilient.”
Vashistha said if you have good practices in terms of monitoring early indicators, “you can prevent catastrophic issues down the road”.
He said a lack of prior risk assessment of key materials in China and Taiwan was causing disruptions to chip production, which is concentrated in Taiwan, but also to rare earth materials and pharmaceutical supplies.
“For many of those rare earth minerals, we don’t necessarily have the mining or production capacity [in the US and Europe]. We might have the deposits in many of our allies, but that’s not where the production is today. It happens to be in countries that potentially are not friendly. That could have a massive interruption to it.”
He further said pharmaceutical supply chains have been left vulnerable to disruptions due to strong concentrations of supplies coming from India and China.
“We start to see the heavy reliance [on these countries] and its potential for disruption.”
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