1 Mar 2022

Influence of Ukraine on Supply Chains and Supplier Management

In one swift move, Russia’s invasion of Ukraine has disrupted European supply chains and the repercussions are expected to be felt across global networks.

The assault on the country means supply chains that depend on it for the production of everything from food, to chemicals, metals and gas; as well as those who rely on supplies coming out of Russia, are set to be affected.

And, without supply chain mapping, companies might not even know it yet.
Ukraine is rich in natural resources including reserves of iron ore, coal, timber, natural gas, manganese, salt, oil, graphite, sulphur, titanium, kaolin, nickel, magnesium and mercury. It also produces huge amounts of sunflower oil, barley, corn, rye, wheat, potatoes, eggs, cheese, creating enough food to meet the needs of 600 million people. It is also one of the world’s top exporters of steel and products used in the defence industry.

Meanwhile, Russia is the second biggest exporter of crude oil, and the world's largest natural gas exporter. The attack has already pushed the price of crude oil up to more than $100 a barrel - the highest it’s been for seven years - which is expected to hit an already weakened airline industry.

Some companies will have buffers to bridge a shortage in supply, but they are unlikely to hold out for long. Supply chains have already become severely stretched over recent months and years with multiple events including the Covid-19 pandemic, Brexit, shipping delays and driver shortages.

Businesses that have strong ties with key partners will be leveraging those relationships, with CEOs likely to be in direct contact to persuade suppliers to prioritise their needs. However, we know, from our latest annual research that this is not an area of strength for the majority of businesses, nor is it a sustainable long-term strategy. It also assumes that it is a tier one supplier that is affected.

For many companies, issues may stem from further down their supply chain - in tier four, five or six. Savvy companies will be seeking to find out if they source any key inputs from the Ukraine at these deeper levels and if so, how quickly they might source from elsewhere, while trying to maintain relationships with existing providers.

Another step companies can take is to see how they might help their suppliers identify the source of any key inputs. Instead of only looking at their own direct risks, companies should consider helping their suppliers to segment their own base and encourage them to do the same for their key providers. This vital training could help mitigate negative impacts on the whole chain.

Finally, there is what we call the ‘secret source’ of information, a super power that helps businesses to predict the future - if they know where to look and pay attention to it. This data is to be found in the results of supplier performance management. Any drop, spike or change in quality or service may be an early indication that there is a greater problem yet to come. Supplier management is already an engine for improvement and innovation and with the right monitoring this can act as an early warning system for the most vigilant of businesses.

Don’t hesitate to contact us if you require assistance.