Supply chain risk management is the process of identifying, assessing, and mitigating risks that can occur within your supply chain. It is important to do this to ensure business continuity and the delivery of services and or, profitability.
Natural disasters and man-made crises can have a severe impact on us all whether as individuals or organisationally. I am sure you can think of a few examples, but I have detailed a couple below.
Effect of drought on supply chain risk
Brazil suffered the worst drought in over 91 years in 2021-22. It was estimated that the northwest Rio Grande do Sul would produce 35% less soy crops due to the drought, producing 15 million tonnes down from a predicted 21 million tonnes. Farmers will have lost an income with the harvest being ruined and with low supply, the cost will increase of these products. (Brazil farmers struggle as drought batters southern soy crop | Reuters) Brazil also relies heavily on hydro dams for its power therefore such a severe drought had an impact on the generation of electricity. The drought also raised the risk of rainforest fires too which has a global effect on the entire globe
Pandemic supply chain risk
Taiwan and South Korea had a low tolerance to the pandemic, meaning that the production of semi-conductors was decreased dramatically. This led to a shortage of cars and electrical goods which is still an issue today and may continue for some time leading to increased prices which of course impact upon inflation.
Effect of War on supply chain risk
We have seen this most recently with the Russian invasion of Ukraine. Before the invasion, Ukraine produced 45 million metric tonnes of grain for the global market, together with Russia this accounted for circa one quarter of the global wheat exports in 2019. Ukraine is also the top exporter of sunflower oil. (https://edition.cnn.com/2023/01/15/business/global-food-crisis-davos/index.html, n.d.)
Russia’s blockade of the North Sea drove the prices of food up and quite literally stopped the supply chain. This sparked global panic about where to buy wheat. North Africa and the Middle East rely on the region for wheat supplies, and both suffered economic and climate crises on top of food shortages. The price of wheat increased dramatically due to the shortage again leading to increased inflation across the world.
Getting grain from different countries is possible but it would take longer and is more expensive. The climate crisis my affect the harvest of alternative suppliers too. This is a huge supply chain risk.
We have also seen the cost of fuel rise due to the Russian war and this has had significant impact on individuals and businesses.
The effect of these supply chain issues has an effect globally on the supply and cost of many products and services.
Resilient supply chain
Globalisation was a lifeline to many businesses that were able to take advantage of lower costs and gain efficiencies. A more resilient supply chain is now being considered more important than a chain offering the lowest cost of supply. More local and regional suppliers are looking more attractive even though they may not be the most cost effective. Achieving net zero by 2030 has also driven this change too.
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