Intelligent CIO Middle East Issue 83 - Page 37

TALKING

‘‘ business

The supply chain crisis around the world is significant , and it doesn ’ t feel like it ’ s going away . The impact of this on business is potentially enormous , and even more difficult in these times of high inflation , high interest rates and potentially reducing demand .

Shortages of semiconductors and chips is probably most visibly widespread issue , affecting no less than 169 industries , including IT , motor vehicles , consumer electronics , appliances and many , many more .
However , apart from the shortages of oil and gas , of wheat and sunflower oil , which are being felt since the invasion of Ukraine by Russia in February , there are many other shortages , too . For example , there ’ s a global shortage of epidural catheter kits – something of serious concern to expectant parents . I ’ ve read of year-long waiting lists for children ’ s bicycles , of clothing , and so much more , too .
And , of course , disruptions affect other industries , too – if an event cannot be staged because vital equipment is missing , that impacts the event companies , accommodation and food businesses , and all others peripherally involved , too .
So , what is causing these shortages and what scenarios are likely , as it ’ s vital for businesses to understand this to properly manage their risk exposure ? You simply cannot say that your business will not be impacted at all , as the ripple effects impact everyone .
The start of the supply chain issue was , of course , the COVID-19 pandemic . Acting on what turned out to be incorrect information ( possibly because China was trying to cover the believed source ) on the speed and severity of infection , governments around the world imposed restrictions on gatherings and so , in effect , shuttered businesses , in a way never seen before .
And while many service business could , and in most cases did , pivot to a work-from-home model , albeit with varying degrees of success , manufacturing business and others reliant on physical presence to operate , could not and so had to suspend operations . And , of course , it was not just factories that closed , but the logistics side of things was also affected – if not closed completely in some cases , then severely curtailed – while China closed entire cities for protracted periods in its unsuccessful drive to achieve zero-COVID , and continues to do so from time to time .
So , many production lines were stopped , as were things like foundries , and staff were laid off . Ports were closed , too , so a number of ship operators decided to scrap ships rather than incur the costs of maintaining them while unable to operate them . So even for those factories able to operate , generally under some sort of emergency allowance , being able to ship the goods was subject to a whole new set of problems and delays .
As restrictions in countries were eased and economic activity started to pick up , companies found themselves in the unusual situation of not being able to get the items they were ordering – the global efficient “ just in time ” systems had become “ just wait for some time ” ones instead . Given that some 80 % of global international trade is carried by ship , a reduced number of vessels compounded by them being in the wrong parts of the world awaiting slots to either load or unload cargo saw massive increases in shipping times and costs .
And these delays continue today , made worse by both China – the world ’ s major manufacturing hub – still closing port cities without notice and other ports around the world suffering ongoing shortages of staff due to both illness and being unable to replace lost workers .
Paradoxically , though , while ports like Los Angeles ( the USA ’ s biggest container and freight terminal ) have worked hard to considerably reduce wait times this year ( down almost 80 % from January ), and the number of shipping containers available worldwide is now at an all-time high , with a surplus of around 10 %, so reducing the sky-high costs associated with long wait times and a shortage of containers , as CNBC reported , so other factors came into play .
Russia ’ s invasion of Ukraine and the consequent sanctions on Russia ’ s massive oil and gas exports have exacerbated already-constrained energy stocks ( again , output had been reduced due to the pandemic ), sending energy prices to new highs and so impacting the entire logistics chain .
Guy Whitcroft , Founder , Business Fitness
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