Towards a new industrial model to cope with global risks

- Armed conflicts between states

- Inflation

- Economic Recession

With a time horizon of 10 years, however, in addition to the aforementioned

- Extreme climatic events

- Lack of Computer Security

They add, among others:

- Shortage of natural resources

- Disinformation

- Negative impacts of AI technologies

It is quite clear that these risk factors have a major impact on:

- costs and availability of raw materials

- prices, availability and timeliness of supplies

- evolution and reliability of the supplier base

- cost, time and security of logistics flows

- reliability of information and communication in the supply network

Recent events include the Red Sea crisis, triggered by the attacks of the Houti, Yemeni rebels, on ships transiting the Suez Canal. The consequent difficulties and dangers to transiting merchant ships along that route now force shipments from the Far East to Europe to circumnavigate the African continent (extending the journey by 3,600 nautical miles) with delivery delays of more than a month. According to Drewry monitoring, after the first two weeks of 2024, Suez transits decreased by 64% compared to the same period last year, while transits through the Cape of Good Hope increased by 168%. The use of air transport also increased, resulting in freight increases, which peaked at $4.50 in mid-December. Logistics costs are rising: longer routes mean higher consumption and emissions, insurance costs are rising, and the availability of containers and ships committed for longer periods is reduced. The price of containers from China has risen above $6,000 from $1,500 at the beginning of December. Delays in deliveries are causing large industrial groups, especially multinationals (see Tesla and Volvo), to cut production. Consumer goods from the Far East risk fuelling inflation in Europe.

The Russian-Ukrainian conflict, on the other hand, has consequences for the food supply chain, particularly with regard to grain. According to the Food and Agriculture Organisation of the United Nations, Russia and Ukraine account for more than 25% of world trade in wheat and more than 60% of sunflower oil, as well as 30% of barley exports.

Russia is also a major exporter of fertilisers, which could have an impact on global crop yields. On the other hand, over the past few years, Ukraine has steadily increased its exports, becoming an important supplier of raw materials, chemicals and machinery. In each of these cases, price increases and supply disruptions are already a reality.

How to respond to these complexities? The report itself develops four possible macro-approaches, which are not alternatives but to be activated in combination.

1. Localisation strategies that can be implemented by the individual country or stakeholder

2. Discontinuity, i.e. innovative technologies and processes

3. Collective initiatives, requiring several countries and/or stakeholders to act jointly

4. International co-ordination, involving collaboration between countries and/or stakeholders.

From a supply chain management perspective, this translates into increasing visibility and consolidating an active risk management practice. On the other hand, supply chains are increasingly complex and interconnected global networks and, therefore, more fragile and exposed to external disruptive events. Robust protocols, enabled by digital technologies such as AI, of real time monitoring, contingency planning and rapid response, dynamically activate a number of levers such as:

- supplier diversification

- predefined supply alternatives (e.g. dual sourcing)

- predefined aternative production sites

- predefined alternative logistical routes

- nearshoring

- make vs buy

- collaboration and pertnership with the supply chain and among peers

- alternative communication channels

It is necessary to continuously reassess the context and build alternative scenarios with the support of advanced intelligence, so as to configure one's responses to evolving risks, ensuring resilience and adaptability. This also requires cyber protection of one's database, communications and information sources: cybersecurity and blockchain are now an unavoidable requirement.

It is, in a way, a paradigm shift in the industrial model, in which Supply Chain Management - thanks to new digital technologies - does not merely focus on the search for efficiency (e.g. in transport, inventory and working capital, economies of scale in production and distribution, ...), but, by developing visibility, flexibility and adaptability and improving time to market, becomes a differentiating factor for business continuity and competitive positioning.

* Senior Executive Advisor - NTTData