How Analytics Can Mitigate the Impact of the Russian-Ukrainian War on Supply Chains
The Russian-Ukrainian war had a massive impact on global networks in terms of trade and distribution of goods. It has created bottlenecks in transport, leading to shortages of key commodities. The results can be seen in multiple sectors, from energy production to consumer goods.
Here’s a look at how specific industries have been disrupted by the war, leading to higher prices and reduced supply.
Agriculture. According to the Food and Agriculture Organization of the United Nations, agricultural products have been the most affected:
- Sunflower oil. Ukraine is the leading producer of sunflower oil, with nearly 13 million tons produced per year, followed by Russia. Together, these two countries account for 50% of all world sunflower oil production.
- Wheat. Russia and Ukraine contribute around 30% of the world’s wheat supply.
- Barley. Russia and Ukraine are respectively first and fourth in terms of barley production.
Semiconductors. Ukraine provides half of the world’s neon gas, which is vital for the semiconductor industry. The absence of this key manufacturing element has significantly impacted the production capacity of companies such as ASML, Samsung, Intel and TSMC.
Energy. The global oil and gas industries are experiencing a supply shortage because big companies like British Petroleum have a large stake in Russian companies like Rosneft. These negative consequences are likely to persist.
Transportation. Transportation bottlenecks have caused oil and gas prices to spike, necessitating more expensive alternative routes. Carriers like UPS, FedEx and DHL have withdrawn from both countries. In addition, Russian airspace is blocked and waterways face port congestion, with container shortages and surcharges.
However, there are alternatives for the industries concerned:
Agricultural needs can be met by growing crops locally or importing them from other countries: wheat from China, India and the United States; barley from Australia and Canada and sunflower from Argentina and China.
Big semiconductor companies are striving to become more self-sufficient by using nearby manufacturing to meet their semiconductor needs. Intel plans to build two factories in Ohio and ASML intends to create additional manufacturing units in the United States. China can serve as an alternative supplier of neon gas for the semiconductor industry.
In the energy sector, some countries are turning to nuclear energy as an alternative source of supply. Additionally, oil and natural gas can be obtained from the United States and Saudi Arabia, and coal can be imported from the United States, Indonesia, India, Australia, and China.
In transportation, using alternative air routes can help ensure continuity of supply in difficult times. They include air travel over the North or South Poles across the Middle East, the use of Kazakhstan as a stopover on the southern route, the use of Abu Dhabi and Dubai airports to accommodate air traffic additional in the Middle East and the diversion of cargo on the China-Europe route. railroad through southern Russia and Siberia.
All of these options require relying on other countries, which presents physical barriers, new business regulations and time constraints. For example, the flight time between the UK and India or Pakistan will increase while bypassing Russia. In addition, rising fuel prices increase travel costs. And some of these alternatives will not suffice for transporting perishable goods.
The war in Ukraine is disrupting supply chains spanning multiple regions, but it doesn’t have to shut down operations. To avoid major disruptions to trade flows, companies need to develop analytics-backed strategies to confidently navigate this changing landscape.
Here are some key business practices that can be handled in this way.
Optimization of delivery promises. Since air travel has become increasingly expensive due to the ban on airspace in Russia, faster deliveries to satisfy customers are much more expensive than in the past. Therefore, it’s more crucial than ever to set the right expectations with customers and charge appropriately while maintaining customer satisfaction.
The first step is to assess the impact of these new constraints on the overall delivery time. The next is to update delivery promises with high accuracy, instead of apologizing for the late delivery and waiting for the customer to understand. Finally, using an artificial intelligence algorithm to analyze in real time the factors that cause delays is essential. For example, when a customer places an order, these algorithms can provide up-to-date and accurate delivery times.
To execute this, the organization must have access to data on historical lead times, supplier lead times from service level agreements, origins of all parties involved in shipping the product and customer locations. Data that can be generated or extracted includes natural or man-made disturbances, port congestion and air traffic, geopolitical tensions and actual transit time, taking into account traffic and other blockages.
Optimization of transport. While existing transport management systems can determine the right mix of road, rail, sea and air transport, they are constrained by years-old contracts and agreements. An AI-based optimization algorithm can quickly make recommendations to fill in the gaps. It can also suggest consolidation opportunities to move finished and unfinished products in the most cost effective and timely manner.
To make this possible, the organization must have access to data on the current load profile across all modes of transport, current rate card, origin and destination pairs, and carrier capacities. Data that can be generated or extracted includes demand forecast and consolidation scenarios.
Inventory planning. Storing inventory can help solve short-term supply chain disruptions. With an intelligent inventory management tool, companies can review current inventory levels, model their freshness, and predict delays in delivery times for goods from global suppliers. Additionally, recalibrating safety stocks and cycle stock levels can balance the cost of holding more inventory and stock-out losses.
Finally, a quick update of the AI-based optimization engine against the existing planning tool can help make these decisions based on things like the current world scenario, port congestion, airway restrictions and global supply shortages.
To do this, the organization must have data on existing inventory levels. Data that can be generated or extracted includes demand forecasting; variability of lead times, taking into account natural or human-made disturbances; port congestion, air traffic and geopolitical tensions.
Production planning. Production can maximize the production of finished goods depending on the availability and expected delay of certain raw materials. Manufacturing and consumer goods companies that have successfully stockpiled raw materials and components may need to adjust production in anticipation of raw material shortages. Additionally, organizations that are still waiting for raw materials should adjust their production schedule to make the most of the time and resources available.
Relevant data that must be available to the organization includes the real-time production plan, raw material inventory, and production plant capacity and constraints. Data that can be generated or extracted includes demand forecasting, supply risk index based on natural or man-made disruptions and a control tower for end-to-end visibility of the supply chain. ‘supply.
As supplies run a higher risk of arriving late or not arriving at all, it is now crucial to have good visibility across the entire supply chain beyond tier suppliers. 1. With this level of reliance on Tier 2 vendors and other vendors, it is important to have a control tower to provide end-to-end visibility of supply status from raw materials to last mile delivery of the finished product. The control tower will not only provide descriptive views of key performance indicators, but will also generate predictive and prescriptive insights to optimize current scenarios.
Although the current conflict in Ukraine is primarily between two nations, it has impacted businesses and supply chains around the world. And, because such conflicts often arise without warning, there is little time to adjust business practices accordingly. That’s why companies need to turn to tools that can quickly detect and react to disruptive trends. Smart recommendation engines can give executives peace of mind and move business forward in times of disruption.
Shubhankit Verma is Senior Director, Supply Chain Practice, and Pradnya Shivsharan is a Supply Chain Consultant, with Tredence Inc.