Organizations that are part of the global supply chain face a big risk from political instability. Companies that do global sourcing need to be aware of how geopolitical instability could hurt quality, productivity, and relationships. Changes in geopolitics, problems with supply chains, and a lack of skills are reshaping the global operating environment for businesses in all sectors and all parts of the world. This volatility poses challenges and opportunities for organizations depending on the worldwide supply chain. We must develop risk mitigation and competitiveness measures based on these considerations. Let’s discuss the role of regulations and geopolitical influencers in the supply chain.
Geopolitical situations affecting the global supply chain in 2022
Russia’s invasion of Ukraine has caused a lot of suffering and problems for people, but it will also affect the global economy and supply chain for a long time. The impacts will flow through three main areas:
- Higher prices for daily needed commodities like food & fuel will increase inflation further, reducing the real value of incomes and putting pressure on demand.
- The economies of countries near Russia and Ukraine will be in trouble with disrupted trade, supply chains, remittances & a tremendous surge in refugee flows.
- Diminished business confidence and higher uncertainty among investors will weigh on the prices of the assets, holding a tight grip on financial conditions and potentially increasing capital outflows from emerging markets.
China’s zero covid policies
China is one of the world’s largest importers and exporters of raw commodities. The broadest short-term negative impact on supply chains will happen due to China’s health policies. The Chinese government’s zero-COVID policies, while draconian and vastly disruptive to its residents and the broader economy, will be hard to abandon. The shift towards living with the virus in an endemic state is likely too unpredictable for China’s policymakers to adopt.
The top 3 government regulations impacting the supply chain
Restriction ofhazardous substances
The EU (European Union) governs the Restriction of Hazardous Substances Directive (RoHS) rules, and the USA has similar regulations in some states. ROHS restricts using elements like lead, mercury, hexavalent chromium, cadmium, polybrominated biphenyls, polybrominated diphenyl ethers, etc. ROHS restrictions impact most electronic products. In addition, the products must not have more than 0.1% of the banned substances and 0.01% cadmium.
Registration, evaluation, authorization, and restriction of chemicals (REACH)
The REACH law is a European Union rule that regulates chemicals. Like the RoHS law, the REACH law controls chemicals that are called “substances of very high concern” by the EU. Any product containing SVHC (Substances of Very High Concern) chemicals in greater than 0.1% of its mass must be reported to the EU.
Waste from electrical and electronic equipment
WEE is similar to RoHS in that it controls substances used in electronic devices. Electronic products such as computers should be recyclable and manufacturers should take back their products for recycling. According to the European Commission, radio frequency identification tags are considered electronic equipment and must be collected and repurposed. As a result, a company that sells computers must also collect old computers from clients and return them to their respective makers.
Strategies to develop a disruption-proof supply chain
Understanding the stages of supply chain disruption
The supply chain optimization and resilience pathway involve recovery, discovery, and resilience.
Recovery: In supply chain management, recovery and survival are one. There is already an assumption that supply chain disruption has begun. Here the business will:
- Assess the disruption
- Evaluate critical components
- Communicate with customers
- Audit available inventory
Discovery: We identify the lessons learned and which areas of the supply chain are critical. It’s important to remember that the discovery stage can only be seen once the business has gotten back on its feet after a disruption.
Resilience: We have to develop response strategies for each supply chain risk.
Invest in supply chain technology like RFID
Radio-frequency identification (RFID) technology has become a critical technology needed for managing supply chain disruptions for retailers, saving money, and increasing profit. Some of the use cases of RFID technology are:
- Store level inventory process & data improvements
- Store operations
- In-store traffic patterns
- Fitting room
- Checkout process
- Theft detection and prevention
- Post-purchase enablement
Automate & digitize manual processes
Data and automation can speed up risk management responses for our supply chain and improve overall efficiency. Both can assist our organizations in continuously monitoring risk at scale and reducing costs. But before we can implement an automated risk-action model, it is advised to have a clear vision of the end goal, i.e., to move away from manual processes so that teams can focus on the highest risk areas and take mitigating actions.
Diversify our suppliers and channels
Pandemics and similar supply chain disruptions drive the need for us to diversify our suppliers across all channels. This way, we can save our valuable supply of materials from the negative impacts of disruption. Also, rules and political unrest can affect the global supply chain, so having different places where we get materials can help us keep the supply chain running smoothly and avoid shortages.
Use predictive and prescriptive analytics
The best tools to evaluate suppliers are predictive and prescriptive analytics. They are used to make models, predict, and get ready for changes in the supply chain that might happen in the future. Such insights will drive continuous improvement initiatives in the supply chain, help us reduce waste, streamline processes, and minimize costs.
The unpredictability of crises, such as geopolitical instability and regulatory changes, means that a supply chain disruption can hit your business and key suppliers at any time. Furthermore, the fast-paced nature of delivery and constant changes in consumer behavior mean we might not have time to react to the next disruption. Hence, adopting a modular approach to the supply chain can help us create a model that can adapt to any new supply chain disruption without any hassles or the need to take drastic mitigation steps.