In this article, we’ll be analyzing the Impacts of war on supply chain. Although Supply Chain Management seems to be a recent sensation as it is always spoken in reference to advanced technology and software, it had been relevant for many years and was popularly referred to as Logistics Management. This concept came into action when a shipment from one point to another became more and more complex. But the real importance of the supply chain was realized with the advent of World War II, the deadliest war that humankind has ever witnessed.
What would have happened if the troops didn’t receive adequate supplies while they were at the battleground? Historians believe that logistics played a far more crucial role than strategy in America’s victory in World War II. With their improved supply chain, they were able to ship greater quantities of military equipment and materials, giving them an edge over their enemies. This is how logistics evolved through war but now let’s analyze the other way, i.e., the negative impacts of war on already established supply chain networks.
Detrimental Impacts of War on Supply Chain
We all were spectators of the Ukraine-Russia war and have also felt its global impact. Inflation, product shortage and hindered flow of goods and services were the most commonly discussed issues at that time but the majority of us never really understood the underlying cause of these issues. Here we’ll be discussing the probable problems at the root level.
Inventory Stockouts
In a normal scenario, companies keep inventories to ensure that the customer demand is satisfied. It’s also common to keep a portion of safety stock to meet unexpected demand and lower operational risk. However, in case of a war, companies modify their inventory planning. It is because, during the war, rebels are accustomed to sabotaging business inventories putting valuable goods at risk. Many a time they steal assets or seize inventories in transit to gain power, recognition, and provisions.
If we look at it from a business perspective, then stocking up inventories could be dangerous and one would prefer to keep it in the form of cash safe in the bank. When inventory level drops, supply decreases but the demand stays the same. Therefore, in order to balance supply and demand, the price of goods and services increases. This phenomenon is called “Demand-Pull Inflation”.
Disrupted Supplies
At the time of war, the entire supply chain is disrupted. Delays in delivery become a normal phenomenon due to shipping restrictions imposed and many a time it never reaches its destination. When supplies are not procured at the right time, the entire production process gets delayed. This leads to a shortage of products in the market and it has a far more critical impact on the public if it is a life-saving good like medicine, hygiene kits, daily essentials, etc.
To understand the consequence of procurement delay, let me take a very popular example. PlayStation5 gaming console sold out within minutes after the preorder option went live. This happened because of semiconductor component supply constraints. Although this problem occurred because of an unexpected rise in demand, we can encounter a similar problem in production if there is a delay in delivery.
Hindered Outsourcing Activities
Outsourcing is primarily done by companies that are excellent at some aspects of the business but lack the expertise in others. What’s the point of doing everything in-house when you’re clearly not doing it in an efficient or cheaper way? Outsourcing is primarily done to reduce overall expenses and it spares you time to focus on what you do better with an aim to provide superior quality goods and services. Let’s take an example of a very popular company, IKEA. This company is renowned for designing and selling furniture and they outsource the furniture production process to China to reduce overall expenses and increase profitability.
But outsourcing can have a negative impact during wartime. Suppose war has a direct impact on the place or country from which you outsource. In that case, you might have to look for alternative suppliers which could result in a detrimental impact on the quality or can lead to increased cost of operation.
Skyrocketing Transportation Cost
Logistics plays a very crucial role in the success of any business. It helps in expanding your reach to different customer segments which leads to an increase in revenue. An efficient logistics management could help you deliver goods at an affordable price. During the war, many restrictions are imposed on the state borders which slows down mobility and it leads to an increase in freight charges. Sometimes in order to continue business operations, you might need to choose an alternative that can be costly, leading to an overall cost increase.
Increased Packaging Cost
The importance of packaging is not the same for every business. Some try to reduce the cost of packaging by using a lesser quantity of packaging material or using cheaper material, while others give special importance to the packaging to enhance the customer experience. But during a war, every company’s primary goal is to ensure their product safety and therefore the cost of packaging increases drastically. Also, the impact on the cost of packaging increases with the increase in the value of the product. For example, the cost of packing a T-shirt would be much less affected when compared to precious jewelry let’s say a diamond necklace.
These were the general impacts of war on the supply chain and there could be many other impacts depending on the countries involved in the war. In my next article, I’ll be talking about specific supply chain issues that occurred during Russia-Ukraine War. If you are interested to know more about the Supply Chain Industry, you could refer to our previous articles given below:
- Interoperability: The New and Acclaimed Future of Supply Chain Management
- Busting Top 6 Strange Misconceptions about Supply Chain
If you are interested to know what role StaTwig plays in the supply chain check out this popular article by Economic Times.
