Before the crisis is after the crisis: after the Covid pandemic, the war in Ukraine and new lockdowns in Shanghai are sending new shockwaves through the global supply chain. How can companies better position themselves for materials sourcing?
According to a report by Tim Uy, economist at Moody's Analytics, the biggest risk to global supply chains has shifted from the pandemic to the military conflict between Russia and Ukraine and related geopolitical and economic uncertainties. Factor in the increasingly devastating events related to climate change and the U.S.-China trade war, and it is clear that the already vulnerable global supply chain will be under pressure for some time to come.
British Steel has reported that the price of steel in the UK has risen to £250 per tonne and is expected to rise further if the conflict in Ukraine continues and demand increases. The conflict could also impact the U.S. steel industry, which relies on pig iron and steel slabs from Russia and Ukraine, which are then used to produce crude steel in electric arc furnaces (EAFs) and flat rolled products in rolling mills.
Nickel trading on the London Metal Exchange was suspended in the early morning of March 8, when the market was trading above $100,000 per ton, amid fears of sanctions on nickel from Russia, which supplies about 11.3% of the world market for the alloy and battery material. Even before the suspension of trade, the rise in nickel prices would have had a huge impact on alloy surcharges, which stainless steel mills use to pass on raw material costs to their customers. Companies operating in the battery sector will also be watching the volatility in the market for this important material with unease.
About 10% of the world's copper reserves are controlled by Russia. Largely considered a key economic indicator, copper is used extensively in electronics manufacturing and residential construction. Copper prices have also risen sharply recently.
The aerospace industry in the U.S., Europe and the U.K. relies heavily on titanium supplies from Russia. Although Boeing and Airbus have already turned to alternative suppliers, the market share and product base of VSMPO-AVISMA, the main Russian supplier, makes it almost impossible to turn away from it completely. Some aircraft manufacturers have signed supply contracts through 2028.
Russian aluminum producer Rusal has been forced to close the Ukrainian alumina refineries that normally supply its Russian aluminum smelters. The limited supply of aluminum has already caused problems in the construction industry and for beverage producers, who have had difficulty sourcing aluminum cans.
Further disruptions and potential shortages are expected for all of these materials, which could lead to price increases for many products and services.
Multilocal procurement/ Multilocal sourcing
Multilocal sourcing - characterized by preference for local communities, industries, products, cultures, and customs - means that demand is split among multiple suppliers so that they are ready and able to deliver immediately. Back in 2012, Stan Aronov, VP Distinguished Advisor at Gartner Supply Chain, predicted "a shift toward multi-local operations." Manufacturers and retailers have long sought ways to balance global economies of scale with demands for local responsiveness when designing their supply networks. Leading companies are reevaluating their sourcing and production networks and realigning their supply network strategies in favor of multilocal design, delivery and support."
Sourcing locally can circumvent almost all of the risks that currently exist while supporting the local economy. Local sourcing also allows companies to quickly adapt to changing consumer demands.
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