The latest global supply chain disruption shows that no industry or region is immune to sudden events
After a year of disruptions resulting from the COVID-19 pandemic, the world’s supply chains have been thrown into yet further disruption by the Suez canal blockage. For many years, we have marvelled at how vital and effective the Suez Canal functions as a critical artery for global shipping. About 12% of global trade and around one million barrels of oil pass through the canal each day.
However, a single ship – MV Ever Given, becoming stuck has shown how the sheer volumes that the Suez handles can rapidly turn into broken supply chains and huge commercial losses. The use of extraordinarily large vessels means greater volumes in one ship, but the impact is magnified when something goes wrong.
The ship is carrying 18300 containers itself, but its blocking of transit in both directions means around 320 vessels are stuck behind it. The Red Sea is now home to a backlog including dozens of container ships, bulk carriers and liquefied natural gas (LNG) or liquefied petroleum gas (LPG) vessels.
The canal itself is also a victim of losses – with BBC reporting that it will lose some $14m-$15m for each day of the blockage. Whilst investigations are ongoing into how strong winds or human errors played a part, the clear conclusion is that such a sudden event needs better mitigation on a global supply level. Of course, each day of delay can compound into weeks of disruption.
The numbers are eye-watering – according to Bloomberg, rough estimates are $9.6 billion worth of daily marine traffic has been halted by the massive container ship. Shipping news journal Lloyd’s List suggests westbound traffic is worth around $5.1 billion a day and eastbound traffic approximately $4.5 billion. Some vessels have been rerouted to avoid the Suez Canal, adding around eight days to their total journeys.
Global impacts the new norm
Recent years have shown that global supply disruption events are increasing in frequency. Research from McKinsey, shows that supply chain disruptions lasting a month or longer now happen every 3.7 years on average. Amid rising uncertainty, cutting corners in search of short-term price advantages is now a riskier bet.
Top threats impacting global supply chains have recently included plant explosions or fires, natural disasters, cyberthreats, distribution disturbances, government intervention and demographic changes in workforce and logistical execution.
Over the past twelve months, procurement teams have battled an intense sequence of challenges. The COVID-19 pandemic caused widespread manufacturing delays, particularly in the Far East. A global semiconductor shortage has cascaded into a diverse range of supply chains, and Brexit has required changes and re-routing of more supply lines.
Value chains today have grown in length and complexity, and logistics technology has driven efficiency and cost reduction gains. However, the Suez incident has shown that inventory stuck in such a significant shipping delay will require many companies to re-order more goods to be sent over by air freight which costs around three times more.
Local second source capabilities vital
The current Suez situation proves the need for better adaptability built in before a crisis occurs. Many companies will now rethink cost-benefit considerations about the right optionality in their multi-tier supply chains. For example, resilience is enhanced by leveraging a local or at least near shore alternative supplier to produce 10 to 25% of your requirements for vital core goods, and retaining a more global supplier network to deliver the remaining 75 to 90% respectively.
By identifying and onboarding optimal second source suppliers on a multi-regional level, procurement teams will have more options to call upon at times like these. In advance of such crises, all organizations need to cast a wider net to identify all the potential suppliers, both current and potential, for delivering on their needs.
The information advantage provided by AI can help to identify optimal second source suppliers, especially in the face of rapidly changing supply and demand environments.
Second sourcing with AI
AI scouting technology offers a shortened discovery and validation process for suppliers by using rapid access to financials, corporate and geographic news, corporate sustainability data and active certifications. When searching for second source suppliers, you can review, pre-screen and develop a target list to validate in about an hour, making it simple to organize an RFI for suppliers with one holistic view.
Supplier discovery tools like Scoutbee organize and prioritize best fit potentials to speed up the entire evaluation process. Users enjoy rapid visibility over their supplier portfolio which can transform their ability for up-to-date supplier benchmarking during a crisis event.
Companies can now access the broadest supply market view, and use local second sources to build stronger, more breathable supply chains. Here are our some recommendations for reducing supply network vulnerabilities with proactive second sourcing:
- Keep your supply chains more secure with optimal, diversified supplier portfolios
- Be ready and equipped to react fast – onboard and benchmark second source options to beat supply challenges and prevent disruptions to your production and customers
- Ensure your business continuity plan includes an updated and versatile range of scenario planning
- Develop your long term strategic supplier relationships by helping them to recover after crises or disruptions