Impacts of political and economic conflicts on supply chain planning

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Today the world finds itself facing the worst economic instability for last hundred years. Refugee crisis in Europe, which effects on the continent’s economy; disruptive and violent actions of ISIS in Syria that has the most immediate impact is on business process in region; events in Ukraine that have demonstrated that formerly stable political regimes can quickly fail; unstable situation in the Middle-East & North Africa, that makes doing business there very questionable place; the surprising collapse of global oil prices, which threatens to further disrupt the economies of Russia, Saudi Arabia and Iran; stock market crash that points to global recession etc.

Geopolitical factors and trade restrictions, different sanctions placed on countries are always a major impediment for the flow of goods and materials in a global supply chain. One or more supply chain members’ can’t act as before. The activities of chain are interrupted and normal flow of goods or services is disrupted. This will be a catastrophe for all chain members. You need to go out into new markets, find new local suppliers and access new customers. In addition to economic losses we can add demand leaps, when the company is not able to cope with sudden overcorrection factor. Increased transportation costs, shipping and timing will be the reasons for your headache you will get very soon. Trade restrictions and higher taxes will result low profit margin. Changes in the exchange rate, official laws, inflation and market conditions may lead to economic downturn or even bankruptcy.

Although all these external impacts are unpredictable, it may not be expected. To deal with all these challenges your company’s’ supply chains have to be inventive. In your strategic supply chain planning methods of optimization play very important role.

Forecasting demand is very important point of all planning in your business. Adaptive supply chain consists of potential demand scenarios and contingency planning, which is developing responses in advance for various situations that might impact your business. Ask yourself some questions, for example: «What happens if demand suddenly decreases? What will be the outcome if all of chain members go out of business? How long can your employees work under crisis conditions»? If you have difficulty answering these questions it means that your long-range forecast and planning are not enough.

Your business model must have ability to impact quickly on demand changes. Flexibility in rescheduling and trade flows for preventing under- and overstocking is not the last position in planning. Developing processes in SRM and CRM systems, lobbying activities, various hedging strategies will be effective steps for managing any risk.

We believe that companies should begin to prepare in advance as early as possible for difficult times. By being ready, political conflict or economic crisis will impact your business at least minumum level. Supply chain planning will help you to be aware and prepared. As one proverb says “Forewarned is forearmed”.

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