The current difficulties call for a more strategic approach to arranging our global supply chains.

The supply chain chaos in the aftermath of the pandemic has highlighted the risks associated with globalization. As a phenomenon, globalization has served many of us well. Its ideological opponents, however, see today’s situation as justification for its demise. There is no denying current events have highlighted shortcomings. We would be foolish not to learn and adapt.

I’ve addressed the subject of onshoring as a potential antidote to globalization many times in the past. Arguably, now, the idea makes more sense than ever. On the face of it, shorter supply chains promise some protection against the unpredictability of today’s world. Hot on the heels of the pandemic, we now have the Ukraine crisis, and there is the fallout from Brexit, which has made for difficult and time-consuming trade between the region’s most influential economies. One major obstacle to the return of onshoring is essential indigenous-supporting industries have been largely swept away as activities have migrated offshore, taking expertise and investment with them. The conditions that caused and drove the offshoring remain in place, perhaps masked by current logistical difficulties. Accessing the data needed to move manufacturing activities from an established location is another barrier to reshoring.

If replacing globalization is not practicable, then arranging protection against its disadvantages is surely a sensible move. We might forgive ourselves forgetting this wisdom during the long period of relative peace and stability we have enjoyed in the West, probably since the end of World War II. Logistics is a major aspect of our business, which is to supply high-value materials. Without good logistics, there is no way to deliver, and without a delivery mechanism, there is no business. Keeping the supply chain simple, with as few external partners as possible, has protected against many problems over the past few years. The more partners there are in any supply chain, the more difficult it becomes to control, and the greater the risk that a link will fail.

Now, after the pandemic and while critical resources like shipping are still struggling to return to their normal places and routes, we have the Ukraine crisis. We have not yet felt the full effects of this. Some lead times for important materials in PC fabrication have increased to a year, which seriously challenges companies’ ability to control deliveries to customers.

A large proportion of important natural resources, such as titanium and lithium deposits, are found in Ukraine. Forty percent of the world’s palladium, which is used in catalytic converters, is mined in Russia – and is no longer accepted in leading bullion markets. This alone could seriously impact Europe’s car producers, which, of course, are dependent on other materials heavily influenced by Russian suppliers, such as steel.

I believe we will not feel the full impact of the Ukraine crisis for some time. However, the effect will be significant. Other less high-tech industries are also affected by the disruption to materials supplies. Ukraine supplied about 25% of all clay consumed by Italy’s ceramics industry, which had already been struggling with sharply rising gas prices at the onset of the conflict. To use sources from other locations, the ceramics engineers will need to modify their mixes. There are always imaginative reworkings of products and ideas, as industries deal with externally imposed changes. Our shared industrial heritage is all about adaptation in the face of adversity. However, workable alternatives often take time to conceive and implement.

This raises the question of second sourcing as a means of protecting against shortages in critical parts and materials. This is a sensible idea companies often do not enact simply because it is difficult, time-consuming, potentially more expensive, and, under most foreseeable circumstances, not needed. I remember when the earthquake and  tsunami of 2011 in Japan caused an industry-wide shortage of a specialty pigment that was manufactured only in a single plant, which happened to be in the affected region. It was a strange problem, largely unforeseen, that had unexpectedly serious – although entirely predictable – consequences.

The problems we are all experiencing right now will likely continue for some time, so the need for a second source may become increasingly apparent as the crisis continues, but now is not a great time to be desperate for a rare commodity.

As an industry, if we are to remodel our global supply chains to be more resilient and provide protection against future disasters, we may benefit from developing easy and cost-effective approaches to arranging a second source.

Of course, making large changes also requires investment, which requires a worthwhile return for investors. So, if reshoring some of the industry’s key activities were to make sense from a political or ideological standpoint, or for environmental reasons, there are substantial practical justifications for reshaping and ruggedizing the structures we have. 

ALUN MORGAN is technology ambassador at Ventec International Group (ventec-group.com); This email address is being protected from spambots. You need JavaScript enabled to view it..

As the pandemic becomes endemic, restoring order to the world’s prices and supply chains will take time and won’t be easy.

As we all adjust to the reality that Covid and its derivatives are here to stay, communities around the world are beginning to rebuild economically: returning to work, reviving businesses where possible and making new plans if not.

It is no surprise materials, inventory and shipping are in short supply and are often stuck in the wrong places. In some cases, services that companies used to rely on are no longer available because the suppliers have gone out of business. Workforces are depleted, and some knowhow, skills and experience have been lost. Rebuilding is not as straightforward as opening the factory doors, picking up the tools that were put down at the beginning of 2020 and getting on with it. Even now governments are still mandating measures such as the sudden full lockdown of Shanghai, which has severely impacted road and air transport. We must still expect the unexpected!

There certainly is the opportunity to build back better, but let’s not be simplistic. The world we built was highly sophisticated and interconnected – an ecosystem of ecosystems. It won’t be easy. It will take time. New leaders and innovators need to acquire the skills required to replace those we’ve lost. And we have other challenges too, like protecting the environment and transitioning to more sustainable ways of living. As if that wasn’t enough, further new tensions are adding to the pressure on resources and, as a result, prices.

As we work to restore order, established supply chains remain disrupted or broken. Even without material shortages, the shortage of transportation creates the same effect. Companies are struggling to arrange the supplies they need to fulfill orders received from their own customers. The disruption is transmitted through the entire chain, changing the balance of supply and demand.

The effect on the automotive industry is a highly visible case. It affects everyone making, selling and buying cars. Over the past three decades or so, the electrification of mobility has provided many growth opportunities for our industry and has delivered increasingly efficient and intelligent vehicles that are more satisfying to drive, safer, more comfortable and more economical. The electrification of the drivetrain is the ultimate stage of evolution when passenger cars become, in essence, consumer electronic products.

Today’s latest models are full of chips controlling everything from mirror dimming and mood lighting to internet connectivity, high-voltage battery management and autonomous driving. Except they are not. Supply shortages mean carmakers are struggling to fulfill orders for new cars. Major manufacturers are producing fewer vehicles and prioritizing their most in-demand models because they cannot source all the electronic components needed.

On the other hand, pressures such as increasing fuel prices, legislation on emissions, and the prospects for restrictions on new combustion-engine vehicles should buoy demand for the latest most efficient vehicles. And, while customers wait, demand for used cars is increasing, driving market prices upward.

In the longer-term, semiconductor makers are working to increase capacity to service the demand. However, that takes time, and semiconductor demand will continue to grow as the leading markets reach government-imposed deadlines outlawing sales of combustion-engine vehicles.

Some of the worldwide supply problems resulting from the pandemic are short-term issues. As acceptable prices are negotiated (or alternative solutions are imagined and enacted), output resumes, and shipping returns to more normal routines, problems will subside; inflationary pressure should ease, and availability of goods and services should improve. Other changes to the established order are here to stay, some part of the new post-pandemic reality and others due to strengthening environmental protection, including an emphasis on carbon offsetting and the switch to green energy.

I’ve commented on the dynamics of supply-chain management before, and there is an even clearer justification and more urgent demand for closer collaboration between suppliers and customers to ensure the greatest possible efficiency. Sharing production plans enables partners to guarantee materials arrive in the right places at the right time. While “too little, too late” is as disastrous as always, “too much, too soon” is a luxury that, in the current economic climate, adds to costs considerably. Saving these costs through better plan and data sharing is one of the many changes we need to make as we adjust to the situation we find ourselves in. It is worth remembering the highest cost a manufacturer can experience is that of having no materials to process.

It will be difficult to definitively declare the pandemic “over.” That may be best left to the World Health Organization. We cannot beat Covid. It’s in the world, and we must live with it, but we can be encouraged we are finding ways to do this, and, as we restart economic activities, we can only be bullish, adopt the spirit of “build back better,” and strive to realize the cleaner world we want to inhabit, make use of the experiences we have gained and continue to work to make all our lives healthier, more secure, safer and happier. 

ALUN MORGAN is technology ambassador at Ventec International Group (ventec-group.com); This email address is being protected from spambots. You need JavaScript enabled to view it..