Russian invasion exacerbates supply chain issues

Due to the conflict itself, sanctions on companies doing business with Russia and companies pulling out of Russia, there will be longstanding effects on global supply chains. Industry experts state that in turn, this exacerbates global inflation.

As an example, Russia produces titanium which is critical for the aerospace and defence industry, and Ukraine builds ASICs which are used in printers and IoT devices. These items have become difficult to acquire because of the war.

Many countries are also suddenly at risk of being entangled in conflict, forcing increasing investment considerations and partnerships to avoid existing and potential future supply chain issues. The biggest beneficiaries of these changes are expected to be the US and EU.

European car manufacturing

The conflict has had a surprisingly large impact on European car manufacturing, worsening already very prevalent issues. It has also highlighted the risk associated with the current global supply chain.

Sparked initially by COVID-19, the industry has been facing a microchip shortage, which was caused partly by the spark in computer sales in 2020 due to restrictions forcing people globally to work from home. As demand grew, supply was forced to slow down, as factories were forced to operate at reduced capacity due to social distancing rules.

Over the past two years, the industry has had to deal with uncertainty caused by Brexit, a global pandemic and the war in Ukraine. Compute chip manufacturers are beginning to increase production and manufacturing capacity to make up for the shortage.

However, chips can take up to 20o weeks to complete, meaning the industry might not feel the effects of this increased production until well into 2022.

Volkswagen has predicted that the global microchip shortage will continue for at least another two years.

In February, new car sales fell to the lowest on record. Volkswagen saw registrations fall by 12%, with all other brands except Porche recording declines.

Volkswagen and BMW have closed assembly lines in Germany because of a shortage of writing harnesses manufactured in Ukraine by German company Leoni.

It is expected that European car companies will continue to assess the risks associated with international suppliers and consider buying more locally, despite the anticipated price increases. This comes as a good opportunity for Europe to strengthen its internal manufacturing sector.

What are companies doing?

Many companies, including Intel are looking at bringing manufacturing capacity back to its country, in this case, the US. Intel is looking to do so at scale, shifting sources from countries that are, or are likely to become involved in conflict. It is also hoping to move away from physically remote countries to more localised and reliable sources.

The conflict is expected to boost the European Battery Alliance, formed in 2017, to make Europe a leader in advanced battery industry.

Governments will have to be involved as the industry alone will not be able to address many of today’s supply-chain challenges. Ain the US, federal states and governments are increasing investments in infrastructure to support this, including ports and airports.

It is almost certain that global supply chain issues are going to increase for the foreseeable future. Combined, Russia and Ukraine are the world’s 10^th largest economy. Even if the war ended tomorrow, the issues are expected to remain as it is unlikely that Russia’s sanctions will be lifted, or that Ukraine would be able to rebuild its infrastructure quickly enough to hold the market.

The conflict reinforces the importance for organisations to have more resilient supply chains in place.