November 17, 2021

SUPPLY CHAIN CRISIS 2021 What do you need to know?

If you recently encountered empty shelves in your local supermarket, then you’re not alone. People around the world are experiencing a wide range of inventory shortages: from the key ingredient used in fake tans, through IKEA furniture to more indispensable commodities such as microchips and pharmaceuticals.

Read the report by NaviRisk analyst, Michalina Grzelka.

There’s a reason behind those shortages: the global economy is stuck in one of history’s greatest traffic jams. Your new smartphone and car parts are probably stranded on one of the dozens of container ships waiting outside major ports to be unloaded.

According to data collected by the RBC Wealth Management company, 77% of the major ports it monitored were experiencing “abnormally long” turnaround times. What’s more, the global supply chain crisis, because that’s what we’re talking about, will probably extend well into 2022.

Since more and more people around the world are experiencing the negative results of global supply chain shortages, in this text we’ll briefly explain the main reasons behind the current supply chain crisis and its impact on the global economy and, consequently, our daily lives. In addition, we’ll discuss how cyberattacks can disrupt the global supply chain systems.

COVID-19

If you think that the current global supply chain crisis has anything to do with the COVID-19 pandemic, you’re on the right path. Last year, the pandemic led the global economy to a grinding halt. This year, however, after Western countries started showing greater economic activity, it turned out that manufacturers could not keep up with their demands. According to Jonathan Gold, vice president of supply chain policy at the National Retail Federation (USA), the soaring demand for various products in the United States alone is equivalent to about 50 million new Americans joining the economy.

The prime example of the pandemic-induced product shortages is the continuing scarcity of microchips. It is estimated that due to the microchips shortage automotive manufacturers may end up losing some $110 billion in revenue. More importantly, however, once customers began purchasing more products, major ports couldn’t handle the increased shipping volumes.

As pointed out by Professor Yossi Sheffi, the director of the MIT Center for Transportation and Logistics, “the entire transportation and distribution system was not built to add capacity at the rate the flow was growing, and labor shortages exacerbated the problem”. The extent of the pandemic-induced labor shortage mentioned by Professor Sheffi is evident, for instance, in Vietnam, one of the world’s largest suppliers of apparel and footwear, where workers fled factories amid the coronavirus outbreak.

The current supply chain logjam affects the automotive, apparel, technology, and food industry. For example, in China, the local Ministry of Trade urged citizens to start stocking up on basic food items in case the demand for them rapidly increases in the winter season. That resulted in Chinese residents buying large quantities of cabbage which they traditionally stock up on before winter.

 

Consequently, supermarkets in Beijing introduced the limit of three cabbage heads per one customer. Speaking of China, the supply chain crisis has also highlighted the over-reliance of the global economy on specific geographies for producing certain products. For instance, last October, widening power shortages in China disrupted production at numerous factories that produce a variety of materials and goods such as aluminum, chemicals, and smartphones, among others. To paraphrase the famous statement of the Austrian Chancellor Metternich, when China sneezes, the rest of the world catches a cold.

As you can see, the supply chain crisis is caused by numerous overlapping factors that raise doubts concerning the basic tenets of the globalized economy. But what does that mean to us, regular consumers? Well, first of all, we can expect the prices of many products to increase, especially since we’re fast approaching the holiday season.

Last month CNBC published a list of goods that may be running out of stock. The list contains a wide range of products: from food, carbonated beverages, dry ice, and packaged foods to Apple iPhones, electronics, toys, and Christmas decorations. While many reports on the supply chain disruption focus on the situation in the United States, United Kingdom, and China, Poland is not immune to the crisis either. For example, the global component shortage and delayed delivery of various materials are the culprits behind the stagflation experienced by the Polish industry sector. Moreover, the supply chain logjam, along with fluctuating oil prices and the scarcity of raw materials, is responsible for about 2.5% of the record inflation that has been recently ravaging our wallets.

While the connection between the supply chain crisis and increasing prices as well as shortages of certain goods is quite straightforward, it’s more complicated when it comes to cybersecurity. As pointed out by Shital Thekdi, an associate professor of analytics and operations at the University of Richmond, when we talk about supply chains and cybersecurity, we usually don’t mean physical items being shipped but rather the information systems that feed the supply chains databases.

Businesses operate in an increasingly digital world which makes them more vulnerable to cyberattacks. It’s worth noting that supply chain attacks are particularly attractive to hackers due to their scalability. A good example of the “one-target, multiple-victims” scenario is an attack on US software firm Kaseya in July 2021 that affected almost 500 supermarkets in Sweden alone. The hackers, who claimed responsibility for the breach, demanded $70 million to recover the affected businesses’ data. Since supply chain cyberattacks coupled with ransomware constitute a lucrative business model to hackers, the European Agency for Cybersecurity estimates that supply chain attacks are now expected to quadruple in 2021 in comparison with the previous year.

 

WHAT CAN WE LEARN FROM THE CRISIS?

While it seems that the supply chain crisis is here to stay, there are several important lessons that we can learn from it. First, the crisis exposed the over-reliance of the global economy on specific geographies for producing a wide range of goods that are indispensable in our daily lives, such as, for example, pharmaceuticals and medical equipment.

Second, it allows us to reflect on the sheer volume of goods that we produce and consume annually and the potential effect it has on the environment. Third, it raises important questions about potential risks associated with globalization and globalized economy.

Finally, it highlights the supply chains’ vulnerability to cyberattacks and draws our attention to solutions that could potentially minimize that risk.

Our NaviRisk team is ready to assist you with implementing cybersecurity and other risk management solutions into your daily business operations.

Michalina Grzelka, NaviRisk

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