The dilemma of anticipating shortages in an age of ‘permacrisis’

Welcome to supply chain planning 2023: Lights, camera, action!

⏱️ 3-min read

In the Collins English Dictionary ‘words of the year’ list 2022, ‘permacrisis’ is at the top. Defined as: “an extended period of instability and insecurity, esp. one resulting from a series of catastrophic events”, it is an ugly reminder that accurately encapsulates today’s world as 2023 dawns.

The invasion of Ukraine has led to the biggest war in Europe since 1945 and the most serious risk of nuclear escalation since the cold war. High inflation in many parts of the world, fuelled by soaring food and energy cost is posing the biggest macroeconomic challenge in the modern era of central banking. Fundamental pillars of the post WW2 world order, especially in Europe – inviolable borders, restraint in threats with nuclear arsenal, controlled inflation, and plentiful energy supplies – assumptions that have held for decades, have all been simultaneously shaken.

The combination of three shock dimensions has made this crisis profound. Dimension one is geopolitical and has roots in the rift on two fronts: the challenging of the post WW2 world order by President Putin and the increasing divergence between USA and China. The resolve with which Europe and USA have responded to the Ukraine invasion has indeed widened the gap between ‘the West’ and the rest of the world.

The second dimension is the commodity shock as a result of the Russian invasion into Ukraine. The resulting sharpest energy price increase since the 1970’s has led to a warp-speed reshaping of the global energy system. This is further compounded by Ukraine’s importance as an exporter of agricultural commodities, leaving many supply lines at peril with shortages looming.

The loss of macroeconomic stability marks the third dimension of this crisis. Demand fuelled by stimulus packages met with post-pandemic supply chain constraints, resulting in accelerating consumer prices. This dramatically worsened with spiking energy prices. Even the most drastic and broadest interest rate increases undertaken in the last 40 years by central banks, have not yet secured price stability. Inflation remains high, still uncomfortably close to double-digit numbers in many countries.

 

What to expect in 2023?

Fundamentally it will all depend on how these three dimensions, geopolitics, energy and commodity prices, and macroeconomic stability will evolve and affect each other. In the short term, the situation looks rather grim. Many areas in the world will be facing a recession in 2023. Economic difficulties in turn could exacerbate geopolitical risks. This is particularly prevalent in Europe. So far European governments have protected consumers with massive subsidies and price caps from the worst of the energy-price shock. The biggest geopolitical risk is Russia, unable to succeed on the battlefield it might try harder to exploit energy supply and cost vulnerabilities as many European economies are already on the edge of recession.

World GDP and trade changes over the last yearsOverall macroeconomic stability remains the other major challenge in 2023. Global GDP growth is predicted to slow to 1.6% in 2023 from 2.8% in 2022. However global inflation will likely remain high at 6%. This will maintain pressure on further interest rate increases to curb inflation. The higher interest rates needed to dampen inflation will further sap consumer spending and impact increasing unemployment.

China in contrast will likely maintain a loose monetary regime with low-interest rates, seeking to stimulate GDP growth and boost trade. Nonetheless, China is entering 2023 enfeebled by policy mistakes (Covid-19) and a festering property crisis. As we have seen during the Covid-pandemic in 2021 a stuttering China will impact worldwide supply chains.

At the start of 2023, the US maintains a fundamentally stronger economic position in comparison to China and Europe. Although curbing inflation remains in focus and a mild recession is on the horizon, being a big energy producer, the country has benefited from the soaring energy prices globally.

 

Is there room for optimism?

There is some good news amidst today’s turmoil. Some countries and industries will prosper even in these difficult times. Resource-rich countries in general will continue to benefit from high commodity and energy prices. Concurrently the energy shock will accelerate the shift to renewables further. The IEA – International Energy Agency – is calling it “a turning point in the history of energy” that will quicken the clean-energy transition.

Simultaneously, the present situation will also advocate greater realism about the continuing role of fossil fuels. In particular, the role of natural gas as a bridge fuel in the energy transition is under scrutiny. Long-standing hypocrisies need to be confronted on a multilateral political level. Every crisis spawns new possibilities and the result, if tackled diligently, could be a global energy system that is more secure, greener, and diverse.

 

Turning chaos into opportunities: Are you ready for the challenge?

As highlighted above, a multitude of disturbances could impact your supply chain in 2023. Building a more robust supply chain environment seems to be a true panacea. Therein lies the question of “How to build a more resilient supply chain for your business in 2023?”.

Corporations on their part should embrace opportunities that will present themselves even in these difficult times. Transitioning from a reactive post-pandemic modus operandi to a proactive outlook-adjusted approach is the way forward.

As industries are rebalancing their supply chains in 2023, the art will be not to overreact when any of the above shock dimensions impact your business. Remember the long-term view, keeping strategic goals and fundamental trends in mind when making decisions. With proven expertise in navigating the challenges of global supply chain management, EyeOn advocates two ways of embracing the volatilities in 2023; Material allocation optimization as well as using a flexible resource pool, among other solutions. Sales and Operations Execution (S&OE) capabilities will support you in optimizing resource planning through the establishment of a dependable planning and execution framework. In addition, getting external support such as interim demand planning with skilled, experienced professionals and process outsourcing are robust methods of mitigating risk.

Technology that prioritizes data and enhances visibility can greatly help in managing and optimizing supply chains from end-to-end. Furthermore, the right technologies will enable you to make better informed decisions, faster and with much more confidence.

Alexander Wenk, supply chain consultant at EyeOn

In short, we anticipate a year with ongoing changes and disruptions that will keep supply chains on the volatile side. However, supply chain leaders should not take this as an excuse to remain reactive. Instead, now is the best time to turn threats into opportunities.

At EyeOn we help you navigate these challenges and support you in taking decisive actions to ensure your supply chain will thrive beyond this ‘permacrisis’. Feel free to get in touch with our expert Alexander Wenk!

Remember to keep an eye on this page where we will address further supply chain challenges you will be facing this year.

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