Everybody has a plan ‘till they get punched in the face”
(American former professional boxer Mike Tyson)
Mike Tyson’s statement – originally intended for the boxing ring – can be applied to supply chain ecosystems. Supply chains are used for the production, distribution, and delivery of items. Supply chain management seeks opportunities to improve the value creation of activities required to transport products, store inventory, and satisfy customer demand. Efficient supply chains enable products to be available and accessible. Recent conflicts in the Middle East have certainly demonstrated the challenges created when transportation availability is curtailed.
In my opinion, we are witnessing a world in which the vacillating volume of supply chain shocks and shifts are now occurring at an increasing rate. The pace and amplitude of change may be unprecedented. Whether emerging through military conflicts, natural disasters, or pandemic upheavals, it seems that supply chains – or the perceived impediments within them – bear the brunt of consumer dissatisfaction and shipper frustration. The resulting economic disruptions nurture chaos and confusion in financial markets.
War in the Middle East has precipitated commercial casualties. The Strait of Hormuz, a strategic waterway between the Gulf of Oman and the Persian Gulf, has become a pinch-point instead of a through-way. Commotion in supply chains and shipping lines originating in this area is precipitating a ripple effect across the world.
As a supply chain academic, I am not surprised by these resulting circumstances. Yes, supply chains are generally resilient. Yes, supply chains are managed by credentialed and capable professionals. And yes, supply chains are governed by the “three A’s” – Agility (responsiveness to demand shifts), Adaptability (ability to respond to new geopolitical environments), and Alignment (generating sustainable and mutually beneficial relationships). But our supply chain systems are becoming acutely connected across the globe. As situations in the world become more volatile, it is understandable that risky events will trigger large-scale global impacts given this prevailing system interconnectedness.
Oil price volatility appears correlated with recent Middle East conflicts. However, one wonders whether oil price impacts may just be the first of many shoes to drop in this global arena. As oil prices rise, consumers pay higher costs for gasoline. These greater prices may extend the inflationary challenges encountered by citizens across the globe. Should high prices be maintained for extended periods of time, then this is likely to impact logistics costs, thereby augmenting the prices consumers pay for groceries and retail goods. Absent a de-escalation in current global conflicts, a vicious cycle is looming.
How do the existing supply chain challenges compare with global developments in earlier time periods?
This is the focus of the Global Supply Chain Pressure Index (GSCPI), a measure created to describe the intensity of supply chain disruptions. Overall, it seeks to integrate data from transportation costs (e.g., Baltic Dry Index) and various manufacturing indicators (e.g., Purchasing Managers’ Index) to offer an assessment of worldwide conditions.
GSCPI results are reported in standard deviations from the index’s historical average. Negative GSCPI numbers would signify that the supply chain ecosystem is experiencing pressures below the historical average. Values of 0 denote that supply chain stress is at long-run average levels. Higher GSCPI values indicate substantial stress in supply chain systems. Latest results for the GSCPI indicate that it rose to 0.49 in February, up from 0.42 in January. Although the barometer of supply chain performance correlates with current notions that the globe is experiencing logistics stress, we do not have to look too far back in the rear-view mirror to identify intervals in which supply chains absorbed considerably more stress. For instance, pandemic pressures catapulted the GSCPI to 4.49 in late 2021, the highest value recorded in the three decades’ worth of data for this index.
This is not meant to diminish the undesirable circumstances currently encountered across the globe. Rather, the intention is to provide a relative assessment to evaluate present challenges versus those supply chain disruptions faced in previous time intervals. Should the Middle East conflicts continue, it will be interesting to follow the monthly GSCPI reports.
So, where do we go from here? How do we enable enhanced resiliency in supply chains, even when encountering volatile global circumstances? Two items come to mind. First, decision-making authorities and governments need to provide improvements in rail, road, and port infrastructure and policy. Although this represents an expensive “long game”, this could trim bottleneck delays. Absent infrastructure investment, our globe is likely to experience further thrusts of supply chain pressures.
A second opportunity – not necessarily novel but far less costly than logistics investment– is to foster improvements in the communication cadence between supply chain participants. Sharing information could increase the awareness of circumstances faced by organizations. Ensuring that the various elements in a supply chain are “talking to each other” may sound like common sense. However, common sense is often not common practice.
Let us end where we began. Was Mike Tyson right after all? Is supply chain planning simply a fruitless endeavor? I do not believe so. Our globe is likely to get continually punched in the mouth by man-made and natural conditions. However, we need proper supply chain investment and communication to mitigate the mayhem, restore resiliency, and ensure product availability. Our world depends on it.
Keith Willoughby is the Dean of the Edwards School of Business and Professor of Management Science at the University of Saskatchewan, and he is a member of the Institute for Operations Research and the Management Sciences (INFORMS).
