Current geopolitical scenario - Impact on Indian Supply Chain

A resurgent Indian Supply Chain post Covid-19 has been constrained due to Supply bottlenecks. Be it semiconductor shortage, increased reliance on few suppliers or moderately high input price inflation. The supply constrained Indian Supply Chain may have got itself further constrained with pressures due to the recent geopolitical events. History of such events is not a welcome news in the short to medium term.

While I study the ever evolving scenario from an Indian Supply Chain worldview, I have at-least reached a few areas of my own understanding about the medium term impact of current geopolitical scenario, with outcomes of the events still not known.

a. While the world focuses on supply constraints from Russia, Indian Supply Chains should also focus on supply originating from Ukraine. "Sunflower", e.g., is where Ukraine holds 80% of world supply share. Sunflower oil is a large consumption item for Indians. Input price pressures shall dramatically increase for Indian Supply Chains. The destruction of fields in Ukraine may not lead to normalization in supply for a reasonably long time. There may be similar commodities from Ukraine which may need Indian Supply Chain professionals attention. Supply Market Analysis shall be very useful for Supply focused professionals to rework their Sourcing Strategy.

b. 34% of worlds Wheat supply originates from Russia. I would expect inflation in wheat prices. Indian Supply Chains can probably find ways to neutralize the inflation with Indian wheat production rising over the years. 

c. Oil and Gas is a no brainier. Oil above $90/bbl was always going to be going up, just that now it has found an impetus. Its impact on global logistics cost is likely to be very high which, is on top of elevated logistics cost post Covid-19. The global imbalances in logistics capacities will get exacerbated.

d. Indian rupee may depreciate faster than expectation. This shall put more pressure on import costs. Procurement professionals need to assess the portfolio impact of their purchase items.

e. Fertilizer prices have already started to harden. Indian Supply Chains in that industry know the dependence of India on Russia for Fertilizers.

f. Indian Supply Chains who need Precious Metals shall need re-calibration of their procurement. Precious metal prices, particularly Palladium, will be rising higher. A de-risking mechanism may need to be put in place.

The biggest threat in my opinion is that Europe may have to buy gas and other commodities at a high cost which may lead to a medium term elevated inflation. A sustained inflation in leading economies (we know US has a inflation of 7.5% which is at a 40 year high) may have the potential to push these nations into demand contraction. I suspect if the world has enough ammunition left to financially support a new contraction. Or face a above average inflation. Indian Supply Chains may have an issue with export if the scenario becomes a reality.

Wars are not like a passing by cold, they are equivalent of Pneumonia. The effects & after effects stay longer. Indian Supply Chains should treat the current scenario with that as an equivalent analogy.


Popular posts from this blog

The Five Point 'Profit Protection Plan'

Supply Chain KRI's (Key Risk Indicators) as a lead practice for improving Supply Chain Performance

'My House is Clean' syndrome