The World Catches Up to What I’ve Been Saying for Years
The tragic scenes out of Israel and Gaza have the world mourning for a simpler, peaceful time.
Unfortunately, the conflict is another example of what I have been saying since 2019: Business and logistics now face perpetual disruption.
The Middle East conflict has supply chain leaders worried about medical technology, oil, steel, fertilizer and chemicals, among others.
We hope and pray for an end to the immense human suffering we are saying. But supply chain leadership must deal with the world as it is, not as we wish it was. We must deliver raw materials, goods and services.
Since 2019, I have been saying that disruption is the new normal. And I recently analyzed the situation for supply chain professionals – and anybody else interested in economic growth.
The Hamas-Israeli War: A Case Study in Disruption
The Hamas-Israeli War has added to uncertainty around trade routes and supply chains.
Israel has grown into successful hub for medical technology, according to the medical device and diagnostic industry. However, that sector and others now must deal with potential manufacturing disruptions from destruction. Beyond that, many MedTech staffers are military reservists. They could get called to the front.
Right now, oil prices are up slightly. But, USA Today reports, most analysts do not predict major increases. But what if fighting expands to Iran, Lebanon, Saudi Arabia and other locations. This could affect major shipping lanes like the Strait of Hormuz, Bab-el-Mandeb, and Suez Canal.
That could roil oil markets.
Some of us are old enough to remember the 1973 Arab oil embargo, sparked by the 1973 Yom Kippur War. Oil quadrupled in price. The U.S. imposed fuel rationing and lowered speed limits. Our government even considered seizing Middle Eastern oil fields to deal with that supply chain disruption.
More Chaos for the Global Economy
The Hamas-Israeli War is not an isolated incident. In 2019, the level of VUCA (volatility, uncertainty, complexity, ambiguity) was off the charts.
Back then, I was discussing the digital era, tech innovation, data science and robotics. Coupled with mergers and acquisitions, bankruptcies, tariff and trade wars. The business cycle was in general chaos. Supply chain management needed to look toward optionality – the ability to have multiple sources and solutions.
Since then, things have gotten worse for supply chain leadership:
- COVID-19 pandemic: The pandemic placed unprecedented stresses on supply chains, with bottlenecks in farm labor, processing, transport and logistics. The pandemic triggered a decade’s worth of eCommerce growth in just a few months.
- Russia-Ukraine war: The largest European land conflict since World War II increased prices of commodities. The fighting also strained warehouse space and container availability. And this war has not stopped.
- China’s aggression toward Taiwan: Any potential conflict between China and Taiwan could severely disrupt global supply chains. Trade between the U.S. and China set a record last year, according to The Washington Post. The Wall Street Journal reported that China accounted for 14.4% of global exports in 2022. Let’s hope this war does not start.
- Decoupling from China: Many of my recent insights focused on this issue. European and U.S. businesses must add optionality for manufacturing, raw materials, freight forwarding, supply chain hubs – redesigning your entire global network.
Navigating the Yin and Yang of Deglobalization and Globalization
Yes, as this New York Times pieces notes, the world seems to have fallen into a period of disarray. However, this is not a new world order.
Instead, it’s VUCA from 2019 on steroids. As companies “deglobalize” from China, they “globalize” elsewhere. These opposite but interconnected forces are the yin and yang of international trade for the future.
One source cannot rule your supply chain. Your future supply chains could:
- Source some manufacturing in Africa.
- Send some raw materials from Africa to manufacturers in South America.
- Include operations in the Philippines, Indonesia and Malaysia
- Source some raw materials and manufacturing in the United States, Canada and Europe.
- Include any imaginable combination of regions and hemispheres.
Supply Chain Leadership Must Redesign Global Supply Chains
It’s nice to see that some thinkers recognize that the world is in disarray.
Now, supply chain leaders must proactively redesign their global supply chains. They need to build resilience by diversifying their supplier base and investing in digital supply networks for better visibility and agility. They also need to develop regional sourcing strategies to mitigate risks associated with geopolitical tensions.
This optionality will help your supply chains navigate the maze of globalization and deglobalization. Your resilient supply chains of the future will deliver to customers, no matter the disruption.
I would love to discuss how your company is navigating the yin and yang of globalization and deglobalization.
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.