It is a known fact that we are in a new ‘world economy’, not through governments but on the level of common businesses. Many small and mid-size companies need a how-to course on interacting with larger businesses. Of course doing business in such a diverse environment is a trial unto itself – a major US economic collapse and or a 100% rise in oil prices.
Does this observation make you realize the role that Geopolitical instability plays on our supply chains? Many companies are acknowledging this and putting it under risk preparedness for their supply chains. However, it is more far reaching than merely our supply chains. It ties into the physical and political requirements of a particular region.
For example we see the supply chain of oil in the Middle East. Please review chart below.
See all the United States flags that are dotted across the region. These are all the Middle East nations where the US has bases. Despite the fact that, per our President, we are trying to move out of the region it remains a powder keg.
Now let’s take a look at the next chart:
This chart gives a clear indication of US oil imports by geopolitical region. Per the chart the US imports almost half of its oil from the Middle East and North Africa. Any instability in these regions will most assuredly affect the oil pipelines and the supply. The question that should be on the tip of everyone’s tongue is – What is the US doing to assuage the risk? I’m sure I don’t know the answer but the point is that an item as important to the world economy as oil can be disrupted at the slightest provocation.
Internally economic or accounting experts from each company must team with their supply chain risk counterparts to explore long term strategies. For example: how will the company handle its risk if all suppliers from one region take such a blow?
Companies must devise a global strategy to withstand regional unrest and ensure continuous of supply chains. Prior to this global economic depression many supply chain strategies were based upon JIT (Just-in-Time). But as credit markets and manufacturing dried up the lack of suppleness in the supply chains became apparent. In addition, mergers and acquisitions are forcing companies to procure raw materials from the same region.
Each region of the world has its own geopolitical challenges tied to global trends. It is the responsibility of the supply chain management to learn about the geopolitical issues in the regions they are operating in
Tension can have an impact on raw material process and the supply chain even if there is not a direct threat. Let’s bear in mind the Iranian situation. While Iran has not closed the Straits of Hormuse, the idea that Iran might and the accompanying fear of oil producers causes spikes in prices and the corresponding spike in demand and supply.
A good deal of geopolitical understanding will go a long way to ensure a complete risk contingency program that will transport product to your markets.