A deck of cards usually consists of 52 cards, with two cards depicted on the jokers. If we assume that the current state of the economy is like a pack of cards as its post-pandemic reshuffle and status quo reshuffle, then a broken supply chain and climate change imperatives are like two clowns in the pack . Both issues will force a difficult re-evaluation of the economic structures and processes that the world has adopted over the past three decades.
The allusion to the clowns is not an attempt to be flippant or assertive, but to emphasize the unexpected impact these two factors will have on the overall economic environment by preventing supply, demand and prices from reaching any semblance of equilibrium in a chain. – Closed market. In other words, as the name of this column suggests, inequality is likely to be the new normal.
Take the example of broken supply chains. The pandemic and the Russo-Ukraine war have increased the vulnerability, as well as fragility, of existing supply chains. A number of articles and papers have appeared, including a book by Wall Street Journal author Christopher Mims, Arriving Today, which traces the journey of a humble cellphone charger from manufacturing centers in Asia to consumption centers in the West – which sheds light on this. It lays out how economic trends, management are affected and neglect of risk management has left these supply chains vulnerable.
In the decades before the pandemic, the forces of globalization fueled an extensive transportation network for goods, services, financial flows, and people. This arrangement nurtured a sense of easy availability, with a few keystrokes moving items from one corner of the world to another in real quick time. This encouraged manufacturers to rapidly produce in geographic areas different from consumption centres. Why make it at home if the same thing can be cheaply produced elsewhere and shipped back to consumer markets via the always available transportation network?
This sense of spontaneity and predictability has also led to the notion of a just-in-time inventory system, in which the manufacturing strategy focuses on aligning the supply of raw materials directly with the production schedule. The production centers received raw materials only when required and the production schedule was demanded in specific quantities. nothing more nothing less. This technology, first proven at Toyota’s manufacturing plants, was adopted to reduce waste of time, materials and manufacturing resources (including machine down time). Followers of JIT, who once faced severe disruptions as demand peaked and network lag in supply of key components, are now stocking up on inventory to meet rising demand until Christmas, further straining the fragile transportation network. are.
And it is not just about the movement of goods. Anyone traveling through European airports in the past few months will have experienced the complete collapse of systems designed to handle high passenger flows. Passengers transiting through Amsterdam’s Schiphol have to spend around two hours to clear security, compared to 30-45 minutes earlier. Divine intervention is required to reconnect passengers with their baggage if they are flying to Heathrow; Mountains of bags waiting to be returned have forced this London airport to limit its number of flights. Delta Airlines recently operated a Heathrow-Detroit flight with 1,000 bags and no passengers to help clear the backlog. Lufthansa has canceled 1,000 flights this week, leaving air traffic in Europe out of kilter.
Flying into Europe this summer is inviting chaos. The reasons are clear: Airlines have been slashing workforce for the past few years, particularly ground staff involved in baggage handling, check-in counters and security, among others. These cuts were further deepened during the pandemic. Once the lockdown was eased, these airlines wanted to fly as many as possible but were slow to marshal the resources needed to deal with the capacity increase. The resulting asymmetry is now on display and is not a pretty picture.
The World Economic Forum’s Global Risk Report 2022, predicts continued disruptions: “A disorderly transition could see more frequent and severe supply chain disruptions due to labor and product shortages, especially as sectors and companies switch operating models or simply go out of business.. These disruptions present challenges to the resilience of business models across industries.”
Rapid digitization of global supply chains is another emerging rift given the increasing frequency of disruptive cyber attacks. Recall how last May a ransomware attack on a 5,500-km colonial oil pipeline in the US halted energy supplies for a few days.
These breakdowns in the movement of goods and people around the world have shown another flaw in prevailing management practices: how 24X7 supply chain operations blinded risk management practices to current and future fault-lines in enterprises and institutions. Hopefully leaders will prepare for the worst even when the economy is in shambles. The second clown, climate change, has been routinely overlooked as a risk, despite its foreboding presence for some time now. Climate change is a threat to both established business practices and existing paradigms. The overarching lesson is that to be positive one necessarily needs to be familiar with negative forces.
Rajrishi Singhal is a policy advisor and journalist. His Twitter handle is @rajrishisinghal.
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