A year after the onset of the global supply chain shocks triggered by COVID-19, supply chains are back in the spotlight thanks to two recent and significant events. One of these was planned, formal, decisive, and well intentioned; the other was random, accidental and potentially disastrous for global commerce. One took place in Washington, D.C., and was prompted, at least partly, by a global shortage of semiconductors. The other event occurred thousands of miles away, in Egypt, and was precipitated by a sandstorm.
The Executive Order on America’s Supply Chains
The first event occurred on February 24, when President Joe Biden signed the Executive Order on America’s Supply Chains. This document orders the heads of various government agencies to conduct a 100-day review of global supply chains, assessing the supply chain risks related to key products and commodities including high-capacity batteries, semiconductors, strategic minerals, and pharmaceutical ingredients.
The executive order also calls for “Sectoral Supply Chain Assessments” in the defense, public health, transportation, energy, information/communications technology, and agriculture sectors. These assessments must consider supply chain resilience in these sectors, looking at manufacturing capacity and potential points of failure. They must also include policy recommendations for prioritizing critical goods and materials and ensuring a resilient supply chain for the sector. Agency heads are expected to meet with industry leaders for dialogue and feedback that may shape future legislative or regulatory action.
The Suez Canal Container Ship Crisis
The second event was on March 23, when high winds and low visibility caused a massive container ship named the Ever Given to become lodged sideways across the Suez Canal. Initial estimates were that it would take weeks to free the ship, and more than 400 shipping vessels were prevented from passing through the canal while the ship was stuck.
The global media immediately launched into panicky speculation on the impacts for the global economy; Lloyd’s List reported that the blockage was disrupting $9 billion worth of goods every passing day. As just one example, Ikea announced that 200 containers of its products were stuck on a ship in the canal. The Ever Given itself was fully laden with nearly 20,000 shipping containers of consumer goods bound for European markets.
Thankfully for the crews of all those stranded vessels, the Ever Given was freed within a week, but the ripple effects on global supply chains will continue to be felt for a significant period of time. The world’s largest container shipping company, Maersk, said that the disruptions that have already occurred could take weeks or months to untangle.
(Read Dun & Bradstreet’s impact statement on the Suez Canal blockage, prepared in partnership with our supply chain technology affiliate E2open.)
Even a temporary closure of a major shipping channel like the Suez Canal is problematic for global supply chains. Container ships — of which there are nearly 6,000 in the world — can’t just be picked up and moved to and from places where demand is accelerating or the economy is slowing. Supply congestion — particularly in Europe, which receives a large percentage of imports via the Suez Canal — is likely to result in delays in filling orders, stock shortages, and declines in companies’ market share as customers turn to other sources for products they need. And the disruption extends far beyond container shipping; the traffic jam in the canal delayed scores of vessels carrying oil, gasoline, and natural gas. Meanwhile, demand for air freight surged and is expected to remain strong for at least a month or more.
A Clear Message for Business Leaders: Supply Chain Flexibility Is Critical
Back in the United States, industry leaders who were considering the implications of the president’s supply chain executive order were also presumably following the Suez Canal crisis. That event should have sent those leaders a strong message — if one was needed — that paying attention to supply chain agility and resilience isn’t a temporary, “COVID” priority. Supply networks are global networks, as the Biden administration has realized, and the risk of disruption to those networks is ongoing. Today the Suez Canal gets blocked; tomorrow could bring a different emergency. One thing’s certain: tomorrow always comes.
The imperative to keep supply networks intact and viable is now coming from the top down. For better or worse, a light bulb has been switched on at the national level; this isn’t just about having enough semiconductors to make mobile phones and video game consoles. Supply chain health is now seen as tightly linked to overarching American industrial competitiveness. The current administration wants to ensure that America will be able to hold its own relative to other nations in sectors including health care, agriculture, and transportation.
The other important goal of the executive order has to do with the recognition of supply chains as essential to national security. The Departments of Defense and Homeland Security are two of the agencies tasked with “Sectoral Supply Chain Assessments” as well as the initial, shorter-term supply chain reviews. The federal government wants to maintain access to cutting-edge technologies while reducing America’s dependence on supply networks that could be disrupted or obstructed by foreign powers.
Best Practices for Building Resilient Supply Chains
With the executive order in one hand, and the lesson of the Suez Canal crisis in the other, business leaders would do well to pursue a better understanding — leading to better management — of their supply chains. Here are some best practices to consider for both the near and longer term.
- Develop a risk-based assessment process to identify specific risks that could impact the productivity of your supply chain. Create a plan that supports a flexible and agile network, regardless of circumstances and unexpected events.
- Conduct an assessment that maps out your suppliers, and their suppliers. The goal is to gain visibility of your tier 1 and 2 suppliers and to know their locations, which provides a better grasp of region-specific risks that could impact supply availability.
- Continuously monitor your supply chain. Make sure that you are monitoring the risks associated with both your tier 1 and tier 2 suppliers to ensure your company has a complete view of the supply chain.
- Identify alternative suppliers for urgently needed goods in higher-risk regions. Determine how long it would take to onboard them and how quickly they could deliver to your location. Will it be faster than waiting for shipments from your original supplier, depending on the type of disruptive event that might occur?
- Invest in data and analytics. Today’s supply chain leaders are challenged by disparate systems, distributed teams and suppliers, and a higher volume and velocity of data than ever before. Making technology investments today allows companies to better manage supply chain risk — giving them greater transparency into their entire supplier network, including goods in motion and downstream impacts on delays — while also serving up the data and insight needed to make informed decisions, particularly during unexpected events.
Dun & Bradstreet can help supply management teams acquire the data and analytical capabilities to fortify their supply chains and sustain their businesses in the face of disruptive events. Learn more.