We offer 3 potential supply chain strategies for navigating the global energy crisis.
In the post-COVID world, economies around the globe have faced unprecedented concerns. This is especially true for the global energy economy, which is vulnerable to fluctuations in international politics and events. The majority of global economies face deepening energy crises, many of which are exacerbated by issues in the electronic components supply chain.
Look no further than the events in China last fall: a perfect storm of interconnected factors led to a multi-month crisis. As temperatures dropped, oil and gas prices reached all-time highs. This led to emergency power rationing, exposing both homes and factories to sub-zero temperatures. This fall, we face a new energy crisis stemming from the war in Ukraine, affecting communities across the ocean who are feeling the impact.
The effects of international conflict
The current turmoil in the global energy system is a consequence of Russia’s invasion of Ukraine last February. As Russia is the world’s largest oil and natural gas exporter, prices are soaring. Governments are struggling to adapt to the new costs for everything from heating homes to powering industry. This increases the pressure from other emerging global issues, such as Europe’s summer heat wave. Had the global energy economy been stable, we would have avoided the aftermath of this change in weather.
Shortage mitigation
With this windfall of volatile events, it is paramount that we invest in shortage mitigation. Although the global energy crisis impacts every organization, there are choice responses to limit negative results. This can take a multitude of forms: from shifting sourcing strategies, keeping up with global trade policies, and bolstering data management.
3 potential supply chain strategies for navigating the energy crises
1. Global sourcing
One of the best ways to mitigate shortages is to broaden sourcing as much as possible. Although global procurement is often associated with a decrease in quality, the opposite is actually true; an increase of sourcing also allows for an increase in quality. Additionally, global sourcing allows you to protect your organization from supply chain risks. In short, this method allows you to reduce costs, improve your organizational capacity, and raise the quality of your products, increasing your resiliency through strategy diversification.
2. Russian risk-assessment
An especially critical supply management strategy, given global political instability, is active risk-assessment with any Russian foreign trade. While the United States does not have a full trade embargo in place, regulations and policies exist to protect global and domestic trade. That’s why it’s important to keep up with federal departments, such as the U.S. State Department’s International Traffic in Arms Regulations (ITAR) and the U.S. Commerce Department’s Export Administration Regulations (EAR).
These departments list the currently prohibited exports and imports as well as provide guidance for global commerce to help organizations stay informed. For example: as of June 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) changed regulations to require a new license for any products that could be seized by Russia. By staying informed on these policies, you can reduce any negative impact in both the short and long term.
3. Master data Management
One final method to mitigate the instability of the global supply chain is through master data management (MDM). A strategy defined by Gartner, MDM is a way of organizing data to streamline consistency, accountability, and stewardship across any enterprise’s shared master data assets. This allows for maximum flexibility across different organizations. For example, one organization could employ MDM to improve customer satisfaction through data-driven insights, while another uses it to help on the supply side to create purchasing negotiation leverage.
As we’ve learned through the supply chain crisis, organizations must pursue innovative shortage mitigation strategies to adapt. During this time of particular instability, multiple events — in this case, those related to energy raw materials and production — can rock an already volatile global economy and your supply chain with it. Preparation is key, as always, so we’re following the energy crisis closely and helping our clients keep their lines running, regardless of what is happening around the globe.
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