Market Conditions Continue to Test European Distributors’ Supply Chain Resilience
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As distributors around the globe continue to work through the impacts of the pandemic, supply chain disruptions and labor shortages, they’re also leveraging new opportunities and planning for the future. In Europe, the Russia-Ukraine crisis, ongoing geopolitical issues and news like the resignation of UK Prime Minister Boris Johnson are all impacting the broader economy and many distribution operations.
“The Russia-Ukraine war is having an outsized impact on the global supply chain, impeding the flow of goods, fueling dramatic cost increases and product shortages, and creating catastrophic food shortages around the world,” MIT’s Sloan School of Management reports. “The upheaval to the supply and demand of goods is exacerbating the already untenable human toll of the conflict, which shows no signs of abating.”
Rewinding the clock back a few years, MIT says significant supply chain disruptions started bubbling up during the heat of the trade wars in 2018 and 2019 and were pushed into new territory over the course of the COVID-19 pandemic, continuing to this day. Simultaneously, disruption to the flow of electronics, raw materials and parts supplies emanating out of China and other locales has seriously impeded global trade positions, forcing companies to recalibrate and in some cases, wholly reconsider their long-standing supply chain and partner ecosystems.
“Supply chain managers need to think carefully about opportunities and risk when looking for new sources while considering how to coordinate the change from one source or mode to another,” Joachim Arts, a CTL research affiliate and associate professor at the Luxembourg Center for Logistics and Supply Chain Management, told MIT. “If it isn’t coordinated carefully, it could lead to all kinds of bullwhip effects throughout global supply chains.”
Leveraging Technology
On a global basis, distributors are increasingly turning to technology to help them navigate the current supply chain complexities and serve their customers. This trend isn’t as prominent among European distributors, according to a recent McKinsey & Co. survey. It says around 25% fewer distributors in Europe expect to increase investments in ecommerce technologies compared with those in the U.S., and despite the fact that “European B2B customers are excited about the faster, cheaper, and more seamless buying experiences that digital players can offer.”
McKinsey also found that 95% of B2B buyers are willing to make purchases without interacting with salespeople, yet another reason for distributors to shore up their technology infrastructures and work toward a more digitalized future. To get there, the global consultancy tells distributors to build unique ecosystems that address customer pain points, develop supply chains that keep pace with digital leaders and focus on “tomorrow’s essentials and sales interactions.”
“Nearly every distributor will need up-to-date digital tools, including advanced analytics and the cloud,” McKinsey advises, “to personalize the customer experience and align with new ‘hybrid’ ways of doing business.”
Where Things Stand
In assessing the current state of supply in European markets, IHS Markit says some sectors and countries are more vulnerable than others to materials shortages, labor constraints and surging prices right now. Sectors with long global value chains and a high dependency on energy and the supply of metals, for example, may face the strongest headwinds. Among other key trends that IHS Markit is tracking:
- The Russian war with Ukraine will likely aggravate the labor shortage and supply chain disruption leading to further price increases at a time when the EU is already facing record high shortages of materials and labor and soaring producer prices.
- IHS Markit’s supply side constraint vulnerability index finds that Hungary, Denmark, Finland, Ireland and Germany are the most vulnerable countries to supply side constraints. It says countries in South Europe and Romania are less affected.
- Energy-dependent sectors especially in oil refining and power generation, transport services, basic metals and chemical industries will be affected as Europe uses Russia as input provider.
- Production in the automotive sector; various machinery and equipment—sectors which also have one of the longest global value chains (GVCs); semiconductors; and construction will be affected by metal supply.
“Delivery times and input price growth eased, but material and labor shortages are at the historical highs in the EU in industry, construction and services,” IHS Markit reports, noting that 50% of industrial companies in the EU are facing material and equipment shortages that are forcing them to limit production.
Right now, the most impacted industries include motor vehicles, trailers and semi-trailers; electrical equipment; machinery and equipment; and computer, electronic and optical products as a majority of companies operating in those sectors are facing high shortages.
Supply Chain Resilience Wanes
According to Achilles’ Supply Chain Resilience Index (ASCRI) for the second quarter, commodity price pressures, supply shortages and logistical challenges exacerbated by Russia’s invasion of Ukraine have all led it to placing supply chain resilience in its most “at-risk category” for the second quarter of 2022.
Overall, this means that the ASCRI for supply chain resilience is in the riskiest classification, with more uncertainty potentially looming in the future. “In short, having only just moved past the challenges that COVID brought,” Achilles reports, “supply chains are once again looking extremely fragile, perhaps the most so since the start of the century.”
