How KPMG can help: Supply Chain
The economic sanctions imposed on Russia in response to the government's decision to invade Ukraine are having immediate impacts across global supply chains. Trade in commodities and industrial inputs that originate in Russia and Ukraine—everything from wheat and oil to nickel and palladium—has been disrupted and prices have soared. Transportation costs are spiking, too.
In this brief paper, we look at the short-term and long-term implications for supply-chain operations and also how the crisis could accelerate long-term trends in supply-chain management that have been building since the COVID-19 pandemic began.
Supply chain snarls and rising prices
The war is exerting widespread pressures on global trade. Manufacturing giants such as Boeing and Ford are suspending operations in Russia.1 Hundreds of ships laden with wheat and corn have been stranded at Ukrainian ports, as the war restricts shipping in the Black Sea, leading to food shortages and inflation around the world.2 In turn, these price hikes directly impact a company’s raw material costs in select markets and transportation spend in nearly every market. The impact is felt across industries, from food and beverage, to high tech.
Commodity | Raw material | Magnitude of impact on pricing |
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Grains |
Wheat, corn | Russia and Ukraine together account for more than 30 percent of the global wheat market.3 Global wheat prices have jumped more than 55 percent since the week before the invasion.4
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Metals / Non-metals |
Nickel, neon | Russia is the third-largest producer of nickel, with 10 percent of the market, which is used in lithium-ion and electric vehicle batteries.
Ukraine provides 70 percent of the world’s neon, much of which supports the U.S. microchip industry.5
Futures prices for precious metals such as gold and silver surged after the invasion.
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Energy |
Oil, natural gas | Russia is the third-largest oil producer in the world; global oil prices have risen to more than $100 a barrel since the invasion. Average U.S. gasoline prices at the pump reached their highest levels since 2008.
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While companies may have already undertaken initiatives to drive sourcing efficiencies over the past two years, the following are specific actions that can be taken now to help offset the rising supply costs.
Short-term actions
- Reduce the volume of raw material procured by using advanced algorithms and manufacturing equipment data to optimize production yield from sourced material.
- Use contract negotiation levers like shorter payment terms in exchange for tempered commodity pricing or volume discounts to help incentivize suppliers.
- Anticipate material disruption with better visibility of market signals and evaluate options with scenario models to target sources of supply that may require higher “just-in-case” inventory.
Long-term strategies
- If the material is strategic and unique to a core product, explore the economics of a potential merger or joint venture with a more localized source of supply to de-risk globalization.
- Develop alternate commodity strategy for products that comprise material deemed vulnerable due to single-source nature or globalization risk.