| Disruption of systemically important supply chains: Major disruption or collapse of a systemically important global supply chain or industry with an impact on the global economy, financial markets or society, leading to an abrupt shock in the demand and supply of systemically important goods and services on a global scale. Includes, but is not limited to: energy; technological hardware; medical supplies; and fast-moving consumer goods. The question in this article is what risks these disruptions to systemically important supply chains pose. To this end, I look at this phenomenon from the STEEPLD viewpoints. (Social, Technical, Economic, Environment, Political, Legal, Demographic) | In this contribution, I express my own opinion, not that of any organization. The 2024 Global Risk Report – WEF provides these definitions |
Definitions:
- Global supply chain:
It is the global network of suppliers, manufacturers, warehouses, distribution centers and retailers involved in the production and distribution of a product from raw material extraction to delivery to the end user.
This definition includes some key features:
- It has a global reach.
- Complexity of interconnected businesses and processes within the system.
- End-to-end process: it involves all steps from raw material to finished product.
- Information, goods and money flows: not only physical products but also information and financial resources can be transported through them.
- Coordination: coordination between lots of parties to address relevant types of risks and achieve results efficiently and effectively.
- System
A system is an organized set of interrelated and interacting elements that together form a unit with some purpose or function.
What STEEPLD ‘says’ about “Disruptions to systemically important supply chains”
As supply chains become more intertwined across sectors, associated risks will also become more intertwined. This is more evident here in the “STEEPLD” approach.
Social:
Because companies usually depend on a supply chain, if this is disrupted, it will dampen or stop production. This creates technical unemployment, or leads to layoffs. Because of interdependencies, this can affect other sectors that depend on those companies where layoffs occur. This is a so-called domino effect.
Some social groups, the weak, will be hit harder than others. This reinforces existing inequalities. Also, this may shrink the middle class because of the effects of the disruption of a supply chain. This leads to industrial action as social tensions and, if prolonged, political instability.
Severe, prolonged disruption of supply chains can thus lead to more people below the poverty line. This can happen because shortages and associated rising commodity costs cause prices of food, fuel and construction materials to continue to rise. This provides pressure on social safety nets through increased demand for support. Also, consumer behavior and living standards will be altered.
On the health front, disruptions are causing increasing public health problems.
If tensions come down to survival levels, some individualistic people will see crime as more of a realistic option. This is e.g. linked to malnutrition. Also, political positions among countries will polarize further which will put pressure on supply chains.
A number of people will choose to migrate to countries with better economic conditions. The immigration of labor in receiving countries benefits the supply chain locally.
Educational opportunities at all levels, may decrease due to reduced deliveries if the situation continues to increase in severity. Those who did receive higher education may cause brain drain through migration.
Engineering, Environment and Energy:
Energy
Power outages and energy rationing cause frequent blackouts and shutdowns.
Some areas or sectors (e.g., hospitals) may need or be prioritized to prevent further economic, social and technical problems. After all, some BUs cannot suddenly be safely switched off.
As a result, part-time unemployment can occur in energy-intensive industries. (See, e.g., in Africa)
Transportation and mobility
Disruption to public transportation will also be possible. Trains, subways and electric buses will need priority of energy supply if necessary. Personal mobility will also be affected.
Delivery to stores can be a problem, hindering trade. This leads to shortages in stores.
Heat sources and air quality
Impact on home heating, cooling and air quality is not inconceivable. People without passive housing may struggle to heat their homes.
Food preparation can become a problem. This also due to problems with water supply.
Communication, education and isolation:
Internet and telecom may be down, resulting in isolation and limited access to information.
News coverage can be hampered by energy shortages for radio stations and television stations.
Schools may experience food shortages due to disrupted food supplies.
Environmental impact:
People are seeking alternative energy sources, resulting in deforestation.
Economic-technical:
Corporate risk aversion due to economic uncertainty leads to less investment in innovation. This works against economic growth.
Economic-Political
Persistent disruptions to systemically important supply chains can cause economic problems such as increased inflation and undermine confidence in governments and financial institutions. This could mean that people will invest more cautiously in stock markets, and keep their money in savings accounts for longer. Also, this causes further polarization in their political positions. This could lead to more difficulties for political policies.
These risks may stretch over a long period of time. Supply chain recovery will not provide a quick solution to the socioeconomic-political linked problems.
Economic
Economically, the disruption of a systemically important-supply chain can trigger multiple risks, such as: credit risks, labor risks, mergers, geographic concentrations, emergence of “super-suppliers”...
Politics (in countries with weakened policies)
Due to psychological and political tensions caused by shortages, protests and demonstrations are possible in response to scarcity or price increases of essential goods. Looting is an option. Vandalism and violence increase. Declining trust in the government occurs, resulting in a cry of a failed state, with people seeking scapegoats, also resulting in xenophobia and discrimination.
Changes in societal values shift the focus of certain groups to basic needs and safety. There is more focus on preppers as an ideal image.
Social services come under pressure, and social tensions can collapse police and other emergency services, including health facilities, in countries with weak policies.
The black market for scarce goods will increase.
Extremist groups can gain sympathy and recruit new supporters in politically unstable countries. Along with this, they gain attention for their views.
Disinformation will be able to be used by all parties.
Citizens in action?
Conversely, citizens can organize to help each other. This can create new (or old?) forms of social caring in society.
Healthcare
For example, patients may miss essential medications. For acute care, shortages of anesthesia drugs and antibiotics may occur. Also, a shortage of medical equipment may occur. Further, in addition to capacity problems, care may have to be delayed due to depletion of or shortage of healthcare personnel.
Because of this situation, more cases of anxiety and depression and social isolation occur. This can lead to alcohol and drug abuse, as well as more suicide attempts.
Certain diseases, will have an effect on political, economic and social structures.
Politics under pressure:
Governments are under intense pressure to respond quickly and effectively. Increasingly, crisis management techniques are being used.
Errors in policy and its implementation lead to loss of confidence in government. This can lead to the fall of governments or early elections.
What will almost certainly happen is a hardening of positions and polarization (see above) to attract voters. Much use will be made of populism: simple-eyed solutions dazzle the simple-minded citizens. Fragmentation in politics makes governance for the most important issues of the population more difficult.
When families are affected, politicians may use protectionism. In extreme cases, nationalization of strategic industries occurs. This may also lead to a greater focus on local or regional production.
International tensions occur in the form of trade conflicts, geopolitical rivalries and through weakening of international institutions.
Policy priorities to be pushed through cause a reorientation of budgets that were earmarked for crisis management. There may be a shift to more authoritarian measures of security versus freedom.
A pressing problem is the short span of government in democracies, which may limit the political solutions-time horizon with respect to the nature of the crisis, which will require long-term thinking and approach.
Demographic implications:
- There will be an increase in mortality, especially among the vulnerable. This may be caused by shortages of food, medicine and energy.
- Due to economic uncertainty, declining birth rates are to be expected in the developed world.
Life expectancy may decline as a result of this interplay of factors.
Conclusion
Prolonged disruptions of systemically important supply chains would, due to international dependencies, be pernicious for all peoples of the earth. The weak would have to fold back into old family social networks of “us knows us, us helps us”. The strong might think they have to defend themselves against crime and might seek support from each other. Polarization and political fragmentation would occur and political institutions would lose credibility and control. Governments with long governmental time horizons would have an advantage over short-cycle democracies. Long-term chronic crisis management would be needed after an acute phase.
In other words, the EU’s preparations to develop resilience are the right decision. This strategy does not apply only to the EU or NATO.