How to Manage Ukraine’s Effect on Your Supply Chains

As tensions along the Russian and Ukrainian border continue, concerns about severe interruptions to globally integrated supply chains are rising. Koray Köse, Senior Director Analyst, and Sam New, Senior Principal Analyst, both with the Gartner Supply Chain practice, weigh in on the most pressing questions around the geopolitical conflict in Ukraine and its effect on global supply chains.

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The situation in Ukraine is unstable and could escalate any day. How will this affect supply chains?

Right now, it is hard to predict how the situation is going to develop. Possibilities range from an extreme scenario — a military conflict that would have disastrous effects on supply chains — to severe economic sanctions that would create volatility, and impact production capacity and critical logistics routes. Even a stalemate positioning would drive further unpredictability into supply chains, especially in key industries such as high-tech electronics, semiconductors, energy, rare earth minerals and other key materials.

If any of those things happen, what are the key issues supply chain leaders will have to deal with?

We see six supply chain issues organizations will face if escalations continue over Ukraine:

• Key material shortages

• Material cost increases

• Production capacity impacts

• Demand volatility

• Logistics route and capacity constraints

• Cybersecurity breaches

We expect severe shortages of hydrocarbon, critical minerals, metals and energy. Prices for those items will likely spike, thanks to both the shortages and behaviors such as irrational buying and protectionism. This will, in turn, impact manufacturing operations up- and downstream as much as raw material mining.

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Additionally, important logistics routes such as the Black Sea route and rail and roads east to west and vice versa will be impacted and result in delays and disruption. Spillover to Chinese ports and other key transportation nodes is also expected. Supply chain leaders need to evaluate vulnerabilities based on different scenarios now, so they can start to create redundancies and alternatives. 

What role do cyberattacks play?

Critical strategic supply chains and infrastructures are prime targets, especially high-tech- and aerospace/defense-related industries, but also energy and agriculture. As of February 15th, we have seen the largest ever cyberattacks on Ukrainian key infrastructures, and those will spill over globally as this situation continues to unfold. Attacks on organizations in critical infrastructure sectors have increased dramatically, from less than 10 in 2013 to almost 400 in 2020 — a 3,900% change. Supply chain leaders in high-risk industries should brace for an increased number of attacks and prepare accordingly, for example, by creating incident response plans focusing on detect, protect and recover. Security incidents are a matter of “when,” not “if.”

How can supply chain leaders determine if they are or will be affected by the situation in Ukraine?

Visibility into all tiers of the supply chain is key to evaluate potential risk exposure, and determine vulnerabilities and the best response strategy — most urgently among tier-1 suppliers. Our 2021 risk and resilience research shows that only about 53% of companies have tier-1 visibility above 90%. Additionally, the implications of the conflict in Ukraine can span much further than direct supply chain ties into the region, so it is critical to get n-tier (all-tier) visibility as soon as possible. 

Is there any way to shield supply chains from future geopolitical conflict?

The short answer is no, but it’s always a good idea to look at your organization's risk appetite, posture and risk management capabilities. Resilience drivers, like diversifying sources and routes where possible, and preparing risk response plans for the most fragile supply chains are critical. In the long-term, supply chain leaders must increase resilience by balancing investments in dedicated teams, processes and technologies that will enable their organizations to implement end-to-end risk management. This includes tactics like deploying strategic redundancies that not only drive competitiveness, but also secure critical value networks and supply ecosystems.