2022 has been a torrid one for supply chains that were already being heavily disrupted during 2021. The invasion of Ukraine coupled with renewed Covid lockdowns in China sent supply chains reeling, inflation soaring, and pronounced fears of global food shortages.
Research from Accenture suggests that these difficulties could wipe €920 billion from GDP across the Eurozone alone during 2023, which equates to just under 8%.
“Although expert consensus is that Europe will avoid recession this year, the combination of COVID-19 and the war in Ukraine has the potential to significantly impact Europe’s economy, causing a material deceleration in growth,” the researchers explain. “While before the war some kind of supply chain normalization was expected in the second half of 2022, we now don’t expect this to happen before 2023, perhaps not even until 2024, depending on how the war evolves.”
Tough times
The report, which was timed to coincide with the WEF’s annual meeting in Davos, examines three scenarios for how supply chains could be affected by the war during 2023. The report reveals that Covid alone cost the Eurozone around €112 billion due to the supply chain disruptions during 2021 and the invasion of Ukraine has exacerbated the situation.
What’s more, the authors believe that the €318 billion hit could mushroom to €602 billion during 2023, with inflation potentially reaching 8% during 2022. Europe is particularly vulnerable to such disruption because around 30% of the value-added by the region comes from cross-border supply chains.
“The war in Ukraine will have a significant impact, increasing the amount and duration of disruptions. The severity will depend on how the war evolves, but nothing short of reinvention is required, as a new economic order takes shape amid an inflationary environment, increased regionalization, the energy transition, and a tight talent market,” the authors continue. “Improving energy efficiency and speeding up the transition to green energy sources will be critical to achieving security. And the ability to attract, retain, reskill and upskill people is becoming one of the most pressing issues this decade.”
Rethinking supply chains
Accenture highlight that supply chains were typically constructed in order to function for the least cost possible. The world since 2020 has also highlighted the importance of qualities such as agility and resilience, however.
There is also a clear mandate for supply chains to become more sustainable, while also supporting organizations in their attempt to be as responsive to customer demands as possible.
“Visibility across the supply networks, including tier 2 and tier 3 suppliers is critical,” the authors conclude. “Companies must move from a just-in-time to a just-in-case approach, diversifying supply bases, planning alternative freight routes, making distribution centers flexible and building inventory. It comes at a price, but it is an ‘insurance policy’ against future shocks.”
