Iran conflict: the supply chain cultural conundrum

As businesses struggle with surging costs caused by the Iran war,  Dr Derek Watson, Associate Professor in Cultural Management at the University of Sunderland, is sharing his thoughts on how the conflict is disrupting global supply chains, shipping routes and freight markets – and what it could mean for UK businesses and consumers.

“We need only reflect on our individual disposable income purchases from our supermarket shop to fuelling the cars to realise the complexity of today’s global supply chains, worth more than £10.5 trillion. It is the invisible backbone of everything we buy and a process we take for granted. However, one shipment, one mistake can expedite our economies into political risk impacting economies, as evidenced in the current gulf crisis, which raises the legitimate cultural conundrum question, are we over stretching our supply chains.

Trumps ‘US-led Operation Epic Fury’, has entered its sixth week. Iran has responded in controlling a critical global chokepoint in the international Strait of Hormuz waters.

"Despite breaking news of a two-week cease fire to negotiate an Iranian 10-point plan, the future still looks daunting for freight shipping.

As Iran is citing the 1958 UN Law of the Sea, to claim along with Oman sovereignty of the 21 miles Strait of Hormuz shipping lanes and to charge a shipping toll, which would generate an estimated £60 billion per year.

Supply chains are facing increased headwinds such as stranded cargos leading to delivery delays and increased logistical costs, estimated to exceed 30%. The negative domino effect is also impacting manufacturing margins. Businesses are also scanning for viable alternative routes and increasing their lean inventories. Such forced responses further raise the conundrum in the Gulf crisis, a short-term vibration? or a seismic shock necessitating a reset of the cultural supply chain ideology?

A key attribute to any business revisions is the need to appreciate the importance of organisational agility in adapting to recurring and new risks. Hence, the below six steps will enable businesses to plan and mitigate against the anticipated and unknown barriers to the principles of supply chain management:

1. Geopolitics

World affairs continue to be strained and fosters of culture of risk, such as tensions between China - Tiawan. The use of rogue state cybercrime and Trump’s tariffs repeats the cycle of supply chain risk. Hence, businesses need to actively consider the opportunity cost in diversifying into more stable regional markets.

2. Economic Volatility

Unstable economies are attributable to negative geopolitics which, in turn, lead to calls for domestic political change, all contributing to an unstable market. The importance in devising an agile broader portfolio relationship with existing and new clients, will reduce operational risk.

3. Leadership

Leadership needs to recognise the importance of data intelligence in predictive forecasting against volatile market fluctuations. To build in additional tolerance, businesses are also encouraged to negotiate NATNA’s to establish price stability.

4. Technology

Businesses need to rethink their operations to avoid using yesterday’s logic with today’s problems. It is recommended that businesses conduct a financial and skills return on investment audit, to assess their financial health for investment and skill set to embrace such technology transformation. Failure to do will result in a corridor care mentality.

5. Meteorological Conditions

The impacts from droughts to flash flooding can have serious and sustained disruptions to global supply chains. It is, therefore, prudent for supply chains to risk assess their agility, contracted and alternative regional suppliers and supply routes to mitigate against such disruptions.

6. Environmental, Social and Governance

The International Maritime Organisation (IMO) will impose stronger measures to curtail maritime emissions to meet their net zero target by 2050. Businesses are, therefore, urged to prepare for additional emission targets as those carriers with lower emissions will no doubt be the preferred supplier.

There is clear evidence that procurement and supply chain leaders are facing year on year, repeated and a growing number of complex global challenges to their operations, in a highly competitive and unforgiving consumer market. As one of the Founding Fathers of the United States, Benjamin Franklin, allegedly stated, “by failing to prepare, you are preparing to fail”, it mirrors the criticality within the supply chain market that whilst business continuity cannot be a given. To adhere to the points listed above will provide commercially viable solutions to the Supply Chain Cultural Conundrum.”

Dr Derek Watson is available for interview.