Obsolescence Putting Resilient Supply Chains to the Test in the Middle East War

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The Middle East war is having a serious impact on international companies. The challenges for supply chains are immense. A wake-up call for Europe.

The Middle East war is putting the resilience of industrial supply chains to the test. Following the coronavirus pandemic, many industrial companies have switched to local sourcing in order to reduce their dependence on overseas suppliers. During Trump's customs chaos, many of these companies have already benefited from this reorientation. But the Middle East war is the acid test of how successful the regionalization of supply structures has actually been.

Practically all relevant sea routes between Asia and Europe are currently blocked: the Strait of Hormuz, the Persian Gulf, the Gulf of Oman, the Red Sea including Bab al-Mandab as the only southern access to the Suez Canal and the Suez Canal itself. The detour via the Cape of Good Hope involves a transit time of ten days to two weeks longer. Freight rates are expected to increase by 30 to 60 percent—including air freight traffic, which has also been severely affected. In addition to higher costs and significant delays, congestion at the ports is a huge problem. There is supply chain chaos, which will lead to production stoppages and higher end consumer prices for many products.

Wake-Up Call for Europe

For European politicians, the Middle East war should be a wake-up call to reduce intercontinental energy dependency. Just as Starlink's role in the Ukraine war was a wake-up call for the European satellite and space industry, the current conflagration in the Middle East should be a wake-up call for European energy supply and industrial production. In addition to the expansion of renewable energies, a return to nuclear power should not be ruled out, especially in Germany.

Local sourcing is the recommendation for the industry, as relying on suppliers locally or at least on one's own continent not only increases resilience to geopolitical disruptions, but also reduces costs. Local sourcing is also good for the environment.

However, for many SMEs, which are often deeply rooted in global niche markets, establishing new supplier relationships and possibly even relocating their own production facilities can be a lengthy and expensive process. Nevertheless, the re-regionalization of supply chains is the best strategic way to gain greater independence from geopolitical uncertainties.

Digital Twin As the Basis for Fact-Based Decisions

The second important lesson from Corona, which has unfortunately proven to be true in view of the current war in the Middle East, is the establishment of a digital twin. This is a digital 1:1 simulation of production and the supply chain. A digital twin can be used at any time to simulate the specific effects of current crises, from tariffs to wars, on a company's own supply situation and production. This provides company management with reliable data as a basis for fact-based decisions within a very short space of time.

The current developments in the Middle East show once again that resilience in supply chains is not just a nice-to-have, but an absolute necessity. German industry is faced with the task of continuing to utilize the advantages of its global network while at the same time reducing strategic dependencies. (mk)

* Jane Enny van Lambalgen is CEO of the consulting and management company Planet Industrial Excellence.

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