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  January 17th, 2024 | Written by

Navigating Supply Chain Challenges: Kearney’s Insights on Red Sea Disruptions

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Balika Sonthalia, Senior Partner and Americas Co-lead in the Operations and Performance practice at Kearney, provides insights into the ongoing disruptions in the Red Sea and their implications for global supply chains. Sonthalia emphasizes the need for companies to reevaluate and localize their supply chains in response to the Red Sea crisis, reinforcing the trend that began during the peak of the pandemic in 2021.

The Red Sea disruption serves as a reminder of the importance of supply chain localization and regionalization. Sonthalia notes ongoing discussions around diversifying and shortening supply chains, emphasizing the need to identify the optimal origin points for efficiency and reduced capital investment.

Examining the potential impact on consumer costs, Sonthalia draws lessons from the pandemic, highlighting the influence of transportation costs on retail pricing. While inbound transportation costs tend to get absorbed at a large volume scale, disruptions, such as the Red Sea crisis, can have consequences for outbound transportation costs, affecting customer pricing.

For the retail sector, Sonthalia suggests that the Red Sea disruption may not pose major near-term implications, particularly in the start of Q1, which is not a heavy import season for retailers. However, longer-term implications may arise, affecting lead times and resulting in cost hikes.

Apparel and manufacturing industries are discussed as sectors to watch, with Sonthalia noting potential impacts on European supply chains and raw material sourcing for manufacturing companies. The chemicals industry, in particular, may face challenges due to widespread supply chain disruptions, affecting production output and customer implications.

Sonthalia concludes by highlighting the ongoing uncertainty surrounding the Red Sea situation and its evolving dynamics, urging companies to monitor the situation and make necessary adjustments to forecasts and supply chain strategies.