“Europe has not been smart”: IE meets Prof. Marco Taisch

IE speaks to Prof. Marco Taisch about supply chains, the war in Ukraine and how producers can reach the demands of the emerging generation of Sustainability Natives...

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Just as Europe was daring to imagine a return to normality after two years of Covid restrictions and lockdowns, Vladimir Putin surprised everybody and ordered the Russian army to invade Ukraine. While the unquestionably devastating humanitarian implications of the war are understandably the immediate focus of the news, the wider reverberations are likely to be felt for several years to come.

With every disaster, however, comes opportunity and many experts, already trying to fix the flaws in our supply chains that were laid bare by the pandemic, are concerned that Putin’s war is exacerbating an already difficult situation.

IE spoke to Prof. Marco Taisch of Politecnico di Milano (POLIMI), where he teaches Advanced and Sustainable Manufacturing Systems, and Operations Management to get his take on how this will impact Europe, China and beyond.

Read more: Keeping supply chain sustainability simple – getting back to the three Rs

“Supply chains have not been lucky in the last few years. First, they were affected by the pandemic. We all know what happened because we have a global supply chain. When a lockdown was announced in Wuhan Province, the whole world was affected,” says Taisch. “For the last 20 years, we had a purposely designed lean and global supply chain, but now it’s no longer acceptable.”

Hoping that the worst is over in terms of Covid, transport and logistics experts began drawing up plans to redesign supply chains, making them more resilient, more reliable, and crucially, more regional for post-pandemic demands.

What logistics managers had already begun doing, according to Prof. Taisch, was to redraw their supply chains along the lines of three macro-regions: the Americas, Europe, the Middle East, and Africa (EMEA), and Asia-Pacific.

“What is happening in Ukraine and with Russia is showing the need for this more and more. The other thing that the war is showing is that we cannot allow ourselves to have one source of supply anymore, whatever kind of supply we are talking about.”

Read more: Looking beyond the semiconductor shortage

He points out that we, as a society, had gotten used to the cost benefits made possible by supply chains built on lean principles. To keep prices low, sources along the supply chain were often provided from one place. Which, when it worked, it did so superbly, but all it took was one big disruption, like a pandemic, and the whole thing began to buckle.

Russia’s invasion of Ukraine has meant that neither country is able to export in the same way it could before. Even if the war ends soon, sanctions on Russia are likely to last far longer, making the whole nation almost impossible to trade with. If it doesn’t, then this only serves to prove the point even further.

“What we are experiencing now is the fact that even if we go regional with our supply chains, this is still not enough,” says Marco. “We need to create space for redundancy in the supply chain in order to avoid this kind of disruption, on the way to redesigning them.”

The challenges to logistics the war presents do not end there. Reports that thousands of Ukrainian truck drivers working in mainland Europe and the UK are now returning to Ukraine to take up arms against Russia have been just another headache for logistics planners and further demonstrated the need for regionality.

Another interesting factor in all of this, says Prof. Taisch, is one which thus far has remained somewhat unaccounted for, quite probably by its own design - China.

Read more: China's 5-year plan aims for global leadership in robotics

“China is on one hand against the war because they need stability in the global economy. On the other hand, I think they will be well-placed to take advantage of the problems that many Russian companies will have. You know, with the sanctions, the currency is being affected and now Russian companies will suffer. It would be very easy for a country like China, which is in a good position to buy Russian companies, to extend its political and economic influence westwards.”

“Europe has not been smart, not in general. We were not really looking into the long term. If you are too dependent on one country, somehow sooner or later, it means instability.”

He is, however, quick to point out that this may be beginning to change. Last year, the EU finally passed the Chips Act in a push to reduce dependence on imports of semiconductors from East Asia, and Germany has cancelled Nord Stream 2 and taken steps to start weaning itself off Russian gas.

Nonetheless, these are not solutions for the short term and prices continue to rise in the meantime.

“Inflation was already very high in the US in December and January, and the same started to happen in Europe. So, the trend was already there due to supply chain disruptions from the longer-term effects of the COVID pandemic. When the end of lockdown came, not only did we have to fulfil normal demand but also replenish stocks and supply chains all over.

“Prices are not going up necessarily because of a lack of raw materials, but because of the lack of logistics. Shipping containers are becoming the bottleneck for many sectors. So, buying metals for example is not expensive per se, but transporting metals is increasingly expensive. And because Europe is importing, it is suffering from this bottleneck.”

While Prof. Taisch suspects that prices will return to “a kind of normality”, he points out the damage done to the markets on a psychological level. Just as the all-important enthusiasm in markets was starting to return as countries opened up again, the war in Ukraine created further uncertainty, both for consumers and investors. Nonetheless, lessons have been learned on all sides.

“While it was very nice to have global, lean supply chains because that meant very low costs and low prices, I think consumers are learning to have reliability in the delivery of the product, they need to pay a premium price. If you want to be sure to get your product within 24 hours, you need to pay for it. That means reliability, flexibility, and resilience of the supply chain. And that costs. I think consumers are learning that they need to pay for that.”

Read more: Can robotics solve our supply chain headaches?

He also points to the increasing importance of sustainability among consumers, in particular the younger generations.

“Sustainability doesn’t come for free. If you want a green product along green supply chain, you have to pay. It's a compromise, and young people I think are ready to pay more.

“We should think not only about digital natives, but also sustainability natives. Teenager or even kids are very sustainability oriented. And in few months or years, they will be consumers. They will take their own decisions with their own salary, and they will be a very tough customer to serve. A very demanding customer and we need to provide them resiliency and very short-term delivery.

“They want everything the day after. This means back-shoring or near-shoring; bringing factories back to Europe. And with the sustainability natives’ mindset, it also needs to be green and sustainable, which is a huge pressure on, on producers, factories, and the entire supply chain.”

Sustainability, he argues, comes in two ways. The first involves the circular economy of materials, as well as designing new ones. For example, car engines which consume less fuel than they did twenty years ago. However, this will only go some way to achieving that end goal of true sustainability.

Read more: What is the human cost of the green & digital transitions?

This is where the second part comes in – digitalisation.

“Digital technologies are the enabler of sustainability. We cannot have a fully sustainable world without digital tech. And it doesn’t work the other way around. You can have digital transitions with, without ecological transition, but you cannot have the ecological transitions without the digital transition.

“The blue is the enabler for the green.”

Ultimately, Marco Taisch is upbeat, despite the horrors occurring in Ukraine. He points out that whenever there is a disruption, lessons are learned.

“I think we will have a more reliable economy in the future. Both the pandemic and the war have taught us a lot. I really think we will see a huge redesign of the overall global supply chain, and this is what we’ll be working on over the next three to five years.”

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