Strategic Supply Chain Risk Management in Finland’s Forestry Industry in Response to the Russia-Ukraine War

Abstract

Supply chain management (SCM) refers to the actions used to manage the supply chain from inside the company. It focuses on how materials move through the global supply chain to support efficient production. Both, supply chain management and global supply chain management (GSC), aim to improve the efficiency of global supply chain.

Future consequences of an activity that leads to uncertainty creates a risk. Risks are something that can lead away from optimal path and ideal results. Geopolitical risk refers to potential threat that can disrupt the normal harmony of international relations. Geopolitical risks are caused by events such as terrorism, political tensions and wars. This thesis examines how the Russia-Ukraine war has affected Finnish forestry companies and how efficient supply chain management can help to mitigate the effects of the risk. The companies selected for observation are UPM and Metsä Group.

The Russia-Ukraine war increased energy prices significantly since Russia is one of the largest energy producers in the world. High energy prices increased pulp prices and production costs for UPM and Metsä Group. Due to sanctions imposed on Russia, UPM and Metsä Group had to shift their wood procurement to alternative sources, shut down mills, and reduce production in order to match the current market situation.

This thesis analyses pulp and energy prices during the years of 2021 to 2024. This shows how the geopolitical risk affected production costs and if there is a correlation between energy and pulp price in comparison to the war starting. It was found that in 2021 before the Russia-Ukraine war started, both energy and pulp prices were lower. In 2022 both prices increased and pulp price was especially high in October 2022. A positive correlation was found between energy and pulp prices especially in 2021 and 2022, indicating that the war affected these prices causing production costs to increase significantly and disrupting supply chains.

The problems arising from geopolitical risk can be mitigated through efficient supply chain management. This can be achieved by successful supplier selection, reducing production temporarily to match the markets, and procuring raw materials from multiple sources.