Supply Chain Management must learn to deal with the increased global risk factor

Supply Chain Risk ManagementThe Quarter One Global Risk Index 2015 compiled by the Chartered Institute of Procurement and Supply (CIPS) warns of a minefield of risks to supply chain management and managers that could lead to significant supply chain disruptions in the near future.

The Quarter One Risk Index recorded that global risk is being heightened by falling commodity prices which are impacting on government revenues in Eastern Europe, Latin America and Sub-Saharan Africa.

Only North America and Western Europe seem stable

Based on this data which was collected from 132 countries, the index concluded that there is a slight reduction in supply chain risk globally, which is partly driven by hardening financial stability for those manufacturers and producers located in the more advanced economies of North America and Western Europe.

The same cannot be said for the rest of the world.

Global risk index rates

However, according to the Risk Index, risk has reached record highs in other countries around the world, creating challenges for global supply chain management. Here’s what the statistics gathered within the report show:

  • An increase from 2.38 to 2.4 for Sub-Saharan Africa
  • An increase from 6.66 to 6.76 for Eastern Europe
  • An increase from 6.66 to 6.76 for Central Asia
  • An increase from 5.73 to 5.85 for Latin America

In Argentina and Chile, producers are suffering from low copper and soya bean prices, and the planet’s second biggest producer of hydroelectric power, Brazil, was struggling against the odds to provide consistent power supplies during the difficulties of the ongoing drought.

Bad debts and cheap labour affecting the Asia-Pacific region

Meanwhile in the Asia-Pacific region, risk to supply chain management reduced from 25.8 to 25.73. However, the CIPS warned that there is a serious risk of Chinese manufacturing and heavy metal industrial sectors being unable to fully repay their state-backed loans. The situation is being further exacerbated by a noticeable shift in manufacturing to Indonesia, where cheap Labour is more abundant.

Both Japan and Europe are dealing with the risk of deflation, which may lead to a lack of business investment. On the other hand, with the U.K.’s inflation rate sticking stubbornly at zero over the past two consecutive months, it could be that suppliers there will be in for a prolonged bout of cost-cutting.

The potential global threat of the Islamic state

In Middle Eastern and North African (MENA) countries, risk to supply chain management fell from 7.29 to 7.25. Despite this fall the CIPS Risk Index remains fragile because of the rise of the Islamic State (IS) in Syria and Iran. It is feared that if IS terrorists decide to return to their homes in the MENA nations, those countries could find their governments becoming more unstable, creating potential significant disruptions for supply chain management to have to deal with.

Nowhere to turn to

According to John Glenn, a CIPS economist and senior economic lecturer at the Cranfield School of Management, the global economy depends on the professionalism of supply chain management to keep products moving freely around the globe. Glenn states that there are no longer any “safe havens” that international supply chains and businesses can rely on. At this point in time there is uncertainty as to where they could turn if needs must.

Supply chain management must be on the alert

There are no simple solutions, which mean that supply chain management must stay on the alert on behalf of their employers, wherever it is that their supply chains lead them. The only recourse for exponents of supply chain management is to develop close working relationships and acquire an in-depth knowledge of their suppliers in order to help them to steer their way through what is being seen as a rather uncertain and potentially challenging period.

Emerging new markets being stifled

The Risk Index concluded by showing that most of the current global risk, originates in the economic activity in the United States during Quarter 1. It was not as robust as had been hoped for. A recurrence of jitters in the Eurozone, and the increased geopolitical risk in many countries around the world, means that the majority of the major emerging markets are stuttering and struggling to achieve growth and stability. Supply chain management is going to have its work cut out for it in the coming months and years.


 

Does your supply chain need rebuilding in view of global geopolitical stability. What “safe-havens” have you built in? Have your say at the feedback section below.

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