Businesses today can no longer ignore events across the globe, even when on the other side of the planet. That’s because today’s supply chain means sourcing and procuring from suppliers offering less risk and lower costs, and those suppliers aren’t always close by.
Reducing risk is key to any supply chain, but in a market with fewer borders, risk mitigation is complicated.
“From sourcing new materials to manufacture, packaging and then distribution into the marketplace, effective procurement and supply chain management can make or break a business, influencing not just the bottom line but also the image of a company and its brand,” stated Chartered Institute of Procurement & Supply (CIPS) General Manager Sam Achampong in a recent article for the United Arab Emirates’ The National.
Mitigating the risk of a supplier is now key to corporates’ bottom lines as executives look for ways to ensure goods are delivered and cash flow remains steady.
Achampong introduced the latest CIPS Risk Index, a report by Dun & Bradstreet that assesses national and regional factors impacting global supply chains. Its most recent report, released for Q3 2015, takes a look at which regions of the world are posing greater risk than they had before when doing business cross-border.
Overall, global risk declined compared to the quarter prior, but it’s not all good news. While political turmoil and economic struggles are natural causes for heightened risk in B2B trade, some factors may surprise a supply chain and its players.
Separate research published last August pointed to the Asia-Pacific region as the world’s weak link in the supply chain. A survey conducted by AT Kearney found that corporations in APAC are less strategic in their procurement practices, viewing procurement as less of an influence on overall corporate spend than companies in other regions of the world.
The CIPS Risk Index found an uptick in risk conducted with APAC businesses compared to Q2 2015.
Unsurprisingly, China imposes a significant impact on the region, and with the nation’s more stringent import requirements and weakened economic outlook, a catalyst begins to unfurl in the region — weaker demand from China means weakened trade across the area, analysts said. This impact has proven especially harsh in the Australia and New Zealand markets, the report added.
Middle East And North Africa
The MENA market similarly saw an increase in its risk score given by the CIPS Risk Index. While its risk score hasn’t hit its all-time high (seen in Q4 2013), analysts said that the region’s risk factor remains “elevated by historical standards.”
Security concerns were the main cause for risk score elevation across several nations, the report said. Political unrest and terrorism across MENA are obvious causes for concern.
However, researchers said, Iran can be key to overall improvement for this market. The nation’s recent nuclear negotiations with other governments could mean lifted sanctions, which would “open up the world’s 28th-largest economy — the largest opening since the fall of the Berlin Wall in 1989,” the report said. “The move will significantly improve supply chain risk in the region, as well as curtail oil prices to the medium term, as Iran’s hydrocarbon sector is revamped.”
Indeed, only days ago, the nation’s sanctions were largely lifted by the United Nations, and already that move has led to greater cross-border B2B trade. Airbus reportedly inked a deal last weekend to sell 114 Boeing aircraft to the country. U.S. sanctions on Iran remain in place, however, according to reports.
A mix of issues led to analysts at CIPS increasing Latin America’s risk score. According to the report, natural disasters, political tension, slowing economies and depressed export commodity prices combine for a riskier market, with no immediate sign of improvement, researchers said. Chile, Brazil, Costa Rica and Uruguay each saw their own downgrades.
But the improved diplomatic relations between Cuba and the U.S. meant one noticeable exception in this market, a political move that “paves the way for a significant surge in foreign investment and travel,” the report said.
“We believe this will lead to the unlocking of huge output potential and the establishment of new supply chains for the country and region,” analysts added.
Two Sides To Every Coin
According to Dr. John Glen, a CIPS economist and Cranfield School of Management senior economics lecturer, these degradations in risk scores for many parts of the world uncover the unpleasant side of a global market.
“For a long time, we have taken for granted our interconnected world, enjoying its benefits for the most part,” he said in a statement for the report. “We are currently seeing the flipside of the coin. Supply chain managers will need their wits and skills about them if these uncertain times are to be navigated expertly.”
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Dun & Bradstreet Global Leader and Leading Economist Andrew Williamson, however, sees room for optimism.
“Much of the bad news has overshadowed the more promising news emanating from Europe and, in particular, the highly weighted trading countries of Spain, France and the Netherlands in our index,” he explained. “Although there is much to be gloomy about, consensus estimates for next year are still pointing to a respectable acceleration in overall economic activity for the global economy.”