Supply chain risk has continued to grow since the economic crisis, reaching its highest ever level last year- Russian energy exports continue to undermine the security of international supply chains
- Economic growth in the Western economies helps to stabilise risk in Q1 2014, but risk varies wildly in the developing world
- The index highlights the need for businesses to interrogate their own supply chains and identify the weak links
The Chartered Institute of Purchasing & Supply’s (CIPS) first ever CIPS Risk Index reveals the importance of politically unstable regions such as Eastern Europe and Asia on the daily activities of businesses in the West, plotting the rapid growth of supply chain risk since the end of the financial crisis.
Encouragement can be drawn from a reduction in supply chain risk in Q1 2014 following improved economic prospects in Germany, USA and the UK. Nevertheless, the index also highlights the dominant role of Eastern Europe and the developing world on global supply chains as the UK Energy and Climate Change Secretary, Ed Davey, prepares to tell the G7 to reduce the world’s dependence on Russian energy exports. Indeed Russia has been a strong source of risk for some time, contributing half of Eastern Europe and Central Asia’s supply chain risk in 2014. The Index suggests sanctions on Russia’s energy sector would cost European businesses dearly, but Russian commodities and even financial services play an important role in global supply chains.
The index, which will be updated on a quarterly basis, provides a practical measure of supply chain risks for businesses in the UK and around the world. By tracking changes to the operating environment, the index helps businesses and economies alike to plan against supply side disruptions.
Developed with data insight specialists Dun & Bradstreet, the inaugural index highlights the disparity of risk amongst developing countries often grouped together, such as BRIC (Brazil, Russia, India, China) and MINT (Mexico, Indonesia, Nigeria, Turkey). Thus, whilst China and India have historically stayed at a medium risk level, Russia has consistently posed a high risk to businesses and economies that rely on its exports. Likewise, in MINT, Mexico has posed only a medium risk for the past two decades, whilst Nigeria is a consistently high risk region with Turkey and Indonesia fluctuating widely between the two.
The index highlights the need for a better understanding of supply chain risk management within British businesses. Exposure to the most risky regions of the world may lie three or even four tiers down supply chains and there is a serious skills gap as inadequately trained supply chain professionals try to assess risk in an increasingly globalised world.
One year on from the Rana Plaza factory collapse in Bangladesh, industrial action and civil unrest has continued to destabilise a country which exported $25.1bn of goods and services in 2012.[1] Meanwhile relative stability in the export superpowers of China and the USA has prevented a more rapid increase in supply chain risk and much depends on the economic and political stability of the countries over the next twelve months.
Backdated to 1994, the index reveals how the onset of globalisation, the economic crash of 2008 and subsequent Euro crisis have exposed world supply chains to greater risk than ever before, more than tripling from a risk score of 23.7 in late 1994 to 79.8 today.
David Noble, Group Chief Executive of the Chartered Institute of Purchasing & Supply (CIPS) said:
“The resurgence in the global economy depends very much upon the reliability of global supply chains.
“With political instability across the developing world, it is vital that businesses and economies recognise the risks to their supply chains and make the appropriate provisions before it is too late.
“Supply chains have a critical role to play in both operational profitability and economic stability. The Index provides a close examination of the global risks that need to be on the radar. Global supply chains have scarcely been at greater risk than today. Business leaders must sit up and take notice.”
Lee Glendon, Supply-Chain Risk Specialist, Dun & Bradstreet
“The need for supply chain professionals to proactively monitor the changing operating environment is clearly evident in this inaugural presentation of the CIPS Risk Index. Turmoil in the Ukraine and potential contagion to supply chains in Russia have dominated the headlines recently and for some companies it is only when the event occurs that they look to understand its impact and develop alternative supply options.
“Going forward, the CIPS Risk Index can be used by supply-chain professionals to inform their risk assessment and mitigation strategies in a proactive manner. At the same time, the CIPS Risk-Index also points to the future in terms of opportunity for supply-chain development, and perhaps the changes in Iran are worth considering in greater detail.”
About the CIPS Risk Index:
The CIPS Risk Index is a composite indicator of pressures acting upon supply chains globally. The Index analyses the socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world, weighting each score according to that country’s contribution global exports.
The Index helps sourcing professionals understand the risks to which to their supply chains are exposed, articulate questions and scenarios for key suppliers, inform assurance activities, check the readiness of contingency plans, support the negotiation of risk transfer in contracts, and establish factors which may impact the financial stability of tier one and sub-tier suppliers upstream. Regular production of this Index will help procurement and supply professionals communicate and justify risk-informed sourcing decisions and support effective Supplier Relationship Management.
About the Chartered Institute of Purchasing & Supply:
The Chartered Institute of Purchasing & Supply (CIPS) is the leading international body representing purchasing and supply management professionals. It is the worldwide centre of excellence on purchasing and supply management issues. CIPS has a global membership of almost 100,000 in 150 different countries, including senior business people, high-ranking civil servants and leading academics. The activities of purchasing and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions packages to improve business profitability. www.cips.org
About Dun & Bradstreet:
Dun & Bradstreet (NYSE:DNB) is the world’s leading source of commercial information and insight on businesses, enabling companies to Decide with Confidence® for 172 years. D&B’s global commercial database contains more than 235 million business records. The database is enhanced by D&B’s proprietary DUNSRight® Quality Process, which provides our customers with quality business information. This quality information is the foundation of our global solutions that customers rely on to make critical business decisions.
D&B provides two solutions sets that meet a diverse set of customer needs globally. Customers use D&B Risk Management Solutions™ to mitigate credit and supplier risk, increase cash flow and drive increased profitability; and D&B Sales & Marketing Solutions™ to provide data management capabilities that provide effective and cost efficient marketing solutions and to convert prospects into clients by enabling business professionals to research companies, executives and industries.
For more information, please visit www.dnb.co.uk