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, the US 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.
In fact, 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 will be updated on a quarterly basis, provides a practical measure of supply chain risks for businesses 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).
While 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.
David Noble, group chief executive of CIPS, comments: “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 at Dun & Bradstreet, adds: “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.”