Economic recovery papers over growing risks from Eastern Europe and Asia: CIPS Risk Index

Encouragement can be drawn from a reduction in supply chain risk in Q1 2014 following improved economic prospects in Germany, USA and the UK.

May 07, 2014 9:11 IST | India Infoline News Service
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. 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.”

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