Ignore Country Risk At Your Own Supply Chain Peril: Insight/Intelligence Courtesy of D&B (Part 1)

- July 13, 2011 12:07 PM
Categories: Spend Management |

For the past few years, the focal point of supply risk analysis has seemingly entirely aligned around considering the financial and operational viability of specific suppliers (often the most strategic suppliers to an organization). As such, the content we rely on, our specific analyses and our action plans to manage and mitigate particular risk have nearly all focused on appending third party, vendor-specific risk information and our own operational data (e.g., quality information, on-time performance) to a supplier record. But in looking for the individual sick trees in the woods, so to speak, we’ve lost sight of the broader supply risk forest, as the disruptions that resulted from the earthquake and tsunami in Japan taught us.

I recently talked to D&B’s Jim Lawton, who runs their supplier management business unit, and Satminder Ramewal, who runs country risk for D&B, about the rising interest in monitoring country-specific risk data that goes beyond looking at individual suppliers. In a two-part post looking at what I learned in the conversation, I’ll share both specific strategies for considering country risk (as well as the rationale behind prioritizing this particular supply chain risk element) and some current country risk hot spots in the world today.

In our discussion, Jim and Satminder told me that the number one item they’re being asked about these days is country risk and how can companies understand “more than just about the supplier” in terms of supply chain risk. The current preferred approaches to staying on top of country risk like reading global economic and foreign affairs publications are falling short of company needs, they suggest. However, here at Spend Matters and MetalMiner, we’re avid Stratfor readers, and we can’t imagine examining geopolitical risk without a number of core publications as a foundation including The Economist, The Financial Times and, when we have the time, Foreign Affairs (alas, this one often slips through the cracks).

Yet broad-based (and periodic) unstructured information sources like this alone aren’t enough for monitoring, forecasting and mitigating risk in the global supply chain. Specific and forward-looking country intelligence can be of significant benefit when it can be integrated directly into sourcing and supplier management activities. Just as supplier financial risk indicators can help “buy lead-time,” as Jim says in the event of a potential risk event, so can country indicators as well if they’re provided with enough forward visibility to take action. For example, with enough lead-time, a company might opt to lock-in additional capacity in stable regions, shifting spend from less stable ones. Or, they might opt to contract in local currencies versus the euro or dollar. The key to factoring in country risk to these types of decisions, however, is making sure they’re a central part of broader sourcing and supply chain analysis.

I asked Jim and Satminder what they thought were the biggest issues today that D&B customers were interested in gaining insight into. They suggested that the entire Euro-zone economic situation is of particular concern given the default risk of Greece, Portgual and potentially even other countries. The subsequent impact of a default on trade, lead-times, inflation, commodity prices, and individual supplier stability in regional markets are all key points of consideration. Other areas of interest include monitoring rates of business failure in different markets (versus just forward-looking country assessments), global commodity prices including the impact of rising food prices on certain markets (China is an ideal example here, given rampant food inflation, much of which Spend Matters knows goes unreported by the Chinese government) and the debt levels of Western countries including the US, UK and Canada.

D&B suggests that companies that are out in front of where they are today in country risk are focused on these general macro topics as well as diving into specific countries they do business in today (or will do business in tomorrow). Staying in front now only allows organizations to put policies in place to take action when risk indicators present themselves, and also to anticipate probable hot spots before competitive supply chains can react.

Stay tuned as we examine some of the highlights from D&B’s latest research in the area, focused on the specific countries, regions and issues that procurement organizations should be paying attention to today.

Jason Busch

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