Geo-political Supply Chain Risk – An Extract From Our New Paper

In the fifth (and last) in our series of short papers about supply chain risks, and written in conjunction with risk solution platform providers riskmethods, we look at what we define as geo-political supply chain risk. It's called Geo-political Risk – An Informed Global View Is Essential.

Those risks range through major world events such as wars between states and revolutions, terrorism and political unrest, as well as apparently less dramatic issues such as protectionism and tariffs. All of these though can have a major effect on businesses and therefore their customers.

The nature of these risks means that they are impossible to predict. That does not however mean that procurement and supply chain professionals shouldn’t be considering them, looking at where such risks might lie, and working out what to do if something does happen. Here is an extract from our paper looking at some of those issues.

Suggested Actions and Mitigation Strategies

As in the case of other risk types, no buying organisation can “avoid” this risk entirely. But to some extent organisations can choose how much risk of this type they want to accept. A deliberate strategy could be to avoid outsourcing work to, or sourcing goods or services from, countries that are defined as having high levels of instability in political terms. That requires constant review; until recently, both Turkey and Poland would have looked like very safe countries for a German or British buyer. Now, the outlook may not be quite as secure.

As usual, these risks demand effective contingency plans to manage or mitigate those risks that cannot be fully avoided. Having alternative sources of supply where risks are evident is an obvious step that can be taken. But while these risks probably cannot be avoided, there are actions that can increase the probability of identifying problems before they crystalise. Being aware of what is happening globally in political terms, understanding trends, economic and social developments - this knowledge is not easy to come by, but those organisations that can develop this approach will be able to manage risk events better. Obtaining relevant information, risk alerts and data is vital to put the risk picture into the best possible perspective.

In common with many risk types, the other important set of actions relates to the response to actual risk events. Knowing what is going on before your competition can enable the buyer to put alternatives in place – different transport options, building stock levels, or securing alternative sources of supply – before others can do so. In the case of the most severe events, very urgent action is often essential to avoid the potential consequences.

The World Economic Forum’s (WEF’s) Global Risks report 2015 highlights how the growing interconnectedness of the global economy increases supply chain risk. With international conflict topping the list of concerns, the report suggests the economic effects of any geopolitical conflict could disrupt the availability of goods or energy. “Twenty-five years after the fall of the Berlin Wall, the world again faces the risk of major conflict between states,” said WEF lead economist Margareta Drzeniek-Hanouz. (Strategic Risk website)

You can download our paper here, free on registration.

 

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