Both UK Economic and Global Geo-Political Risks Grow

We don’t often talk about supply chain risk two days running but there are good reasons to do that today.

We mentioned our new paper yesterday which looks at issues around reputational risk and regulatory compliance in the supply chain. Some of the topics here are relatively recent additions to the long list of risks we need to consider; handling conflict minerals for example.  But this week’s news was full of what we might call more “traditional” risks that procurement professionals need to consider.

In the UK, the economic storm-clouds seem to be brewing somewhat. We’re not guaranteed a storm as yet, but the sensible person will at least be packing their metaphorical umbrella. The CIPS Markit indicators still showed growth in manufacturing last month, but that growth has slowed and the economy is “losing momentum”. (Some reports made the figures sound like actual contraction, but it is not, just slower growth.)

Another indicator is the level of savings across the UK population, which hit a record low – the lowest level for 50 years. This indicates that consumer spending is being maintained by people not saving or even drawing on savings or debt to fund current expenditure. Pressure on the consumer is coming from the recent increase in inflation, which has not been matched by salary increases. So it seems inevitable that consumer spending is going to moderate, which will have that knock-on effect on the wider economy. Firms will no doubt be looking at stock levels, production schedules and supplier orders as no-one wants to be caught with surplus stock if the downturn comes.

The more “mega-risk” comes from the latest test by North Korea of a long range missile that could probably reach the US mainland. President Trump made aggressive comments on Twitter earlier this year, saying that a North Korean test of an intercontinental missile capable of reaching the United States “won’t happen!” But, as this excellent New York Times article points out, he may not have known how close the North Koreans were to having that capability, and he may not have realised how limited his options are if he really wants to make sure that goal is not reached.

As the article points out, a “conventional” war on or around the Korean peninsula is a horrific prospect, and it is still far from likely. But the probability of such conflict must have gone up a little in recent weeks, and even if it is still unlikely, businesses should be at least thinking about the consequences for supply chains (and indeed for other aspects of the business) if the unthinkable does come to pass.

As we’ve said before, the first step is to understand critical supply chains – ideally, not just at the first tier. (Hence our paper, Supply Chain Risk – Getting To Grips With n-Tier Visibility which you can still download here).  Too many firms still don’t know even where many first-tier suppliers are based or where the goods, components or raw materials they need really come from.  That’s why the riskmethods platform (and other clever tools and technology from various providers) that help firms monitor supply chain events, risk and news are becoming more popular.

Understanding the supply base is not enough of course; finding out quickly when events do impact suppliers is the next key stage. Businesses then need to have actions already considered and planned in order to respond effectively to the risk event. But that basic understanding is a good start, so if you aren’t sure where exactly your key suppliers are based in East Asia, then maybe you should find out now.

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