Firms are sourcing more from high-risk countries © AFP/Getty Images
Firms are sourcing more from high-risk countries © AFP/Getty Images

Factories see biggest rise in supply chain risk

3 December 2019

Manufacturing has experienced the most significant increases in supply chain risk of any sector, according to Dun and Bradstreet (D&B).

D&B’s quarterly Global Supply Chain Risk Report, produced with Cranfield University, measures the level of perceived supply chain risk faced by European companies with international supplier relationships using four key metrics – supplier criticality, supplier financial risk, global sourcing risk, and foreign exchange risk.

In the report for the third quarter of 2019, supplier criticality was up in the manufacturing sector by 6.7%, financial risk up 2.1%, global sourcing risk up 10.6% and foreign exchange risk up 4.6%.

These results show more companies are sourcing from high-risk countries, while being more dependent on suppliers, said D&B.

In turn these suppliers are likely to exhibit higher financial risk and a greater probability of going insolvent.

Averaged across all sectors, the results showed the biggest changes in the areas of supplier criticality and global sourcing risk, which saw increases of 2% and 4.8% respectively.

In the retail sector supplier criticality and global sourcing risk has risen by 5.4% and 2.7% respectively. Supplier criticality in retail is already the highest of all seven sectors at 89%, showing a sustained perception of high dependence on suppliers.

Meanwhile the increase in global sourcing risk indicates an increase in sourcing from high-risk countries, which are often low-cost economies and therefore attractive to retail in its drive to reduce purchasing costs.

The infrastructure sector, including companies in transportation, communications, electricity, gas, and sanitary services, saw increases in supplier criticality of 6.7% and continues to have the third-highest supplier criticality score of the seven sectors, at 76%.

However, the wholesale sector is showing a positive change with a significant 7.4% reduction in financial risk during the last quarter – one in which other risk metrics have remained stable.

“This indicates that suppliers are becoming more financial stable, possibly due to a more cautious approach to procurement,” said the report.

It said the services sector had seen a reduction in all four risk metrics during the third quarter, most notably a reduction of 11.6% in global sourcing risk and 3-4% in other metrics.

The figures suggest a more cautious approach to purchasing and, in particular, a reduced tendency to source from suppliers in high-risk countries.

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