Second CIPS Supply Chain Risk Index (CRI) shows:
- Ebola, sanctions imposed on Russia and wars on two fronts in the Middle East threaten to reverse improving supply chain risks in the forthcoming quarter
- World supply chains are safer than they have been for 18 months as of Q2 2014 after three quarters of declining supply chain risk
- The recovery in German industry promotes stability in the Eurozone and beyond
Global supply chain risk reached an 18 month low in Q2 2014, decreasing for three consecutive quarters for the first time since the 2008 financial crisis, according to the Chartered Institute of Purchasing & Supply’s (CIPS) latest CIPS Risk Index (CRI). Yet with the Ebola outbreak in West Africa, wars in the Middle East and sanctions on Russia amid broader instability in Eastern Europe, there are concerns that world events will conspire to reverse the improvement in supply chain risk in Q3 and undermine the global economic recovery.
The Index, which tracks the effect of economic, political and social factors on the security of global supply chains, has fallen from an all-time high of 82.4 in Q3 2013 to 78.1 in Q2 2014. The fall is in large part due to the German industrial recovery with the country’s exports shoring up supply chains across Europe and beyond.
The UK imported more than £5.6bn worth of goods and services from Germany last year, but its products also play a vital role in France, Ireland, the Netherlands and Italy who together supply a further £8.7bn worth of imports for UK businesses and consumers. There remains plenty of room for improvement in H2, however. Despite a recent 6.8% reduction in the number of bankruptcies in Germany, failed businesses in the country still left more than £6bn worth of unfulfilled orders in their wake in the beginning of 2014. A cost paid not just in Germany but by any company whose supply chains involve German-made products at any stage.
In spite of an increase in risk in Q2 following Ghanaian inflation, Sub-Saharan Africa has seen its supply chain risk stabilise this year, laying the foundation for export led growth in 2014 and beyond. Yet on top of the mounting human cost of the Ebola outbreak in West Africa, Q3 could see the region become isolated from world trade. With the World Health Organisation ruling out a general ban on travel or trade in the near future, the outbreak has not yet led to a major disruption of supply chains but that could change if the virus continues its spread throughout West Africa and beyond.
The same trend continues in the Middle East with success in Kuwaiti infrastructure projects and previous stability in Iraq’s oil-rich Kurdistan region helping to settle supply chain risks in Q2. However, escalation in the Arab-Israeli conflict and the evacuation of workers from Kurdish Iraq over the past couple of weeks threaten to reverse this trend in Q3. Elsewhere, a moderate economic slowdown in China is contributing to stagnation in Russia’s increasingly isolated economy. This isolation is being compounded by the sanctions imposed on Russia by the international community which is in turn having consequences for those economies which rely on Russia’s natural resources.
John Glen, CIPS Economist and Senior Economics Lecturer at The Cranfield School of Management said:
“First and foremost, British industry depends on a reliable supply of goods from around the world and from that perspective businesses are on a firmer footing than they were six months ago.”
“The economic recovery in Europe, which is admittedly slow, coupled with lower bankruptcy levels in Europe, is good news for UK supply chains which are heavily reliant on Europe in general and Germany specifically”
“Nevertheless, global supply chains still face significant risks. The Ebola outbreak in West Africa, combined with, political unrest in the Ukraine, Iraq and Libya, have the potential to create significant risks to global supply chains. These risks must be monitored and managed and where necessary contingency plans must be developed.
Andrew Williamson, Lead Economist, Dun & Bradstreet
“The lacklustre improvement in the global economy continues to highlight the unprecedented times in which supply chain professionals are operating.”
“The advanced economies continue to lead the nascent recovery, but regional markets fractured by uneven performance, operational risk uncertainty and exogenous political impacts have led to a tentative and fragile revival.”
“The unbalanced nature of the global recuperation reinforces the need to proactively monitor events at the country level to ensure that appropriate response planning for potential supply interruption is considered in detail.”
Download the report here.
Notes to Editors
About the CIPS Risk Index:
The CIPS Risk Index is a composite indicator of pressures acting upon supply chains globally. The Index analyses the socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world, weighting each score according to that country’s contribution global exports.
The Index helps sourcing professionals understand the risks to which to their supply chains are exposed, articulate questions and scenarios for key suppliers, inform assurance activities, check the readiness of contingency plans, support the negotiation of risk transfer in contracts, and establish factors which may impact the financial stability of tier one and sub-tier suppliers upstream. Regular production of this Index will help procurement and supply professionals communicate and justify risk-informed sourcing decisions and support effective Supplier Relationship Management.
About the Chartered Institute of Purchasing & Supply:
The Chartered Institute of Purchasing & Supply (CIPS) is the leading international body representing purchasing and supply management professionals. It is the worldwide centre of excellence on purchasing and supply management issues. CIPS has a global community of 115,000 in 150 different countries, including senior business people, high-ranking civil servants and leading academics. The activities of purchasing and supply chain professionals have a major impact on the profitability and efficiency of all types of organisation and CIPS offers corporate solutions packages to improve business profitability. www.cips.org
About Dun & Bradstreet:
Dun & Bradstreet (NYSE:DNB) is the world's leading source of commercial information and insight on businesses, enabling companies to Decide with Confidence® for 172 years. D&B's global commercial database contains more than 235 million business records. The database is enhanced by D&B's proprietary DUNSRight® Quality Process, which provides our customers with quality business information. This quality information is the foundation of our global solutions that customers rely on to make critical business decisions.
D&B provides two solutions sets that meet a diverse set of customer needs globally. Customers use D&B Risk Management Solutions™ to mitigate credit and supplier risk, increase cash flow and drive increased profitability; and D&B Sales & Marketing Solutions™ to provide data management capabilities that provide effective and cost efficient marketing solutions and to convert prospects into clients by enabling business professionals to research companies, executives and industries.
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 ONS trade statistics http://www.ons.gov.uk/ons/rel/uktrade/uk-trade/june-2014/index.html