Retailers are considering other supplier locations in low cost, higher risk countries
The ongoing uncertainty around Brexit is pushing many manufacturers and retailers to consider other supplier locations in low cost, higher risk countries to avoid possible trade barriers, according to a new report.
The ‘Global Supply Chain Risk Report,’ produced by Cranfield University and Dun & Bradstreet, found marked increases in Supplier Criticality (up 2%) and Global Sourcing Risk (up 4.8%) in the third quarter of 2019.
The Supplier Criticality score represents the proportion of buyer-supplier relationships where the supplier is considered critical or key by the buyer company. This indicates a company’s perceived degree of dependency on its suppliers. This currently stands at 44.6%, a 2% increase from its score at the end of the second quarter.
It was highest in the retail sector (89%) and increased by 5.4% during third quarter, meaning companies consider the vast majority of their buyer-supplier relationships to be with suppliers that are critical or key, indicating significant supplier dependency and exposure to risk.
Meanwhile, the Global Sourcing Risk indicator stands at 7%, having increased from 6.7% since the second quarter, representing an increase of 4.8%.
Global Sourcing Risk represents the percentage of buyer-supplier relationships where the supplier is in a country with a ‘Country Risk’ higher than or equal to 4, as assessed by Dun & Bradstreet.
Manufacturing and retail both have values above 8%, indicating that a higher proportion of their suppliers are in high-risk countries, and therefore they are potentially more exposed than the other sectors to the multitude of risks posed – and to fluctuations in the global marketplace. Further, both sectors have experienced an increase in Global Sourcing Risk over the last quarter, with manufacturing seeing the largest (10.6%). This indicates an increasing propensity to source from low-cost, high-risk countries.
Dr Heather Skipworth, associate professor in Logistics, Procurement and Supply Chain Management at Cranfield University, says that lack of clarity over possible trade tariffs and other non-tariff barriers is leading to companies seeking out alternative countries to source from.
“The manufacturing sector in Europe is facing the ongoing uncertainty around Brexit, encouraging many businesses to take more risks with the location of suppliers to avoid the possible trade tariffs and other non-tariff barriers such as quotas, embargoes, sanctions, and levies. This is likely to increase their perceived criticality of, and dependency on, suppliers, as choices become more constrained.
“China is no longer as attractive as a source of low-cost manufacturing due to rising wages and companies are increasingly looking at alternative, higher risk countries such as India, Bangladesh, Vietnam and Romania.”
Chris Laws, head of UK Product & Strategy at Dun & Bradstreet, adds: “2019 has been a challenging year and Q3 analysis shows the manufacturing sector continues to have the highest level of global sourcing risk. The good news is that businesses can take steps to alleviate such risks. Having full visibility of supply chain relationships and working with a more diverse range of suppliers across multiple locations can help to identify and mitigate reputational and operational risk.”
Click here to view the full report.