Risks to Global Supply Chain at Record Levels

The Chartered Institute of Purchasing and Supply has released their latest rankings for the safety and security of the global supply chain and the picture is not pretty.

In 1994, the risk reading was a manageable 23.7, but today the risk reading is 79.8. The problem is that many companies are sourcing from a much wider collection of countries than before and there are now sourcing decisions that are three and four tiers down. The country one is sourcing from may be stable enough, but the companies in that country are sourcing from other nations that are not nearly as reliable.

For example, the disruption in Ukraine is cascading through much of Europe and far beyond the energy sector. It seems that many European manufacturers have been buying parts from Ukraine and, now, these shipments have halted since it is all but impossible to do business in Ukraine and Russia right now.

The Institute also warns that natural disasters are far more dangerous to businesses than in the past due to the delicate nature of the supply chain. A storm or earthquake in one area can cut off supply of some commodity or manufactured good for the whole world. The trend in recent years has been to consolidate control over supply and reap the rewards of that efficiency. The diversification strategy seemed to fall into disrepute because it was harder to manage and control. Now, the thinking is that diversity is making a comeback because it protects against supply chain interruptions that can shut down whole operations.

- Chris Kuehl, PhD, Armada Corporate Intelligence

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