Record risk highs
Global supply chain risk climbed to 80.8 in the second quarter of 2016, which is amongst the highest levels since records began in 1995, according to the CIPS Risk Index, powered by Dun & Bradstreet
Global supply chain risk climbed to 80.8 in the second quarter of 2016, which is amongst the highest levels since records began in 1995, according to the CIPS Risk Index, powered by Dun & Bradstreet. This continued the worsening trend in global risk, which has been following this trajectory since Q4 2015. Amid sluggish growth across developed and emerging market economies in Q2, the UK’s vote to leave the EU at the end of June marked an unprecedented event that is expected to have a reverberating effect on supply chains in the region, and also across the rest of the world.
The Index, produced for the Chartered Institute of Procurement & Supply (CIPS) by Dun & Bradstreet economists, tracks the impact of economic and political developments on the stability of global supply chains. The UK’s risk rating was downgraded by Dun & Bradstreet from DB2a to DB2c, as a result of the leave vote. Immediately after the result, a dramatic fall in the Pound Sterling led to soaring costs for businesses that relied on importing, prompting many to reconsider their sourcing strategies. In addition, early evidence of a drop in consumer spending and business investments in the weeks following the EU referendum result increased the risk of the UK economy falling into contraction in the third and fourth quarters.
John Glen, CIPS Economist and Director of the centre for Customised Executive Development at The Cranfield School of Management said: “The UK’s departure from the EU could lead to some of the most dramatic shifts and severe implications for global supply chains in the coming years. While the full impact of the leave vote is still unfolding, the confusion and uncertainty surrounding the current situation has already driven supply chain risk to a worryingly high level.
“In these volatile times, businesses must develop bespoke contingency plans for possible scenarios. This must start with gaining clear visibility of the supply chain in order to accurately assess emerging risks. The next step would be to ensure supply chains are agile and flexible to adapt and react quickly to changes and disruptions.
“While there is a lot of uncertainty, we need to avoid talking ourselves into a recession. This requires business leaders and politicians to develop a narrative, which outlines actions that can be taken to meet the economic challenges that the UK faces as a result of Brexit. At the moment Governor Mark Carney and the Bank of England are lone voices in trying to provide this narrative and they require broader support.”