Managing global supply chains in uncertain times
These are interesting times for supply chain professionals, many of whom find themselves with one eye on their procurement networks and the other watching the news. Once expected to focus solely on controlling costs, today’s supply chain managers must now maintain compliance and anticipate risks in a global economy.
Over the last few years, geopolitical tensions, domestic politics, and shifting views about globalization have made it seem like change is the only constant. Each of these factors has real consequences for supply chains, and it’s important that chief procurement officers and managers understand the unique risk landscape confronting them as we head towards 2019. Only then can they take steps to mitigate any challenges that could interrupt operations or negatively affect revenue.
First, long-standing tensions between the United States and Iran continue to cause uncertainty in global trade and security. The White House decision to restore sanctions on Iran was widely anticipated, as were the negative effects on the Iranian economy. Capital flight and a plunging currency valuation have made it difficult for Iranian companies to participate in global trade. Uncertainty around whether other signatories to the Iranian nuclear deal will continue to uphold their economic commitments has stifled growth in the country, and sanctions on Iranian oil threaten to raise prices at the pump—especially if additional factors put pressure on crude production.
North Korea is another potential flashpoint that could cause pain for supply chain managers. The United States has ratcheted up economic sanctions in an attempt to bring the North Korean leadership to the negotiating table, but hopeful signs from earlier in the year seem to have resulted in little tangible progress on denuclearization. It’s unclear how much more economic pressure can be brought to bear on the North Korean government, but dramatic options like a blockade would interfere with trade in Asia.
Sanctions are also an issue in regard to Russia. Beginning with the annexation of Crimea and escalating as a result of concerns about election hacking and Russian cyber attacks, these sanctions target institutions and oligarchs closely associated with President Putin. While the U.S. has a relatively minor trading relationship with Russia, sanctions on a Russian aluminum producer caused prices of that material to spike. The effect on supply chains was so pronounced that the U.S. government is considering lifting those sanctions at a time when political considerations make such a move difficult.
Global strife and sanctions aren’t the only threats to supply chains. Leaving behind the most tumultuous relationships, we must also consider the increasingly common reliance on tariffs as a negotiating tool of the United States. Steel tariffs on China, duties on Canadian lumber, and the threat of targeting European automobiles have already weighed on companies’ bottom lines. Furthermore, the Trump administration’s efforts to renegotiate the North American Free Trade Agreement could result in duties being imposed on products that had previously benefited from the pact.
Across the pond, the Brexit drama continues to unfold. While it’s been several years since Britons voted to leave the European Union, there are scant details on how this will play out in practice. Losing easy access to mainland markets could prove damaging to U.K. businesses and have unpredictable consequences for international supply chains.
It’s important to emphasize that sanctions, tariffs, and other risks can impact companies that don’t have direct relationships with the countries in question. Your own suppliers may rely upon foreign vendors that are affected, and those costs propagate down the supply chain. How, then, can supply chain professionals reduce the risks of increased costs or a disruption in shipments?
A diverse supply chain is key to guarding against damage from unpredictable events. Establishing relationships with vendors in different countries and regions makes it easier to adjust when concerns arise. Given the nature of politics and trade at this moment in history, metaphorically speaking, your eggs should be in more than one basket.
Next, procurement teams should be assessing risk when evaluating and onboarding vendors. Business research tools, including advanced data and analytics applications, can help identify parent-subsidiary relationships and exposure to geopolitical risk factors. However, it’s not enough to investigate a supplier before signing a contract; consistent monitoring is required so changes to a company’s risk profile are recognized in a timely manner. Late payments, deteriorating credit scores and ratings, compliance violations, or abrupt changes in leadership are all potentially troubling signs that warrant further investigation.
While it may seem like there are new supply chain risks around every corner, there are ways to reduce the likelihood that they’ll damage your business. Building a diverse, resilient network of vendors is key, employing new data-driven technologies, and keeping a watchful eye on developments that may find their way into your factory or warehouse.
Brian Alster is Dun & Bradstreet’s global head of supply and compliance. He is responsible for developing new and innovative compliance products and improving existing ones through the incorporation of customer and industry feedback. Brian holds nearly two decades of experience in the financial services industry, including positions at JPMorgan Chase and MBNA/Bank of America.