The results for Q3 2015 are in on the state of global supply chain risk, and indicators point to a conflicted global environment that contains both continued uncertainty and emerging optimism.
Supply chain risk remains near a record high, according to the Chartered Institute of Procurement & Supply (CIPS), which produces the CIPS Risk Index (CRI) powered by data and analysis from Dun & Bradstreet. With a Q3 2015 CRI score of 79.1 (low risk at 0 and high risk at 100), current risk levels continue to be serious due in part to heightened terrorist activity. The cross-border presence of the Islamic State has forced stricter border controls in Europe and increased reliance on sea freight for Middle East supply chain logistics movements. On a hopeful yet cautious note, the end of sanctions in Iran and Cuba offer opportunities for increased trade flow, which could drive future risk level improvement.
What is the CRI and Who Uses It?
Procurement and supply professionals use the CRI to understand global risk in their supply chains, inform sourcing decisions and improve supplier collaboration. The CRI is produced quarterly and is a composite indicator of pressures acting upon supply chains globally, taking into account Dun & Bradstreet’s assessment of 132 countries comprising 90%+ of global trade. The Index analyzes 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 to global exports.
Q3 Country Risk Changes Highly Active and Varied
The Q3 index includes country market assessments for July – September 2015. The current CRI score of 79.1 improved in the third quarter, the first improvement in global operational risk since Q3 2014. That said, over 25 changes to individual country risk scores demonstrate the dynamic pace of the global economy, both good and bad.
Regional Supply Chain Risk Trending In All Directions
Risk across regions highlights the mixed bag of activity driving the Q3 index:
- North America Remains Unchanged – 2015 economic growth is expected to be 2.2% (less than 2.4% in 2014). Demand in this region is healthy, yet challenges loom along with a global economic slowdown, led by China’s economy.
- Western and Central Europe Improving – Lower risk resulted from seven country upgrades and only one downgrade in the region. However, supply chains were disrupted by the Macedonia government collapse and refugee flow through the country from Greece to Western Europe.
- Eastern Europe and Central Asia Remains Unchanged – While steady this quarter, indications point to a future deterioration. Tensions in Ukraine remain unresolved and the state of the Russian economy weighs heavy due to trade investment and payment inter-reliance in this region.
- Asia Pacific Worsening – Risk continued to rise largely from New Zealand’s and Australia’s deteriorating country risk scores caused by China’s changing import requirements, and a decrease in the region’s key agriculture and mining exports.
- Middle East and North Africa Worsening – Risk remained high due to terrorist attacks and security concerns, including civilian deaths in several incidents resulting in socio-political risks impacting the tourism industry and logistics movements.
- Latin America Worsening – Increased risk resulted from an overall economic slowdown, stalled policy-making in key countries and supply chain disruptions impacted by weather/natural disasters. Future risk remains high due to low commodity prices and uncertain financial markets.
- Sub-Saharan Africa Worsening – Risk continued to worsen, largely attributed to a score downgrade for Ghana. Ongoing risk deterioration is expected caused by lower global commodity prices and the slowdown in emerging markets.
In summary, although global operational risk remains high, the index for Q3 actually indicated a slight improvement, which was in contrast to the wider consensus.
Watch for the Q4 CIPS Risk Index report to be released in early 2016 for year-end 2015 global supply chain risk results.
You can read the full Q3 2015 CIPS Index Report for further details.