Currency fluctuations caused by worldwide geo-political events like Brexit and changing US trade policy may be being exploited by companies seeking to save money in their supply chain, says a new report from Cranfield School of Management’s Centre for Logistics and Supply Chain Management.
The Q3 2018 Global Supply Chain Risk Report, published today by Cranfield School of Management and Dun & Bradstreet, investigates the level of perceived supply chain risk faced by European companies with international supplier relationships.
The report found foreign exchange risk* increased 4% across the Finance, Manufacturing, Services, Infrastructure, and Wholesale sectors during Q3, suggesting that buyers may be taking advantage of the opportunity to pay their international suppliers in different currencies to exploit currency exchange fluctuations and make cost savings.
The Euro to Pound Sterling exchange rate fluctuated more during Q3 than it has in 2018, between a peak of 0.91 and a low of 0.88 Pounds per Euro. The Euro to US Dollar exchange rate also experienced significant fluctuations in the last quarter between a peak of 1.18 and a low of 1.13 US Dollars per Euro.
Dr Heather Skipworth, senior lecturer in logistics, procurement and supply chain management at Cranfield, said: “Larger companies often hold the power in the buyer/supplier relationship, and decide whether to pay suppliers in local or foreign currency to maximise financial benefit.
“During the past quarter, exchange rates across the world have been in a state of fluctuation, partly due to trade issues – not just Brexit, but also the U.S. trade war with China, for example. It seems that buyers may increasingly be seeing an opportunity to use these fluctuations for their own ends.”
The Q3 report suggests companies in the financial services sector have increased their appetite for risk compared to those in manufacturing, infrastructure and wholesale.
Chris Laws, Head of Global Product Development – Supply & Compliance at Dun & Bradstreet, said: “The analysis of Dun & Bradstreet data shows that the biggest increase in risk exposure during Q3 was amongst financial services companies, with three out of the four risk metrics increasing, a trend that has been building throughout 2018.”
Both global sourcing risk and foreign exchange risk increased by 8% during Q3 for Financial Services companies, and by 31% and 13% respectively since the start of the year. Supplier financial risk increased by 5% over the past three quarters, remaining at a steady high of 26.4% during Q3.
Meanwhile, the Wholesale Trade sector experienced the greatest reduction in risk exposure during Q3, with supplier criticality down by 9%, supplier financial risk by 6% and global sourcing risk by 6%. However, foreign exchange risk increased by 9% during Q3 to the highest level of all sectors, and by 24% since the start of the year.
The quarterly Global Supply Chain Risk Report uses four key metrics – supplier criticality, supplier financial risk, global sourcing risk and foreign exchange risk – to assess overall supply chain risk and provides businesses with a view of trends within their industry sector and the wider economy. By analysing trends by sector, the report highlights areas for monitoring and consideration in procurement decisions.
Analysis in the Q3 2018 report was carried out using proprietary commercial data supplied by Dun & Bradstreet, which included around 120,000 anonymous transactions between European buying companies and their suppliers located in more than 150 countries worldwide.
The Q3 2018 Global Supply Chain Risk Report is available to download now from https://www.dnb.co.uk/perspectives/supply-chain/global-supply-chain-risk-report-q3-2018.html. A webinar on the results will be run at 1pm on Thursday 13th December. For more information and to register, visit: https://www.brighttalk.com/webcast/13997/343584