The ongoing uncertainty around Brexit is encouraging many manufacturers and retailers to consider other supplier locations in low cost, higher risk countries to avoid possible trade barriers.
The latest analysis in the Global Supply Chain Risk Report, produced quarterly by Cranfield University and Dun & Bradstreet, found marked increases in Supplier Criticality (up 2%) and Global Sourcing Risk (up 4.8%) in Q3 2019.
Dr Heather Skipworth, Associate Professor in Logistics, Procurement and Supply Chain Management at Cranfield University, says that lack of clarity over possible trade tariffs and other non-tariff barriers is leading to companies seeking out alternative countries to source from: “The manufacturing sector in Europe is facing the ongoing uncertainty around Brexit, encouraging many businesses to take more risks with the location of suppliers to avoid the possible trade tariffs and other non-tariff barriers such as quotas, embargoes, sanctions, and levies. This is likely to increase their perceived criticality of, and dependency on, suppliers, as choices become more constrained.”
She added, “China is no longer as attractive as a source of low-cost manufacturing due to rising wages and companies are increasingly looking at alternative, higher risk countries such as India, Bangladesh, Vietnam and Romania.”
Manufacturing experienced significant increases across all four risk areas analysed in the report – Supplier Criticality was up 6.7%, Financial Risk up 2.1%, Global Sourcing Risk up 10.6% and Foreign Exchange Risk up 4.6%. This shows more companies are sourcing from higher risk countries, whilst being more dependent on suppliers – and these are likely to exhibit higher financial risk and a greater probability of going insolvent.
Chris Laws, Head of UK Product & Strategy at Dun & Bradstreet, said: “2019 has been a challenging year and Q3 analysis shows the manufacturing sector continues to have the highest level of global sourcing risk. The good news is that businesses can take steps to alleviate such risks. Having full visibility of supply chain relationships and working with a more diverse range of suppliers across multiple locations can help to identify and mitigate reputational and operational risk.”