Fears over Brexit appear to be increasing businesses’ perception of the risks in their supply chain, despite evidence suggesting many have taken steps to ready themselves for a post-Brexit environment, a new report has found.
The Q2 2018 Global Supply Chain Risk Report, published today (20 August) by Cranfield School of Management and Dun & Bradstreet, investigated the level of actual and perceived supply chain risk faced by European companies with international supplier relationships.
It found that businesses in several sectors seem to be taking measures to reduce their supply chain risk but, despite this, many feel they are still in jeopardy due to a heavy reliance on critical or key suppliers. Overall, the report found supplier criticality* increased 2% in Q2 2018, making a total of a 12% increase over the past three quarters.
Dr Heather Skipworth, senior lecturer in logistics, procurement and supply chain management at Cranfield, said: “Supplier criticality is the only risk metric used in the report that relies on perception rather than ‘hard’ numbers, and it is interesting to see the different story it shows. It looks like the continuing uncertainty surrounding Brexit is feeding buying companies’ perceptions of an increasing level of dependency on their suppliers, despite the fact that the other metrics suggest several sectors are taking significant action to reduce their supply chain risk.
“As the March 2019 deadline approaches, it appears the uncertainty around the tariffs, barriers and trade agreements that will impact supply chain relationships is more and more in the forefront of businesses’ minds.”
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 across the wider economy. By analysing trends by sector, the report highlights areas for monitoring and consideration in procurement decisions.
Analysis in the Q2 2018 report was carried out using proprietary commercial data supplied by Dun & Bradstreet, which included around 500,000 anonymous transactions between European buyers and their suppliers located in more than 150 countries worldwide.
The report found the infrastructure sector (comprising transportation, communications, electric, gas and sanitary services) reduced supplier financial risk by 3%, global sourcing risk by 21.3% and foreign exchange risk by 22% during Q2 2018, but concern over reliance on key suppliers remained the same as at the end of Q1 2018.
In the construction sector, there was only a slight increase in global sourcing risk (1.1%), while supplier financial risk and foreign exchange risk remained almost the same. However, despite this, buying companies’ perception of dependence on suppliers increased by 2.4%.
In the manufacturing sector, although global sourcing risk and foreign exchange risk continued to increase in Q2 2018 (by 1.4% and 1.6% respectively), the rate of increase slowed dramatically, and supplier financial risk remained static at 23.3%. This could be as a result of concerted action to mitigate against perceived risks, a narrative supported by a 2% increase through Q2 in perceived reliance on critical suppliers.
The report also highlights potential cause for concern in the retail sector. This sector has the highest financial risk at 24.1%, up 2% from Q1 2018 and 7% over the past three quarters despite wider risk metrics remaining the same, suggesting increased risk of insolvency in the supplier base.
“The data continues to show a variance in supply chain risk across different industry sectors,” explains Chris Laws, Head of Product Development – Supply & Compliance at Dun & Bradstreet. “With an increasingly complex and uncertain environment, businesses that analyse and monitor their supply chain closely can take steps to identify and help mitigate risk to protect their business and plan ahead.”
Notes for editors
*Supplier criticality is the percentage of unique buyer-supplier relationships where the buyer categorises that supplier as critical or key. A large number represents a greater perceived exposure to risks from the supply base.
About Cranfield University
Cranfield has been a world leader in management education and research for over 50 years, helping individuals and organisations learn and succeed by transforming knowledge into action. We are dedicated to creating responsible management thinking, improving business performance and inspiring the next generation of business leaders. We work to change the lives of our students and executives by encouraging innovation and creative thinking, as well as the drive to succeed and make a real impact on their organisations.
Organisations as diverse as Jaguar Land Rover, BAE Systems, Royal Dutch Shell, L’Oréal, UNICEF and the African Development Bank have benefited from our work, which ranges from management research projects, through staff talent management development on our MBA courses, to customised executive programmes.
Cranfield is one of an elite group of Schools worldwide to hold the triple accreditation of: AACSB International (the Association to Advance Collegiate Schools of Business), EQUIS (European Quality Improvement System) and AMBA (the Association of MBAs).
We are in the Top 10 International Business Schools in the Forbes’ ranking.
Our open and customised executive education programmes are ranked in the top five in the UK, according to the latest Financial Times survey, and in the top ten in the world for international reach. Over 10,000 people come to Cranfield each year to benefit from our executive and professional development programmes.
