May 17, 2020

2016 the year of economic nationalism as supply chain risk reaches record high

Supply Chain
Dale Benton
5 min
2016 the year of economic nationalism as supply chain risk reaches record high
Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index, powered by Dun & Bradstreet, rose to 82.64, from 79.14 at...

Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index, powered by Dun & Bradstreet, rose to 82.64, from 79.14 at the end of 2015. The figures put global supply chain risk at the highest level in 24 years following a year in which the pace of globalisation appeared to slow.

The Index, produced for the Chartered Institute of Procurement & Supply (CIPS) by Dun & Bradstreet economists, tracks the impact of economic and political developments on the stability of global supply chains. A combination of economic nationalism, rebounding commodity prices and the growth of a burgeoning Chinese middle class is making long international supply chains a riskier prospect while there has been an average of 22 new trade restrictive measures a month in the World Trade Organisation’s latest report.

 The upward trend in supply chain risk is clearest in Western Europe, where contribution to global risk rose to 30.681 in Q4 from 30.048 in Q1. Amid sluggish growth across developed and emerging market economies in Q2, the UK’s vote to leave the EU at the end of June heightened global supply chain risk for the rest of the year. Supply chains in the UK were severely hit by a depressed pound which followed the Brexit vote in June. This pushed up the cost of imports, leading to some early conflicts in Q3 between retailers and their suppliers over who should shoulder these costs. The increasing likelihood of a ‘hard’ Brexit, and the UK’s departure from the single market, will add further disruption to supply chains throughout Europe.

 In addition to the UK’s vote to leave the EU, there has been a wider revival of interest in trade restrictive measures across Europe. Elections across Europe in 2017 are expected to see gains for populist parties with France’s National Front, Italy’s Five Star Movement, the Freedom Party in the Netherlands and the German Alternative for Germany all placing Euroscepticism and restrictive trade measures at the centre of their policies.

 At a global level, Donald Trump’s election success in November confirmed a wider shift towards protectionism in global trade policy. The adoption of protectionist trade policies, closing of borders and pursuit of bilateral trade deals over multilateral ones, all signal that the gap is widening between an interdependent global economy and the sole pursuit of national interests. As multilateral trade agreements such as the Trans-Pacific Partnership are dismantled, global supply chains face unparalleled uncertainty and stress.

North America’s contribution to global risk remained static over 2016 as the North American economy continued on a trajectory of growth and US consumer spending remained strong. This risk score is likely to increase in 2017 if the USA builds trade barriers with Mexico and China who are significant players in the global manufacturing supply chain network.

Asia Pacific remained the highest contributor to supply chain in risk in 2016 due to the region’s importance to global supply chains. Asia Pacific’s contribution to global risk fluctuated between 33.566 in Q1 to 33.168 in Q4. The emergence of a larger middle class in China has gradually reduced the competitiveness of Chinese exports in 2016 with wages increasing by 10%. As a result suppliers have begun moving their supply chains into nearby Indonesia or even beginning the process of reshoring back into their domestic markets. Going forward, the rising tide of global protectionism poses a considerable threat to supply chains relying on Chinese exports with the yuan falling to an eight-year low against the US dollar in the week of Donald Trump’s election. 

 Elsewhere, the impact of rising oil costs in Q4 has driven up the costs of other commodities. 2016 saw a trend of persistently low commodity prices disrupted when OPEC restricted supply, pushing oil prices up by $10 per barrel in Q4. This worsened the cash flow crisis for oil exporters in Eastern Europe and Central Asia, the Middle EastNorth Africa and Sub-Saharan Africa. This increase in transport costs is encouraging businesses to have shorter supply chains although it remains to be seen how long the new agreement will hold. Contribution to global risk in the Middle East and North Africa increased from 9.08 at the beginning of the year to 9.09 in Q3.

 John Glen, CIPS Economist and Director of the Centre for Customised Executive Development at The Cranfield School of Management said:

“The UK’s decision to leave the European Union and the election of Donald Trump reflect a growing trend of protectionism in the global economy. For this reason alone, supply chain risk is set to increase further in 2017.

 “Amidst exchange and commodity volatility, currency hedging will remain vital, while contingency plans must be put in place to protect supply chains from foreseeable trade barriers. Re-shoring supply chains will be an increasingly attractive prospect in the months to come. But, these are uncertain times for supply chain managers and there is no quick fix for the months ahead.

 “It is more important than ever for supply chain managers to listen to their suppliers, develop closer relationships with them and to monitor any changes, so they can react quickly and ensure their supply chains remain resilient.”

 Bodhi Ganguli, Lead Economist, Dun & Bradstreet:

 “Dun & Bradstreet’s Global Risk Score measuring supply chain risk rose to an all-time high in Q4 2016, reflecting a rise in political and economic risk.

“Uncertainty stemming from significant trade and foreign policy changes implemented by the new US government will be one of the main drivers of supply chain risk over the next few quarters. The process of Brexit is also set to start in Q1, and will roil the current supply chain environment in Europe. Emerging markets dependent on trade will also be affected by both these factors and commodity price fluctuations remain an ever-present threat to global supply chains.”

 

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.

The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.

A Multi-Vendor Sourcing Approach

“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.

“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.

But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?

“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.

Wielding Big Tech for Better Outcomes

So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry

“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality. 

“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”

Evolving Procurement Models 

From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view. 

“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.

“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”

“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”

But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?

“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.

The Challenges

These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.

On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.

Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”

He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”

As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”

 

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