Brexit drives supply chain risk fears

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, according to the Q2 2018 Global Supply Chain Risk Report by Cranfield School of Management and Dun & Bradstreet.

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 per cent in Q2 2018, making a total of a 12 per cent increase over the past three quarters.

“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,” said Heather Skipworth, senior lecturer in logistics, procurement and supply chain management at Cranfield.

“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 report found the infrastructure sector (comprising transport, communications, electric, gas and sanitary services) reduced supplier financial risk by 3 per cent, global sourcing risk by 21.3 per cent and foreign exchange risk by 22 per cent 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 per cent), 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 per cent.

In the manufacturing sector, although global sourcing risk and foreign exchange risk continued to increase in Q2 2018 (by 1.4 per cent and 1.6 per cent respectively), the rate of increase slowed dramatically, and supplier financial risk remained static at 23.3 per cent. This could be as a result of concerted action to mitigate against perceived risks, a narrative supported by a 2 per cent 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 per cent, up 2 per cent from Q1 2018 and 7 per cent over the past three quarters despite wider risk metrics remaining the same, suggesting increased risk of insolvency in the supplier base.