Risk in supply chains is something that should concern us all, particularly when recent research conducted by the Chartered Institute of Purchasing and Supply (CIPS) revealed that 11% of UK businesses polled thought it “likely” that some sort of modern slavery exists in their supply chains.

It is therefore an encouraging sign that the CIPS Supply Chain Risk Index (CRI) reported a reduction in global supply chain risk levels for the second quarter of 2014, falling to 78.1 (from 82.4 in the previous quarter), as the world’s supply chain risk levels reached an 18-month low. However much more still remains to be done.



The index is an indicator of pressures acting upon supply chains globally. Developed by risk management analysts Dun & Bradstreet, it looks at the socio-economic, physical trade and business continuity factors contributing to supply chain risk across the world, weighting each score according to that country’s contribution to global exports. The results suggest that we have finally turned the corner from the rapid growth in supply chain risk which emerged around the 2008 financial crisis. However, we are still in the early stages of stabilisation and businesses must remain vigilant.



The improvement is partly reflected in Germany’s industrial recovery which is promoting stability across the Eurozone and beyond, with the country’s exports shoring up supply chains. For example the recent 6.8% reduction in the number of bankruptcies in Germany helped to reduce failure within supply chains, which has knock-on effects across Europe.



But it’s not all good news. At a time when supply chains are longer, more integrated, complex, and global than ever before, the effects of the sanctions imposed on Russia by the international community and the crisis in the Middle East, for example, are having consequences on many businesses in many different sectors of economies around the world.



The risk index shows that supply chains are being increasingly exposed to disruptions, corruption and incompetence, highlighting the need for a far better understanding of supply chain risk management. It also demonstrates the need to acknowledge the interrelated nature of economic, environmental and social impacts on supply chain activities by business and government. Many events are still threatening and undermining the improvement in supply chain risk; if the current Ebola outbreak in West Africa necessitates a tightening of international borders, the world will shrink, leaving storerooms empty and workers idle.



Not only does British industry depend on the reliable and transparent flow of goods from around the world, but the resurgence in the global economy depends very much upon the reliability of global supply chains.

Businesses and economies must consider the complexity and vital role played by supply chains worldwide and make appropriate provisions before it is too late. Britain’s horsemeat scandal and the Rana Plaza factory collapse in Bangladesh demonstrate that there are still major dangers, particularly over the lack of visibility, oversight and control from businesses of their suppliers. Indeed the length and complexity of supply chains mean underlying issues remain unknown and are invisible to buyers. CIPS’ recent research has uncovered that almost three quarters (72%) of British supply chain professionals have zero visibility of their supply chains beyond the second tier with only 11% saying they have visibility along the entire chain.



This also highlights that there is a serious skills gap as inadequately trained supply chain managers are either unaware of the risks or unable to mitigate against them. It is vital that CEOs and corporate boards understand and have full knowledge of their supply chains. This is only possible through good practice and skilled professionals managing them.



At times when companies are operating across borders and are facing difficult decisions about their supply chains and with elevated levels of uncertainty surrounding economic, financial and political risk factors, better knowledge and closer co-operation between buyer and supplier will help increase understanding and provide safeguards that will limit the risk to trading and ultimately to the survival of business and organisations around the world.

David Noble is group chief executive officer of Chartered Institute of Purchasing & Supply (CIPS)



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