Global political risks increase supply chain uncertainty
Global political risks are increasing supply chain uncertainty and US President Donald Trump's stance on trade and immigration looks likely to boost those concerns. The world has seemingly entered a new era of risk with events such as the rise of Islamic fundamentalism, Brexit and the refugee crisis all affecting business. Trump's threat to slap a 20% tariff on all goods from Mexico and his approach to countries such as China may have significant knock-on effects through global supply chains. As a result, it is important for firms and procurement professionals to understand their suppliers and physical supply routes.

Supply Chain risk is a subject we felt we should be covering more often here, so when we met riskmethods and agreed to work together, it was not just about having a new sponsor, but also a good reason to get into that important topic in more depth and regularity.

The timing now looks increasingly fortunate (if that is the right word) as the world seems to be entering a new era in terms of risk. The past few years have proved unpredictable enough, with the refugee crisis, Brexit, the rise of Islamic fundamentalism, the chaos in Syria and other world events all impinging on major businesses in some way.

But now President Trump looks likely to add to the uncertainty with his stance on trade (and indeed immigration); that’s even before we see how his approach to China, Russia, Iran and so on drives geo-political security. So, we suspect businesses are now hastily modelling their supply chains and looking for instance at what a trade war between US and Mexico might mean for supply chains. That may be more significant for businesses in that region than for European firms, but it would certainly have knock-on effects through complex international and global supply chains. And that’s even before Trump turns his attention to trade with the EU, China …

It is hard to see that slapping a 20% tariff on all goods coming from Mexico into the USA (one of the ideas proposed) would achieve much other than reciprocal action from Mexico, and unhappy people both sides of the border. If US firms pay the tax, then presumably they might source domestically instead, or they might pass on higher costs to the consumer. And shoppers may not be happy about much of the fresh produce in US shops suddenly being 20% more expensive.

Anyway, our point is not to analyse the pros and cons of different approaches to trade. Rather, it is to stress once again how important it is that procurement and supply chain professionals understand their supply chains. We wrote a longer article last week about some common supply chain risk fallacies; in dangerous, unpredictable times, it is more important than ever to know your suppliers, and indeed your critical second tier suppliers, as well as understanding key physical supply routes for instance.

We’ve got a briefing paper coming out soon looking in more depth at some of these topics, but in the meantime, if your risk strategy, register or plan is sitting gathering dust in a drawer (physical or virtual), then this might be a very good time to brush it off and see how it relates to what might happen in the coming months.