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Q2 2019 Global Supply Chain Risk Report

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Top supply chain risks for European companies by industry – Q2 2019

The quarterly “Global Supply Chain Risk Report” investigates the level of perceived supply chain risk faced by European companies with international supplier relationships. Using four key metrics – supplier criticality, supplier financial risk, global sourcing risk, and foreign exchange risk – it assesses overall supply chain risk and provides businesses with a view of trends within their industry sector and the wider economy. By analysing trends by sector, the report highlights areas for monitoring and consideration in procurement decisions.

The second quarter of 2019 was a period of stability for all four metrics investigated at the macro level (Supplier Criticality, Supplier Financial Risk, Global Sourcing Risk, and Foreign Exchange Risk), and many of the seven industry sectors included in the analysis (construction, manufacturing, infrastructure, wholesale, retail, finance, and services) also enjoyed relatively stable risk levels.

Manufacturing industry’s top supply chain risks and opportunities

The manufacturing sector experienced small increases in each of the four risk metrics. Most notably, Global Sourcing Risk reversed the downward trend enjoyed over the previous two quarters with a 2.3% increase. This suggests a small increase in buying companies sourcing from suppliers in low-cost economies associated with high-risk countries. That said, manufacturing Global Sourcing Risk is 29.4% lower than it was three quarters ago.

Current risks and opportunities in the services industry

The services sector has enjoyed a stable quarter, although Supplier Criticality, Global Sourcing Risk and Foreign Exchange Risk are continuing an upward trend, with increases of 4.2%, 2.2%, and 1.8%, respectively. Supplier Criticality in this sector has seen the biggest increase over the last three quarters (61.7%), suggesting buying companies feel far more dependent on their suppliers. Given that the other risk metrics have remained relatively stable, the perceived dependency implies either a consolidation in the supplier market (meaning fewer qualified suppliers) or increased demand.

High levels of supplier dependence in construction sector

The construction sector overall saw just small changes in the risk metrics over the last quarter. However, it continues to maintain very high levels of Supplier Criticality, with 83% of relationships reported within construction classified as critical or key, showing a high perception of dependence on suppliers. Supplier Financial Risk for this sector increased by 2% over the second quarter but is still down 7.6% compared to three quarters ago, indicating that a higher proportion of suppliers are financially stable.

Supply chain risk in infrastructure sector

The infrastructure sector – which comprises companies in transportation, communications, electric, gas, and sanitary services – also saw only small changes in the risk metrics. Supplier Criticality reduced by 2.9%, but it’s still up 66% over the last three quarters and is the third-highest of the seven sectors, at 72.4%. Foreign Exchange Risk continued its increasing trend, rising 3.8% over the last quarter and 67% over the last three. This rise may be because infrastructure buying companies are increasingly sourcing from other countries or are more willing to pay suppliers in the supplier’s own currency (possibly to exploit currency exchange fluctuations such as the GBP/EUR exchange rate).

Retail sector taking cautious approach to sourcing from higher-risk countries

The retail sector experienced a small reduction in all the risk metrics except for Supplier Criticality, which remained the same (at a very high 84.5%). Retail has the highest Supplier Criticality out of the seven sectors reported, showing a sustained perception of high dependence on suppliers. At the same time, Supplier Financial Risk, Global Sourcing Risk and Foreign Exchange Risk have gone down by 2.5%, 1.8%, and 4.3%, respectively, slightly reversing upward trends. This could indicate a somewhat more cautious approach to sourcing from suppliers in higher-risk countries.

About the report

Experts from Cranfield’s Centre for Logistics and Supply Chain Management have analysed data supplied by Dun & Bradstreet, drawing conclusions from around 181,000 anonymous transactions between European buyers and their suppliers located in more than 150 countries worldwide.

The report looks at four key risk metrics (Supplier Criticality, Supplier Financial Risk, Global Sourcing Risk and Foreign Exchange Risk) to assess supply chain risk and provide businesses with a view of trends within their industry sector and across the wider economy. The focus industry sectors are construction, manufacturing, retail, infrastructure, wholesale, finance, and services.

By analysing trends by sector, the report highlights areas for monitoring and consideration in supplier management decisions.

The full “Global Supply Chain Risk Report” is available to download from the link below.

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