Supply chain risk is one of the greatest external challenges for businesses

Supply chain risk is one of the greatest external challenges for businesses

Supply chain risks might not have changed much in the past ten years – but as companies expand their global sourcing they are more exposed to a wider number of challenges, from fluctuations in currency and exchange rates, to volatile oil prices, regulatory change, geo-political issues and supply chain fraud.

And these risks are not restricted to companies that source overseas; they also have an impact on domestic players too.

"Even if you don't trade internationally chances are your suppliers do, which can also put your business at risk," says business technology and services provider Xchanging Plc, which adds: "No organisation is immune from external threats to procurement."

Indeed, according to its survey of 830 procurement decision-makers across the UK, Europe and North America, one of the greatest external challenge for businesses’ operations is supply chain risk. More than three-quarters (77%) of respondents rate it as a challenge, and nearly one in five (17%) deem it an ‘extreme challenge’.

The 2015 Global Procurement Study focuses on external threats and challenges to the supply chain.

Around two-thirds of respondents claim to be challenged by regulation and audit (71%), while 63% cite lack of supplier innovation, and 58% point to currency rate fluctuations in their business operations.

With the high number of respondents challenged by supply chain risk, the research dug further into the specific supply chain threats faced by European and North American businesses.

More than a quarter of respondents (28%) see currency and exchange rate fluctuations as a significant external threat. This jumps to 35% in respondents from mainland Europe, with the euro still under pressure against the pound and other major currencies, and nervousness in the region over Greece's debt negotiations.

More than a quarter of respondents (26%) also cite oil prices as a major external threat to their businesses, with global oil prices having fallen sharply in recent months (by more than 40% since last summer), leading to significant revenue shortfalls in many energy exporting nations and concerns about oversupply in some markets.

One in five respondents feel their operations are threatened by purchasing power laws and regulation, tax and the Eurozone crisis. Unsurprisingly, the percentage citing the Eurozone crisis as a threat jumps to more than a third (34%) in respondents from mainland Europe. 81% of respondents also claim organsational spend cuts are a challenge, again most likely due to the Eurozone crisis and ongoing austerity in companies operating in the region.

"Supplier risk is like an iceberg. The tip of the iceberg, that visible 10%, is the financial risk," the report says, adding: "Underneath the surface lies an absolute plethora of ‘other’ risks that need to be monitored and measured - and, just like an iceberg, they have the potential to sink a business."

Within each of the three main categories of supplier risk - financial, supply chain and corporate social responsibility - are multiple tiers across multiple dimensions. "It’s those multiple levels, as you move further and further down the supply chain, where the majority of risk lies."

It adds: "Decision-makers need to be aware of the risks and have effective strategies for dealing with them. Only then can they build contingency plans and manage risks proactively."

"Widening your supply base and not relying on one supplier is also essential to mitigate against external threats," notes Chirag Shah, executive director at Xchanging Procurement.

"Increasing access to more suppliers for sourcing projects on a global and regional scale will remove pressure and dependency on one source. Dealing with more than one supplier, and knowing who supplies them, will give you control over the entire buying process."