Geopolitical fluctuations are continuing to pose risks to the normal flow of supply chains across the world, with no indication of the situation improving any time soon.
So says a new report just issued by the London-based HSBC Holdings, which soberly notes that “alternative safer sources of supply” aren’t always readily available.
The report, Building Resilient Supply Chains Amid an Uncertain Geopolitical Landscape, points out that while global supply chain disruptions are nothing new, they are today entirely different from what procurement executives may have faced a century ago.
“Simply put, geopolitical uncertainties and tensions have never had a greater potential to wreak havoc on trade flows,” says the report.
At the same time, the explanation for such disruptions is easily identified: “Protectionist trade tensions are rife, leading to tariffs and trade quotas,” the report continues.
Disruptions in the Red Sea, for example, says the report, “are prompting shipping lines to divert via southern Africa’s Cape of Good Hope, adding 10 days and 3,500 miles to the Asia-Europe shipping routes.”
And things are only made more tenuous with the large number of elections scheduled to be held across the globe before the end of the year. Simply put: democracy can be hard on global supply chains.
Noting that some 25% of the world’s population are, or will be, going to the polls, the report observes: “In many of those ballots, messages of protectionism, isolationism, and nationalism feature strongly,” all of which is “hardly welcome news for global businesses reliant on cross-borders trade flows.”
In response, “procurement teams are coming to recognize that they must rethink their approach to sourcing; focusing on building supply chains that are more resilient to geopolitical tensions and potential disruptions.”
Increasingly, those teams are now sourcing from markets closer to them, paying closer attention to just where key suppliers are located, and “trying to avoid sourcing from economies where trade disruptions and trade friction are likely.”
There is, additionally, a move away from sole sourcing.
The report also recommends that companies, in developing strategies to deal with potential disruptions, should focus on the areas where they may be most at risk, noting that “often these areas will be associated with specific regions or countries.”
Putting together an analysis looking at the consequences of supply disruption, and reviewing what options are available in such situations, is also recommended, with the use of several suppliers that are recommended.
By Garry Boulard
Image Credit: Courtesy of Pixabay