Political Risk and the Supply Chain

If there is one thing the past year has taught us, it is that political regimes overseas are not quite as stable as they are at home. According to Russ Banham, risk managers need to start becoming attuned to the political climate if they are to avoid sudden supply chain crises.

Foreign Problems are Local Problems

Japan’s earthquake and Thailand’s floods demonstrated the necessity for sourcing from multiple suppliers to mitigate geologic risks, but you do not need to be next to the ocean or on a fault line to be at risk. Now that the Federal Reserve is starting to do away with its low interest rates, the economies of emerging countries are feeling the sting. Political uprisings could result from these floundering, unstable economies. Even in places where revolution is unlikely, there is still fragility. In fact, Turkey, South Africa, Indonesia, Brazil, and India make up a “Fragile Five” as identified by a Morgan Stanley executive.

When economies dwindle, suppliers go bankrupt, and the supply chain crisis begins. Even readily finding another supplier who is FDA-approved could prove challenging. In order to protect yourself, you should use a tool like Aon’s interactive political risk map, which gauges threats amongst 163 countries. It does not guarantee safety by any means, but it does you give the best warning for when strife may occur.

To learn more, you can read the full article here: http://www.rmmagazine.com/2014/06/01/political-risk-and-the-supply-chain/

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