Where To Move Your Supply Chain

We know that risk relates to the chance that something “bad” might happen. But businesses need to know more. They need to know the kinds of risk they should accept or avoid.

In a new report from Proxima, a subsidiary of the Bain consulting group, and from Oxford Economics, researchers tell us that trade has not collapsed; it is just shifting. Consequently, firms have to re-assess their supply chains. And, according to the report, that means identifying sourcing risks.

Let’s take a look.

Sourcing Risks

Country Risks

Having considered the risk profile of 30 countries that perform 75% of global trade, the Proxima-Oxford Report emerged with a risky country list. Rather surprisingly, Mexico was #1 because of its geopolitics, climate risk, the rule of law, human rights compliance, and supply chain concentration. Then, after Mexico, the riskiest sourcing countries are Turkey, India, the Philippines, and Russia. Meanwhile, the U.S. occupies the 13th spot, ahead of Brazil, Malaysia, South Africa:

Labor Risks

Moving from the overview to the breakdown, the report looked at 8 risk indicators that included labor price volatility.

For a company that is contemplating shifting suppliers, labor is one consideration. If their labor is a substantial slice of their costs, then they need to be very aware of their labor risk.

You can see textiles top the labor list:

From there, firms can move to a heat map displaying the labor risks they would face in different countries. Moving among industries, we can see that China, with the darkest pink, presents the greatest labor price volatility:

Our Bottom Line: Defining Risk

In the past, we’ve seen why the British coast becomes much longer when you look closely at its indents that are not evident from a distance.

So too for risk.

By decomposing the word, businesses can decide the kinds of risk they are and are not willing to take. In its list of 8 indicators (and then cyber as an extra), the Proxima Oxford Report starts with the geopolitics that we associate with wars, terrorist acts, and tensions. Next, looking at climate, they mention results that range from crop destruction to power outages. Then, with “governance, control and compliance,” corrupt politics become crucial. Meanwhile, the labor side stretches from smallholder farmers to construction day laborers to home-based sewing and street vendors. Closely related, next they move onward to human rights, and then trade barrier vulnerability, input cost volatility, and supplier concentration.

Below you can see how a decomposition of risk relates to sourcing in Thailand:

And, having seen Thailand, we can begin to see the complexity of sourcing risks and how businesses can best decide where to locate their facilities as tariffs upset the status quo.

My sources and more: Hearing about risk criteria during a World Business Report podcast, I wanted to learn more. The podcast focused on the Proxima Report.