Risk beyond the four walls of the distribution center – driven by changes in federal government policy - is making fulfillment a lot more complicated. BlackRock, an investment advisory firm, publishes a “Geopolitical Risk Management Index.”
That sounds rather abstract, a topic far removed from the distribution center, but all it takes is one glance to see that it isn’t.
The BlackRock June 2019 risk list of top five includes Gulf Tensions, Global Trade Tensions (i.e. tariffs), European Fragmentation, U.S. - China Competition, and South Asia (India/Pakistan) Trade Tensions.
Each of these risks is climbing.
Each has a direct impact on distribution.
Gulf Tensions translates petroleum risks. That ripples to transportation costs. Transportation managers must be ready to adapt distribution networks, quickly, if the curtain goes up in the gulf. Since the middle of June – thirty days ago – crude oil futures prices have risen to over $60 a barrel, a bump of close to 20%. These costs will ripple across the supply chain.
New tariffs can disrupt the economics of distribution routes, sometimes overnight. Solid contemporary examples include the plight of soybean farmers who rely on exports, or domestic steel producers who unexpectedly found new opportunities with new tariffs on imports.
“European Fragmentation,” most notably Brexit, but also active protectionist waves in other nations, are on the table. Our total trade with the EU exceeds what we do with China. The headlines fixate on China, but the trade arrangements with the EU and the impact of Brexit may be highly disruptive and possibly more disruptive than what is happening with China. We won’t know until the dust settles, and how the dust settles includes a visible role for the US Government.
U.S. – China tensions are all over the headlines, and they won’t be resolved soon. Many companies went all in with a China sourcing strategy. It might be time to reconsider.
The tensions between Pakistan and India are long standing. India is a top 10 trading partner. Border tensions this year escalated to kinetic military incidents. Pakistan’s political structure is not known for stability. Prime Minister Modi of India is often cited as the most powerful political leader since Ghandi. There is far too much uncertainty, and uncertainty means risk.
The spectrum of management in the DC is changing. Supply Chains are at risk, which mean that we need to be prepared to adapt the DC’s on short notice. Contingency plans are more important than ever. Do you have backup plans? Have you tested them?
It isn’t just about execution inside the four walls of the distribution center anymore.
It’s about Risk Management. What’s in your wallet - and can you afford it if you don’t have a risk management plan?