Here are 3 current political events that may add risk to your supply chain, right this very second. Have you determined if they impact your company?
1. Russia is home to the world’s largest natural gas producer, Gazprom, which supplies much of Europe’s energy. The European Union has decided not to enforce heavy sanctions over Russia’s annexing of Crimea and continued actions in the region. The rumblings of military action are afoot.
Why is this a risk? Whenever a country or region receives natural resources or raw materials from predominantly one other country, the country with the resources has leverage and decision making power to determine availability and pricing. There are mechanisms in place to monitor this activity, like the World Trade Organization, but the sovereignty of a nation and its resources are its own. It’s important to always have multiple sources for stable pricing and a competitive market. What happens to production costs in Europe if Russia charges a premium on energy?
2. India is the world’s largest democracy and recently held elections at the end of May 2014. For the first time in 60 years, there is a new ruling party for a country that has over 814.5 million people.
Why is this a risk? With changes in ruling parties comes changes in government policies, initiatives, and priorities. This may or may not make working and sourcing form India more difficult. Many of the candidates ran on the issues of corruption, security and terrorism, and enforced protection of the border with China. It is common for companies today to leverage both India and China as their outsourcing partner for multiple initiatives. What does it mean for raw materials and assembled goods that pass between borders if India and China have a contentious relationship?
3. The U.S. enacted legislation called the Dodd-Frank Wall Street Reform Act and as part of the bill, companies that are publicly traded on the U.S. stock exchanges must now report in their yearly 10K, the usage of the tin, tantalum, tungsten, and gold originating from the Democratic Republic of Congo.
Why is this a risk? Reporting the country of origin for raw materials is a challenge for most companies because they do not have visibility beyond their Tier 1 and Tier 2 suppliers. Many companies are unaware of the working conditions of those in the lower levels of the supply chain. How can companies be compliant to social based regulations and protect people and the environment from danger if they are unaware of the places and working conditions from where raw materials for their products originate?
How do you keep up with current events and how do you determine if it will impact your business?