Supplier diversity key to tackling geopolitical risk

Diversified supply chains are key to mitigating modern geopolitical risks, buyers have been told.

As US tariffs on steel and aluminium from Canada, Mexico and the European Union went into force, Brian Alster, global head of supply and compliance at Dun & Bradstreet, said businesses should be proactively looking at their supply chains and making moves to geographically diversify them.

Speaking to SM, Alster said: “First and foremost diversity is key. You need to make sure you understand where the manufacturing of your goods and services is being done, what the shipping routes and lanes are and making sure you are taking that into account when you’re determining your go-to-market strategy.

“If at all possible it is best to diversify geographically and to make sure that a shock to the system, whether it be geopolitical or a natural disaster, can be overcome without having any delays.”

Businesses should also ensure they have a “formidable” onboarding process that takes into account geopolitical risk and invest in the continuous monitoring of suppliers, including an “offboarding” plan for when the risk a supplier carries outweighs their contribution.

Alster said over the last 12-15 months businesses he has been working with have started to treat geopolitical risks in a similar way to the risk of natural disasters, by doing deep dives into their supply chain.

“Historically we’ve done these types of analysis around natural disasters, and now with these geopolitical shifts we’re starting to see companies become more proactive as well in that manner,” he said.

Bodhi Ganguli, lead economist at Dun & Bradstreet, said the answer was not for buyers to completely domesticate their supply chains.

“If you are a US company, you would think that creating your own supply chain within the US would make it easier for you. Here’s the problem, it doesn’t work that way,” he said. “Based on the decisions we’ve seen in the recent past there really is no one safe place where you can just go, but also you wouldn’t really want to to do that. You do really want to reach out to the global consumer.”

He added that it was “ not always all doom and gloom”. “We like to point out that the flipside of risks can actually be opportunities in some cases,” he said.

The US sanctions on Iran, for example, are problematic for a lot of countries, he said, but countries that do not have many dealings with America can now start building supply chain networks in Iran ready for when sanctions ease again. “They might get in as an early mover.”

The EU has issued a list of retaliatory tariffs on US goods, including Harley Davidson motorbikes and bourbon whisky, and has said it is planning to bring a legal challenge over the tariffs to the World Trade Organisation.