CIPS Risk Index Reports First Improvements in Six Quarters

By Martin Mohr

The Chartered Institute of Procurement and Supply’s (CIPS) Risk Index retreated from its record high in the first quarter of 2017 but potentially disruptive supply chain risks remain. The index saw its first improvement in six quarters, declining from 82.6 to 81.9.

“The growth outlook is brightening, headwinds are diminishing, and forecasts generally point to better outcomes than we had expected a year ago,” said Bodhi Ganguli, Leading Economist, Dun & Bradstreet who administers the index for CIPS.

Risk Index Improvement Factors

  • The US Federal Reserve communication of the 25 basis point policy rate increase was highly effective and did not disrupt financial markets.
  • There was no shift in the Fed’s post-meeting communication signaling it will continue with its stated plans to gradually increase rates for the rest of the year.
  • D&B believes the Fed's moves will prevent measurable appreciation of the USD which should make financial predictions for deals based in USD easier.

Supply Chain Management Impacts

The report also predicts a smooth exit from the EU for the UK. However, its release preceded the recent elections in England which eroded Theresa May’s majority ahead of negotiations with the EU-27. Those results may complicate negotiations and inject uncertainty for companies trying to navigate Brexit’s impact on their supply chain management. Those companies will need to maintain a high level of visibility into contractual agreements that could be disrupted as negotiations proceed.

Further turmoil in Europe, however, seems less likely with Emmanuel Macron’s win in French elections and the two main contenders in the German elections being pro-EU. The report notes those results will protect intra-Europe supply chains.

Supply Chain Risks Remain

On the downside, the report warns supply chain risks remain as the US and UK continue to move towards bilateralism in their trade agreements, complicating international supplier agreements for companies. Increasingly, companies will need to monitor terms and obligations to improve contract risk management and leverage opportunities from new trade deals.

Corporate Procurement Professionals to Ensure Minimized Risk

Cyber threats are also cited in the report, putting pressure on companies to ensure their IT infrastructure can protect business continuity. Companies that outsource all or part of their IT spend should have proper contractual protections in place with technology service providers. A recent report by the FDIC shows that financial institutions in the US are especially vulnerable.

As Andrew Coulcher, Knowledge Director at CIPS advises, “Procurement professionals must be the ones to ensure many of these risk impacts are minimised, and that their organisation's business is agile and resilient enough to manage.”

To read the full CIPS Risk Index Quarterly Report, click here.

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