How Supply Chains Are Influenced by Current Events

The waning weeks of 2015 have given way to a range of big headlines and major happenings – and, consequently, made an indelible impact on supply chains around the world. From weather to banks to politics, global events have the potential to influence the way we do business – even on the smallest level.

So, what does this mean for suppliers, procurers and other business owners? Depending on your perspective, these influences may be considered advantageous – or just the opposite.

Let’s start with economic news. The long anticipated interest rate hike carried out by the Unites States Federal Reserve has already had a roller coaster-like effect. The increase in the benchmark federal funds rate will doubtlessly increase the cost of borrowing, adding higher interest payments to supply chain capital investments. It’s hard to fathom any business or merchant unaffected by this news.

Economic news may be obvious. Let’s examine something a bit more (seemingly) removed from supply chains: the weather. The effects of El Niño’s persistent warming in the Pacific Ocean, and even the resulting climate accord of the 2015 Paris UN Climate Change Conference, can influence and alter supply chains. The climate accord agreements – which, surprisingly, were warmly welcomed by numerous corporations – will generate higher expenses as corporations ramp up their development and use of solar, wind, and hydropower as energy sources.

But ‘tis the season for good news and perhaps an expense reduction or two.

Then there’s fuel. The tumbling prices of crude oil and natural gas can majorly impact supply chains.

nasdaq oil price

The accompanying chart, courtesy of NASDAQ, illustrates the end of day commodity futures price for crude oil. As of this writing, the price per barrel for crude fell below $35, an amount unseen since 2008. Simply put, the increased global production and supply of oil combined with a significant sag in demand generates just the right recipe for declining prices. Motorists experiencing better cash flow due to fewer tank fill-ups may be busy reveling, but they’re not the only ones at the party. Supply chains are reveling with them.

Reduced oil prices swiftly translate into lower freight costs, whether by air, sea or land.

Weather, from the beginning of time, can rear its ugly head as an impediment to smooth living. Although the “partnership” between El Niño and the Arctic Oscillation has impeded the sales of cold weather gear – due to record high temperatures in the US and Europe, supply chains celebrate the smooth logistical transfers of goods without the obstacle of cold weather and ice. Again, a swifter transport of goods by air, sea or land is facilitated by a balmier climate.

What is the message here?

Life can throw a curveball at anyone or anything, but the best prepared will likely fare better.

Good supply chain firms mitigate their disruption via developed and documented risk management strategies. How’s your risk management strategy?