This morning, Supply Chain Matters had the opportunity to attend an Economist Intelligence Unit (EIU) and HSBC Bank sponsored Executive Breakfast Series event titled Business without Borders. Leo Abruzzese, Global Forecasting Director for EIU provided many insightful economic insights regarding the current outlook among global countries and also moderated a panel consisting of:

  • Michael Cahill, Managing Director for Marsh’s Global Specialties business unit that includes Trade Credit and Political Risk.
  • Raj Subramaniam, Senior Vice President, International Marketing at FedEx
  • Tarun Khanna, Jorge Paulo Lemann Professor at the Harvard Business School

The title of Mr. Abruzzese’s presentation was quire timely and has pertinence to global supply chain executives: Digging Out- or Digging In for Another Shock? – Preparing for a Riskier World. 

The presentation confirmed what most of us involved in global supply chains already know, that Europe is already in recession.  The open question is how long, and how severe? Also noted was that the Chinese economy is slowing down and that the BRIC countries (Brazil, Russia, India, China) have collectively hit a brick wall in terms of prior economic momentum. The EIU includes the U.S. to that list as well.

In the area of business risk, most risk today resides in the developed world, due to high uncertainties related to Europe’s economy which represents one-third of the overall global economy. A chart indicating the ten countries with the highest current risk scenarios has Syria listed first, Greece listed fourth, Italy listed sixth, and Somalia listed as tenth.

More sobering from a supply chain risk perspective is Mr. Abruzzese’s indication that businesses should be paying very close attention to economic and political events in Europe over the next two weeks.  On Sunday, Greece will hold national elections with very high stakes related to its continued membership in the EU.  The outcome of that election, and how the rest of the Eurozone’s political and financial leadership responds, will quickly determine whether the global financial system undergoes a far more severe shock in the coming weeks.  Mr. Abruzzese’s belief is that when the dust settles, sanity will avert a full-blown crisis, but none the less, the warning is one that should be of concern. As a result of this prediction, Supply Chain Matters will certainly be closely watching and commenting on these events in the coming days.

Also shared was the EIU economic scenario for the remainder of 2012 which indicated the following:

  • Slow, uneven growth- a 60 percent probability factor
  • Global shock; double-dip recession including a Eurozone break-up and global financial crisis- a 30 percent probability
  • Flood of liquidity (free money) leads to a mini-boom in certain global economies- a 10 percent probability

That is a concerning list to say the least, one that senior business and supply chain executives along with Sales And Operations Planning teams will have to deal with over the coming weeks and months. We have often pointed to the need for robust scenario-planning capabilities in determining supply chain resource plans.  The above listing is a perfect example of how global based manufacturers, retailers and service providers will have to plan resources, capacity and inventory contingencies for the remainder of the year. Slow, uneven growth requires the ability to identify and differentiate plans concerning which regions that will continue growth vs. which regions that will contract.  A potential global shock, even with 30 percent confidence, implies caution in planning increased volumes. The final prediction, although the lowest probability, implies a potential opportunity to upstage the competition.

Difficult choices to say the least and strong testimonial to the needs for robust responsive management and agile capabilities across the entire supply chain.

Stay tuned.

Bob Ferrari