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Actions to address risk

SOURCING AND SUPPLY ACTIONS

RISK

Within each Risk Index Chapter, there are three potential approaches that sourcing and supply chain professionals may deploy for each risk. This section outlines further tactics available to mitigate the risks identified in The Global Sourcing Risk Index.

A PRACTICAL APPLICATION

Identifying risk is one thing, but it’s how that risk is acknowledged, mitigated, and, or managed that will determine success. To complicate, risks aren’t typically mutually exclusive, meaning multiple risks will often apply to a sourcing decision. Consider the synergies between governance and compliance with human rights, for example, or the crossover between climate risk and supplier concentration.

Risks will vary by likelihood and impact. This view can ebb and flow, dictated by the many macroeconomic drivers highlighted throughout the report. Capturing a view on risks faced relies on an appropriate assessment, distilling the multiple to the critical and allowing prioritization of efforts in the right places at the right time.

Consider the following example. An EU-based Tier 1 sugar provider to multiple organizations in the food and beverage sector, with a single-source supply of sugarcane and sugar beet in Thailand, ranked 11^th in the composite index. The risks explored in this report present themselves as follows:

PRIORITIZING RISK

While all risks are present to an extent, those of critical or high priority, based on the combination of likelihood and impact, will demand attention first. For a sourcing professional, these critical risks alone threaten supply in various ways, each requiring a conversation around risk appetite and an appropriate corresponding mitigation strategy. Organizational risk appetite refers to the extent to which risks are terminated, treated, or tolerated by a business. For example, a business with low risk appetite will seek to mitigate and manage risks to a greater degree than one with a high risk appetite, which may choose to tolerate (more of) them.

SO, WHAT CAN BE DONE?

The crossover between climate and supplier concentration risk is mirrored in the predominant mitigation strategy for both - diversify geographically. Adding a secondary or tertiary sourcing option will build resilience against a single source of failure due to the Thai climate.

What’s critical, though, is choosing a location that balances the risks present in Thailand. Based on existing trade routes, diversifying within the SEA region might appear the easiest option, and sourcing to Vietnam, a location with strong trade access and relatively stable governance, offers a strong alternative. However, Vietnam also scores high for climate risk, suggesting a different region might offer a more secure backup. Meanwhile, Brazil scores lower on the composite data and specifically lower for climate. While risk remains in the form of geopolitical, governance, and compliance, securing a source of supply further afield offers a greater balance during swings in natural disasters, politics, and regulation. Triangulating between the three locations might offer the most comprehensive resilience, but it may increase costs, and will likely increase supplier management efforts.

There are always trade-offs, but also other mitigation strategies to consider, for example:

SUPPLY CHAIN TRACEABILITY | Increase transparency in Tier 2 and beyond to assess traceability through mills and cooperatives. This helps uncover labor and environmental impacts and provides actionable data.
CLIMATE RISK PLANNING | Work with suppliers on practices like drought-resistant seeds or better irrigation. Support those willing but needing help. Collaboration strengthens the whole supply chain.
SUPPLIER CONTINGENCY CLAUSES | Build resilience into contracts with clauses for volume shifts, shipping delays, and price changes triggered by climate or geopolitical events.

Medium and low risks should not be ignored. Managing and monitoring risk can be a labor-intensive activity and hard, if not impossible, to do effectively at scale without technology. There are many options, and buyers should consider which technology best supports their risk appetite and risk profile.

WHAT ABOUT ELSEWHERE?

Contrast this example with one in a different industry, a UK-based financial institution outsourcing IT support, cloud services, and BPO to providers in Poland, India, and the Philippines, which already have a diversified supply base.

In this instance, climate risk and, to an extent, trade barrier risk, have already been balanced across geographies, and input price volatility isn’t a major concern because it is service-based procurement. Labor cost, however, and associated human rights risks present a growing concern that requires monitoring.

Yet, the top priority has become cybersecurity, with a high likelihood and high impact. Financial Services businesses and their outsourced technology providers are highly exposed to third-party cyber threats, and breaches of regulations tied to sensitive personal and financial data carry heavy penalties. This, in turn, creates a high risk of governance and compliance, as outsourcing must comply with increasingly strict operational resilience frameworks such as the Financial Conduct Authority rules.

Here, resiliency options are again led by the organization's risk appetite. Further rightshoring or insourcing options may be on the table, but the organization will be looking at how it and its partners specifically monitor, manage, and respond to cyber threats. In this instance, regulation forces a degree of action.

CLOSING REMARKS

Through all the risks presented in this report, and the myriad strategies and tactics available to manage and build resilience, one theme remains constant: you can only manage what you can see. There are layers to risk, and buyers should be aware of what lies beneath the surface.

Risk, as a standalone concept, often has negative connotations. Yet knowing your risks could be the key to not only surviving the volatility and uncertainty of today’s business climate but also thriving within it. It could offer you a competitive advantage and the ability to act on opportunities to maximize profitability.

HOW CAN PROXIMA HELP?

Proxima is a specialist procurement and supply chain consultancy comprised of experts in achieving value for money and managing risk. Spanning cost and capability transformation, we help businesses overcome challenges by being ever-present in the market, offering best-in-class solutions, and driving short and long-term results.

Partner with Proxima to navigate the complexities of risk and optimize your supplier expenditure. Together, we can build agility and resilience into your supply chain.

PROXIMA - THE PROCUREMENT SPECIALISTS

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ABOUT THE AUTHORS

Emily Gladstone, Lead Economist, Oxford Economics

Emily is a Lead Economist at Oxford Economics, specializing in industry outlooks and strategic assessments. She previously worked for five years in the Government Economics Service, working at the Department for International Trade and the Department for Business, Energy, and Industrial Strategy.

Simon Geale, EVP of Client Solutions at Proxima

Leading strategy, product, and marketing. Simon brings deep expertise in procurement and supply chain transformation. An award-winning thought leader and regular speaker, Simon is known for his strategic insight, creative thinking, and regular contributions on procurement innovation and supplier collaboration.

Gemma Thompson, Senior Strategy and Growth Consultant at Proxima

Shaping content and solutions that address complex procurement challenges. Gemma now applies her deep understanding of client needs and market trends, such as sustainability, risk, and digitalization, crafting compelling, actionable insights. Known for her clarity and creativity.

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THE GLOBAL SOURCING RISK INDEX

APPENDIX

The analysis and insights provided throughout the report focus on the top 10 ranking countries per risk. Below is the full aggregated risk score reflecting all 30 countries analyzed. Based on the risk factors included in the index, Switzerland represents the least risk and Mexico the most.

GEOGRAPHIC SCOPE

The Global Sourcing Risk Index, has been created by Proxima in partnership with Oxford Economics. The report includes the world’s 20 largest economies by GDP in 2024 as “developed” sourcing markets: Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Korea (the Republic of), Mexico, Netherlands (the), Russia, Saudi Arabia, Spain, Switzerland, Turkey, United Kingdom and the United States of America.

Proxima and Oxford Economics selected an additional 10 “emerging” economies based on a combination of scale, location, and prominence in the global sourcing debate: Austria, Colombia, Malaysia, Philippines, Poland, Singapore, South Africa, Taiwan, Thailand, and Vietnam.

SECTORS

The analysis spans 10 critical sourcing sectors:

Aviation and Aerospace, Communications and Technology, Construction, Consumer Packaged Goods, Energy and Natural Resources, Financial Services, Food and Beverage, Healthcare and life Sciences, Manufacturing, and Retail.

METHOD AND SCOPE OF REPORT

RISK DIMENSIONS

The index and the report explore eight risk dimensions: Geopolitical conflict, Weather and climate, Compliance and governance, Human rights, Labor cost volatility, Price risk, Tariff and non-tariff barriers, and Concentration risk.

Each risk is supported by a dedicated methodology and data sources, with analysis conducted at the sector and country levels. Base data sources include: the Global Peace Index (GPI), Natural Disaster Risk (World Risk Index), International Labour Organization, World Bank Worldwide Governance Indicators, US Bureau of Labor Statistics, Walk Free Global Slavery Index, OECD Input-Outputdata, Herfindahl-Hirschman Index (HHI), and Producer Price Index (PPI).

Cybersecurity risk is not included in the overall index risk calculations, but the data in the cybersecurity section of the report is based on available data for the following sectors: Financial Services, Manufacturing, Healthcare and life Sciences, Communications and technology, and Retail, as highly impacted sectors.

If you are interested in learning more about the methodology, PLEASE GET IN TOUCH.