Higher oil prices plus rising food and other commodity prices are creating significant upward pricing pressures at the same time that companies and their suppliers are struggling to adjust to the global credit crunch.

The supply chain impacts of these trends should be fully thought through to prevent unanticipated delays and disruptions. For instance:

• Beware of country actions and labor unrest. Companies in all sectors with operations or contract manufacturing in developing nations are at risk for labor unrest and rising labor costs, which can be triggered by food price volatility and inflation. In 2007 and 2008, food prices caused demonstrations and strikes in such nations as Mexico, India, Italy, Indonesia, and Egypt. Government actions, such as export stoppages, are also becoming more common.
• Beware of fuel prices triggering work slowdowns and logistics delays. In 2008, truck driver demonstrations over fuel costs have created temporary transportation slowdowns and stoppages across many parts of Europe, including France, England, Spain, and Portugal.
• Beware of bankruptcies and delays in your supplier base. At the same time that banks have significantly tightened global credit lines, suppliers are faced with rising operational costs due to fuel, raw materials, and in some countries, labor price increases. The result is an increase in bankruptcies among financially strapped transportation carriers and suppliers. Another insidious impact is that some suppliers may no longer have enough cash to fund fully their customers' orders. As a result, some suppliers may delay or only partially order raw materials, skimp on quality, delay hiring or facility expansions needed to support a customer's business growth or product line expansion, and be significantly less resilient if a natural hazard or other supply chain disruption occurs.

The report goes on to identify five key safeguards that supply chain and risk managers should consider to help protect their enterprises from these destabilizing trends.

The report entitled Inflationary Prices Putting Supply Chains at Risk is available by clicking here.