Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
Finding the light: supply chain scrutiny in 2023
The global economy is interconnected and complicated. Businesses are linked with countless other firms, producers, vendors, and merchants through global supply chains. This ecosystem is a fundamental part of worldwide trade. However, this complexity creates risks, challenges, and vulnerabilities for organizations.
Historically, organizations were not required or expected to have full visibility across their supply chains. Today, understanding where risks lie in a supplier network by having visibility into supply chains is no longer optional but essential for organizations.
The challenges facing those responsible for creating transparency of supply chain risks are significant. Considerations range from ESG demands to geopolitical upheaval to increasing cybersecurity threats and continuously evolving regulations. The burdens are significant but it’s imperative to act responsibly, and ignorance is not a defense. Organizations that don’t have visibility into their supply chains can be left dangerously exposed to risks.
The dangers of a lack of supply chain visibility
Negative news stories associated with suppliers in an organization’s network, no matter how far back they go, can present a real danger of reputational damage. However, many businesses are falling significantly short of true visibility of risk.
Supplier-related scandals can be highly damaging to a business’ reputation. They can lead to a loss of trust with customers, investors, and other stakeholders. News of unethical or illegal behavior within a company’s supply chain can spread rapidly through social media and news channels, causing significant or, in some cases, irreparable harm.
Whether a business associated with unethical behavior had knowledge of its occurring is no longer the point. Organizations are likely to be held to account in the court of public opinion. The expectation is they should have visibility over the entire journey of any product or service that is taken to market. Recently published research from Moody’s Analytics found 69% of businesses do not have the necessary visibility over their supply chains to uncover risk in their supplier networks.
The consequences of this exposure can be severe, including a decline in sales, loss of market share, legal action, fines from regulators, and long-term damage to the company’s brand and reputation. Therefore, it’s essential for businesses to prioritize gaining supply chain transparency and accountability to avoid scandals, unethical conduct, and to protect their business reputation.
What is preventing visibility of risk across a supply chain?
Despite the importance of having visibility over risk across a supply chain, many businesses are still struggling to achieve it. According to a recent study, 74% of businesses rated their third-party risk management sophistication as poor or mediocre. Businesses have pointed to a range of factors driving these challenges. For instance, a lack of data, with businesses struggling to gather and analyze the vast amounts of data required to achieve end-to-end visibility of risk.
Additionally, evaluating every organization in a supplier network is challenging, as it requires complex data management processes and automated solutions. These risk management solutions, while becoming more prevalent, are still not widely deployed, and is particularly the case with small and medium-sized businesses that may not have the resources of larger companies.
Another factor affecting visibility of risk in supply chains is that responsibility is often spread across different departments, making it difficult to achieve a comprehensive view of supplier-related risks.
Identifying supply chain risk
Businesses can identify risks in their supply chain using a combination of people, process, and technology. One critical process is conducting a comprehensive risk assessment to identify potential vulnerabilities across the entire supply chain. This assessment should consider factors such as supplier reliability, geopolitical risks, natural disasters, and cybersecurity threats.
In addition, technology solutions such as data analytics, artificial intelligence (AI), and blockchain can help businesses monitor and analyze supply chain data in real time, so potential issues can be identified before they escalate. AI is particularly beneficial for identifying supply chain risks due to its ability to analyze large amounts of data. It can quickly detect patterns, anomalies, and potential risks from the data, allowing businesses to take proactive measures.
AI can also be adept at detecting potential fraud or compliance issues by analyzing transactions and supplier behavior. Additionally, it can enhance visibility across supply chains by providing real-time insights through perpetually analyzing enormous databases, searching for patterns and flagging issues based on risk appetite. AI-powered predictive analytics can help anticipate risks, enabling businesses to take preventative measures and increase the chance of identifying unethical activities affecting their supply chain.
By leveraging AI and automation in third-party risk management processes, businesses can gain far greater, deeper, and more significant insights into risk in their supply chain. Having a greater knowledge and understanding of the facts through reliable data allows compliance professionals and systems to make better, more informed decisions on risk incidents flagged by AI, which will help prevent bad practices from compromising their supply chains.
Why robust third-party risk management is crucial
Robust third-party risk management is essential for businesses that want to avoid reputational damage, avoid fines for non-compliance, and achieve faster recovery times following supply chain disruptions.
With so many businesses struggling to gain control of supply chain risk, there is an opportunity for those who have done so. Compliance has traditionally been viewed as a necessary obligation and not a value driver. However, when applied to third-party risk management, it can be used to propel growth through an ethically assured brand.
Therefore, it is crucial for companies to establish robust third-party risk management practices that leverage technology to create end-to-end visibility across their supply chains to effectively manage risk and drive business value.