Supply Chain Risk: An Operational Resilience Perspective

With such an uptick in known supply chain attacks and well-publicized outcomes, organizations are compelled to scrutinize their vendor relations.

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What is supply chain risk? Understanding supply chain risk is fundamental in being able to effectively manage operational risk.

Two of the most significant threats operational leaders face are cyber risk and supply chain risk. There is a realization that the black swan is dead. A new report by supply chain risk management company Interos found that many organizations have been impacted by three significant supply chain events within the last 12 months on average. That disruption is costing large enterprises $182 million annually in lost revenue.

No More Excuses

With such an uptick in known supply chain attacks and well-publicized outcomes, organizations are compelled to scrutinize their vendor relations, from those who physically have access to equipment to those providing software vital to business operations. There are no more excuses for supply chain disruption from unforeseen events.

As the level of these disruptions continues to escalate, we are also seeing increasing oversight and governance. First, on the regulatory side, over the last few years, there is increasing regulation within the financial industry relating to third parties. An organization must know who, how and where a third party operates within its networks and systems.

Furthermore, with every crisis, there has been an increasing level of scrutiny from all stakeholders. Equally, company boards have become more engaged in overseeing organizational risk management processes. Such is the severity of these disruptions, that 78% of boardrooms now discuss supply chain resilience at least monthly if not more.

And with current geopolitical conflicts, Boards are asking key questions — not only to understand the impact to operations, or if the company has expertise in geopolitical risk or is prepared for cyber security threats, but they want to also understand if the disruptions warrant adjustments to the company's environmental sustainability program.

Reshoring has also become an area of focus in response to global disruptions, The Interos report reveals that more than 50% of companies surveyed expect suppliers to be reshored or nearshored on average in the next three years. However, what comes with it is concentration risk and having full visibility of the supplier.

Continuous Monitoring

There are tools across the industry that can help by mapping and monitoring the threat landscape in real time, helping to manage and understand emerging risks so that appropriate decisions can be made.

It's surprising how often business continuity planning (BCP) and supplier contingency planning (SCP) are used and discussed synonymously, which they are not. While these programs are different, there are many intersection points with resiliency programs. Therefore, is important to understand where the intersections exist and to what extent in order to ask the right questions.

It is also important to understand what information should be shared between programs — operational resilience, third party, cyber programs. How is information shared and communicated? Even still today many of these functions are siloed in different areas of the organization, making it harder to get a comprehensive view of an organization's risk posture. This results in piecemeal information, making it harder for the C-Suite and Boards to understand the overall risk to the organization.

Planning Strategies Considerations

In order to plan effectively, leaders need to look at alternatives internally and externally, and understand the scenarios under which they can be employed.

There are institutions across many industries that are single points of failure because there are no alternatives. For those with alternatives, additional consideration is needed to understand geographical risks/ limitations and the ease of transfer to alternate service providers. And if the services can be transferred, is there additional supply chain risk if the third party hasn't been thoroughly vetted?

The reality is that companies don't currently have sufficient flexibility and alternate options within their global supply chains. In other words, they don't have enough operational resilience. 86% of organizations surveyed agree they have too many suppliers concentrated in one area of the world.

For organizations with a global footprint, there may be more options and opportunities to operate within other jurisdictions.

The Way Forward

There are technologies and resources that can assist companies on their journey to simplify and manage risk effectively.

Ultimately, leaders need to realize supply chains are a big data challenge — with billions of relationships and entities to be managed in real time, around the clock. AI & ML provide continuous oversight vs traditional semi-annual manual approaches and surveys that are outdated at best and incomplete at worst. Using AI and ML to map extended supply chain across the globe and down through multiple tiers at speed and scale is where the future is.

We must pay heed to the increased focus and overlap with ESG goals and related climate risk. Against this scrutiny, we need to focus on how TPRM intelligence can be introduced into ESG and implementing ESG with TPRM.

We live in a single connected global economy where extended supply chains are pivotal in enabling or constraining ESG objectives. On average, global supply chain ESG-related disruptions cost enterprise-level organizations $35 million in lost revenue per year. They experience an ESG-related supply chain disruption every two months, on average.

ESG should not be viewed as a process for being compliant, but a process for being competitive.

If there is one key message to take away, it is the need to break down the silos, within your organization and across the industries. That will make it easier to understand and manage risk, establish a cohesive approach, which will help keep the Board better informed.

Uncommon Knowledge

Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.

Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.

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About the writer

Nita Kohli


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