The need for businesses to develop, implement and expand risk based strategies across their supply chains has never been more critical. Widespread environmental disasters, political turmoil, social unrest and the plethora of recent information security blunders have ever-increasing potential to cripple – even destroy – otherwise healthy businesses. This is especially true for companies that rely on just-in-time (JIT) and outsourced services such as Cloud Computing that improve their bottom lines by reducing IT operational costs.
The fact that an alarming number of companies are well aware of the need to take action and are choosing to wait until it is too late, requires a closer look at the issues surrounding risk management and how it can help companies; navigate the increasing complexity of global supply chains; gain visibility into their suppliers’ management processes, and protect their businesses from a growing number of threats.
Supply chain transparency is essential for any business management process to be successful. The more committed companies are to thwarting potential business disruptions in the supply chain, the more robust and effective their responses are likely to be in the event of an incident of any type.
According to an APQC survey, the top potential threats to supply chains differ from industry to industry, but a majority of business leaders report that they are concerned about:
- High-impact natural disasters – floods, earthquakes, tsunamis
- Extreme weather – hurricanes, tornadoes, severe snowstorms, heat waves
- Political turmoil – large protests, regime changes, war zones
- Unplanned IT and telecommunication outages
- Data breaches
- Cyber attacks
While these six categories are perhaps the easiest to grasp, the list of serious potential threats that organizations are concerned about is much longer as indicated in BCI’s 2014 Horizon Scan Report. Concerns that are just as ominous as the top six include labor strikes, financial instability/insolvency, loopholes in logistics contracts, utility supply interruptions, shortages of materials, mergers and changes in regulations and ethical misconduct to name just a few.
There is a growing concern about the continued increase in higher business environment volatility that continually makes the task of managing global supply chains tougher every day. Changes over the last few years in the social, political, technology, environment, and economic domains around the world, suggest that the business landscape and paradigm of supply-chain management has transformed permanently.
Outsourcing the supply chain and developing partnerships is now much more than just subcontracting or logistics management. These third parties’ are very likely to have different approaches to risk and varying policies on risk acceptance and mitigation. Assessing third parties and associated risks is fast becoming a critical part of doing business. Assessing suppliers with tools such as the Shared Assessments Program Standard Information Gathering (SIG) questionnaire along with objective evidence of certification, or compliance, based on international standards; and updating that data on a regular basis, are quickly becoming the initial screening process that is essential for choosing suppliers and maintaining a level of confidence and transparency.
While contracts will continue to remain an important part of ensuring that suppliers meet their service level agreements, it is important to remember that while such contracts assume stability, they are not a guarantee of stability. ((Pidgen, S. 2013)). Hurricanes, supply chains and continuity. ) Depending on the crisis that causes a business disruption, penalties built into contracts with Tier 1 or Tier 2 suppliers are likely to fall well short of covering the significant financial losses endured by end customers.
John DiMaria is a BSI Certification Portfolio Expert and Member of the Shared Assessments Steering Committee with over 30 years of successful experience in Management Systems and international standards. Connect with John on LinkedIn
Notice: The views expressed in this blog are those of the author and should not be interpreted to have been endorsed or otherwise represent those of BSI Group, or any other of its employees, officers, directors or anyone otherwise affiliated with BSI Group.