Ensuring Supplier Risk & Resilience in the Extended Enterprise
Here are some thoughts stemming from my Third-Party Risk Management by Design Workshop in London last week and other interactions I have had on my research. I am speaking on this topic next week at my Third-Party Risk Management by Design Workshop in Chicago, as well as a webinar on Building Resilient Supply Chains: Strategies for Success.
In today’s complex and distributed business that largely depends on extended enterprises, supplier risk and resilience have become fundamental components for maintaining operational efficiency. With the increasing interdependence amongst organizations and their suppliers, the significance of developing robust systems to manage supplier governance, risk management, and compliance associated with suppliers cannot be overstated.
Some key challenges organizations face are:
- Operational Resilience. Operational resilience refers to an organization’s ability to continue to deliver on its key business services during times of operational stress and disruption. In the context of supplier risk, this encompasses ensuring that critical suppliers are similarly resilient, preventing interruptions in the supply chain that may impact business continuity. Within extended enterprises, operational resilience necessitates carefully evaluating and monitoring each supplier’s capabilities, reliability, and stability. This integrated approach helps organizations to anticipate potential supply chain disruptions and enact measures to mitigate risks proactively, maintaining service delivery even under unpredictable circumstances.
- ESG in Supplier Risk Management. Environmental, Social, and Governance (ESG) criteria have become crucial for evaluating supplier risks. Suppliers’ ESG practices directly impact the reputation and sustainability of the hiring organization. Evaluating suppliers based on ESG metrics is integral to fostering responsible business practices, ensuring long-term sustainability, and mitigating reputational risks. The European Union has been pioneering in imposing stringent ESG standards for businesses. With regulations such as the EU Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), organizations operating within or dealing with the EU market must ensure their suppliers comply with these elevated standards, as non-compliance can lead to hefty fines and reputational damage. This has a global impact across the world.
Developing a comprehensive supplier risk and resilience strategy is imperative to navigate the uncertainties and complexities in today’s business environment. This strategy should encompass risk identification and management and focus on building resilience within the supply chain to ensure uninterrupted service delivery.
- Risk Identification. Organizations should identify potential risks associated with each supplier, considering geopolitical stability, financial health, operational capabilities, and compliance with ESG standards.
- Continuous Monitoring. Continuous monitoring mechanisms must be implemented to track changes in identified risks and the emergence of new ones.
- Actionable Insights. Organizations should leverage technology and third-party risk intelligence to derive actionable insights from the monitored data, enabling timely decision-making and risk mitigation.
Implementing technology solutions that seamlessly integrate with third-party risk intelligence content offerings is crucial for effective supplier risk and resilience management. These technologies facilitate the efficient collection, analysis, and interpretation of vast amounts of supplier data, providing organizations with a clear and immediate understanding of their supplier risk landscape.
As businesses increasingly rely on a network of suppliers for operational success, crafting a detailed supplier risk and resilience strategy becomes non-negotiable. Such a strategy, complete with systematic processes and technologically advanced tools, assists organizations in identifying and managing supplier risks and building a resilient supply chain capable of withstanding disruptions. Given the heightened focus on operational resilience and ESG standards, especially within the European Union’s regulatory framework, companies should proactively develop, implement, and continuously improve their approach to Supplier Risk and Resilience to safeguard their operations and reputation in the dynamic global market.
Are you considering attending Third Party Risk Management by Design in Chicago next week? Here are some comments from the London attendees last week . . .
- “An engaging and valuable session on TPRM with some great insights on emerging risks (AI in the supply chain and increasing regulation) and the maturity of an integrated risk management response. Certainly, a number of topics on which to follow up with our Supply Chain risk team” – VP Risk Advisory, Hospitality
- “The session was set up well with some great topics to discuss round the table. It was good to see some similar trends on challenges various industries were facing regarding 3rd Party assurance. I enjoyed the overall risk management and senior leadership endorsement, the maturity model and offboarding suppliers as key areas of development. I look forward to your next visit and workshop!” – Cyber Security Risk and Assurance Manager, Transportation
- “The workshop was very informative and covered a wide range of topics both from yourself and other attendees. Key areas that I took away from the workshop were the implications of AI on third parties both positive and negative as well as highlighting the need for oversight when offboarding suppliers.” – Head of Third Party Governance, Financial Services
- “It was a very informative experience and a lot to take away from initiating a drive from the 3rd party program to the off-boarding of 3rd parties suppliers. I have a lot to help me start a clearer road map in plugging the gaps within our 3rd party management program.” – Supplier Assurance & Controls Analyst, Energy Company
- “Thanks for the session yesterday. I found it very informative and I made several pages of notes. I am planning to use the Titanic analogy as a risk awareness session for leaders and managers – with a bit of research I think I can turn it into a great case study and map out the parallels with running a business, how third parties introduce risk, communication, risk appetite, risk blindness, planning, the role of due diligence (or the lack of it), etc. You have also provided some great check lists which we can use to sense check our due diligence process for robustness and where we can improve third party risk management.” – Principal, Health and Safety, EMEA, Architecture Design Firm