Supply chain risk and resilience is a topic that is in vogue. The COVID-19 pandemic highlighted the link between risk and return, with many businesses experiencing pain as they struggled to show resilience when supply and demand were in flux. The impact has echoed right to the top of the business chain, with nine in ten CEOs reporting to our Supply Chain Barometer that the desire for greater supply chain resilience had driven them to make some form of change to their business.
We now face a landscape where risk has been ratcheted up further. We’re seeing a geopolitical decoupling, with the US and China increasingly distancing themselves from each other economically and looking to draw other countries into their spheres of influence. How this will play out in the coming months and years is uncertain.
At the same time, we’re also seeing ESG risk soaring up the corporate agenda. The push to operate supply chains in a more sustainable manner creates an urgency for businesses to change but also creates a pressure cooker where failure or missteps create reputational threats.
It would also be a mistake to focus only on the environmental aspects of ESG. Compliance with human rights and labor rights regulations, which are on the rise, is also an increasingly important task. Non-compliance increasingly comes with the threat of reputational damage, regulatory censure, and significant financial sanctions.
All that has been highlighted so far has focused on the threats of supply chain risk, but what if we flipped this round? What if, instead of looking at these developments as threats, we viewed building supply chains that are resilient and transparent as a source of potential competitive advantage?
A new model for risk, with transparency at its heart, is about using the tools at our disposal to deliver across the following key areas.
1. Risk appetite
Before any tech-enabled solutions are considered, it is critical that businesses establish their risk appetite, clearly formulating a bold view on what risks they are willing to accept. Each business risk area will require an accountable owner who sets the parameters for what risks can be tolerated. These appetite boundaries will create clear ‘go’ / ‘no-go’ paths that can be enabled by utilizing the right technology.
2. Robust framework
Any risk management strategy must be built on solid foundations, and it is vital that businesses put in place a robust risk management framework. The basis level of the framework is risk assurance which involves critical assurance checks which blockchain applications can now perform. Building upon that is an additional layer of monitoring across the value chain made up of connected external risk applications. Some businesses will also need to focus on risk agility, which will involve real-time monitoring, simulation, and pattern analysis across the supply chain.
3. Smart technology
Tech-enabled solutions allow teams to better identify and understand risk, allowing procurement and risk professionals to better segment supplier risks based on behavior. This not only improves the amount of data available but it increases our ability to be responsive to emerging and changing risks.
The adoption of Industry 4.0 and innovations like The Internet of Things and Machine Learning is central to the success of this new risk management model. The suite of tech-enabled tools now available to us means that teams can develop an interconnected network that monitors and analyses risk in real-time.
All of this technology means that teams are being equipped with more and better data than ever before. The new world of risk management is about harnessing that information to be more targeted in how a business responds to emerging risks.
4. Resilience strategies
While there is a lot of potential for the advantage that can be delivered in the short term, the real benefit of these emerging risk dynamics is our ability to build resilience strategies for the long term. This will allow businesses to better respond to the age of unpredictability in which we find ourselves, positioning a firm ahead of its competitors.
A Vision for the future
There is a huge commercial advantage to be seized by adopting a risk model centered around transparency and resilience. The risk management of the future is a tech-driven, always-on approach that performs cognitive and all-compassing value chain monitoring. These approaches will be optimized using external and internal value chain data to make smart decisions in real-time with minimal human intervention, freeing up your team’s capacity to develop strategies to boost resilience. Ultimately, this will allow business leaders to sleep soundly safe in the knowledge that they have complete visibility across the supply chain.