In the digital era, supply chain risk management has never been more important. More and more supply chains depend upon distributed third parties and fourth parties that are vulnerable to a host of internal and external risks. Research has shown that an astonishing 89% of businesses have suffered some supply chain risk event in the last five years. Without significant business continuity planning, this can result in losing access to necessary raw materials, shipping concerns, and distribution delays that could prove fatal to your enterprise.
Applying effective risk management strategies to your supply chain can be the difference between continuing business operations or losing everything. Failing to account for the potential risk to your global supply chain in your risk management lifecycle can be fatal. Before we delve into some best practices for protecting the most vulnerable parts of your supply chain, let's take a look at exactly what some of the most common supply chain risks include.
Supply Chain Vulnerabilities
One of the biggest shifts in supply chain risk management is recognizing cyber supply chain risk as a significant area of concern. The U.S. National Institute of Standards and Technology (NIST) issued updated directives in 2022 that specifically focused on building resilience in supply chain risk management by incorporating cyber supply chain risk. Whether we're talking about a cloud services provider or a software as a service vendor, those third parties can all hold substantial sway over your supply chain. The compromise of a single vendor can have wide-reaching effects across multiple unrelated industries if the attack results in system downtime.
Hurricanes, wildfires, landslides, earthquakes, blizzards, and anything else that the planet could possibly throw your way can have a massive impact on your supply chain. This should absolutely be a factor you have in mind when sourcing suppliers for raw materials or other critical components. Supplier risks become your risks when they impact your global supply chain.
Government and Health Concerns
Another area often overlooked is those that are heath-related or geopolitical in nature. While no one expected an international pandemic in 2020, Business Continuity Institute (BCI) research indicated that over 40% of supply chain interruptions due to COVID-19 came from tier 2 vendors and below. This means that organizations likely had little knowledge of the vendor and next to no insight into the specific challenges they were facing or when they would be able to deliver necessary products. Far downstream parties can have a lasting impact on your business operations.
This also applies to the geopolitical spectrum as well. With armed conflicts cropping up in far-flung and nearshore areas of the world, it's difficult to keep abreast of potential risks to parts of your supply chain when your staff is unfamiliar with the often nuanced political climate in that area.
Best Practices for Supply Chain Risk Management
Risk management strategies in your supply chain must be designed to be effective without also overcomplicating your business continuity planning. The following best practices are things that you can implement to mitigate internal and external risks to your supply chain and limit supply chain disruptions.
Ensure Supply Chain Visibility
With the increasing reliance on third-party vendors, having visibility into your vendors' suppliers is only becoming more important. This means that you must build into your risk assessment and contracting processes the ability to gain insight into your suppliers' supply chains. Business operations may be something they don't wish to allow you total access to, but properly selecting your business partners by their willingness to address risk mitigation strategy as a team provides an added layer of security for you.
This means more than having a contingency plan on paper. Risk management strategies in supply chain management environments are something that has to be battle-tested. Implement training environments that allow you to war game business continuity procedures in real-time. Put your business continuity team and contingency plan through its paces by practicing responses to possible risk events that could threaten your global supply chain.
Map Your Supply Chain
This is an effective risk management task in any vertical. Physically mapping out your supply chain and then overlaying it with real-time threat data from various sources can give you an accurate picture of some of the challenges you may be facing in your global supply chain. Having the flexibility to pivot from a high-risk vendor to one in a more stable position before a risk event makes it necessary and allows you to do so on more favorable terms.
Consider Redistribution of Suppliers
A good step to follow the mapping we just discussed is evaluating what vendors you can move nearshore. You have a better picture of the threats facing your supply chain if it is more centrally located to your business operations. This may cost more for raw materials or other products, but the savings might be found in lower shipping costs, smoother import/export processes, and less risk.
Implement Audits of Your Import/Export Process
For things that can't be brought regionally or nearshore, make sure you audit your imports and exports. While this should be part of your standard risk management strategy, looking at post-entry data will give you visibility into over or underpayment of duties, tariffs, and other hidden vulnerabilities. Some software solutions allow you to look at a wide range of internal and external risks regarding import management.
Outsource Some Risk Management Components
Supply chain risk management strategies are integral to your business continuity and contingency planning processes. It's understandable if you don't have personnel who can readily step into that role and continue to monitor so many diverse metrics in real-time. There are vendors who specialize in developing and implementing custom risk management strategies in supply chain-dependent industries. Outsourcing all or part of your vendor management can give you time to focus on running your business without those added complexities.
At Venture Lynk Risk Management, we pride ourselves on using our subject matter experts to provide premier risk management services to many high-risk industries. We offer custom enterprise vendor risk management solutions, operational risk management, information security risk management, and more. Whether you're looking for a one-stop risk management solution, an outside vendor for a cyber risk assessment, or even intellectual property risk management, we specialize in helping those enterprises with the highest levels of risk. Contact us today to schedule your consultation and see what we can offer for your specific risk management needs.