Evaluating and Mitigating Risks in your Supply Chain

94% of consumers say they have greater loyalty to a brand that demonstrates complete transparency and yet only 69% of businesses think they have full visibility of their supply chain. We look at the risks businesses face and the importance of employing the right supply chain risk management solution.

Customers and regulators are increasingly concerned about the processes and practices that create the products we consume. They want to trust that the products are safe, performant, and comply with relevant legislation and industrial standards.

With global markets becoming more competitive, supply chains have become longer and more complex as brands look for suppliers in lower cost countries. The result is an increase in supplier risk and a decrease in oversight for brands or operators towards the end of the supply chain.

WHAT IS SUPPLIER RISK?

Supplier risk can be broken down into internal and external risks. Internal risks relate directly to the supplier, which the brand can have a direct influence upon. In some cases, this may even mean choosing an alternative supplier.

Internal supplier risks include:

• Country/region – some locations are inherently more unstable and therefore riskier. The brand may choose to source their goods from a more stable region.
• Product/service – some types of product/service are intrinsically high value, are safety critical, or have intellectual property concerns. The brand will need to choose a supplier that can continuously deliver the right quality of good.
• Level of spend – how much money the company spends on individual products/services.
• Safety – where suppliers are importing risk to the organization.
• Reputation – where supplier behavior directly affects the brand. A brand does not want to be associated with a supplier with a bad reputation.
• Quality – when high standards are required, the supplier must be capable of deliver consistently high-quality products.
• Social and ethical – risks including bribery and corruption, modern slavery, child labor, etc.

External supplier risks are those threats which are not directly in the control of either the supplier or the brand, but which can have a direct impact on business continuity.

These can include currency fluctuations, labor strikes, competitors, weather events, geo-political conflicts, logistical challenges, regulatory risks, consumer expectations and, particularly relevant to 2020, pandemics.

High risk suppliers can negatively impact the brand in a variety of ways. They can increase costs, reduce supply, and there may be legal implications for the brand if the supplier does not conform to legislative requirements. If the supplier has engaged in unethical behaviors – modern slavery, child labor, etc. – the brand may find that they are not only subject to legal censure but also severe reputational damage.

Reputation can be a competitive advantage for a brand, making the difference between making a sale and no sale. 81% of consumers state that they must trust a brand before making a purchase, and 64% would stop buying a particular product if they found there was an ethical concern about the supply chain for the brand. Interestingly, a key brand quality that 66% of consumers value highly is a transparent supply chain.

These qualities are all linked. Most consumers will only buy from a brand they trust but, with many brands now employing longer and more complex supply chains, the only way they will trust a brand is if it can demonstrate transparency.

MITIGATING RISK IN THE SUPPLY CHAIN

Businesses need to find effective ways to mitigate the various supplier risks, both internal and external. The key mechanism for achieving this is transparency. It ensures brands have up-to-date information on all suppliers, thereby decreasing the chances of unwelcome business practices entering the supply chain. It also provides a clear view of the potential risks associated with each operator in the supply chain, allowing the brand to actively manage those risks. Finally, it can act as a tool towards continuous improvements in suppliers and so reduces the possibility of future negative impact events occurring in the supply chain.

SUPPLIER RISK MANAGEMENT SOLUTION

SGS has developed an effective supplier risk management tool that leverages Transparency-One – the best-in-class IT platform for responsible sourcing. This solution efficiently allows businesses to monitor and measure performance and compliance within their supply chains using three gauges – legislative requirements, industry norms and client expectations. This comprehensive solution is based on three principles – governance, performance, and intelligence – and it allows organizations to enforce a defined and consistent approach to supplier risk.

Once a potential supplier is identified, they are onboarded to the system and their risk is evaluated – low, medium, high. The greater the risk, the higher the classification. The risk mitigation response then depends upon this evaluation:

• Low-risk suppliers – no further action
• Medium-risk suppliers – must complete online self-assessment questionnaire
• High-risk suppliers – online questionnaire and onsite audit

The aim is to use the onboarding information and cross reference it with data already contained within the system to evaluate and accurate identify the level of risk within each supplier. Risk remediation procedures can then be enabled, or, in extreme situations, the brand can choose to find and alternative supplier. The system then maintains this data for continuous monitoring of the risk associated with each supplier.

The benefits of using this system include:

• Defined and consistent approach to defining supplier risk
• Reduced lead times for procurement events
• Higher quality supplier data
• A single source for all supplier information
• Access to wider supplier base
• Content based on global expertise, best practice, and input from multiple sources

As supply chains get longer and more complex, and consumers and regulators become more demanding, brands need to find effective ways for identifying, mitigating, and monitoring risk in their supply chains. SGS’s supplier risk management tool provides a single-source solution to enable brands to make informed decisions about suppliers and the management of their supply chain.

Learn more about SGS Supply Chain Management .