In BSI’s latest annual Supply Chain Risk Insights Report, we came up with five questions we need to answer in 2022. My colleague Jim Yarbrough introduces the report here but I’d like to focus on the first question: “Against a backdrop of irreversible climate change and economic uncertainty, what do we really need to know about our suppliers?
If you want to create a resilient and sustainable supply chain, you’ve got to start by knowing who your business partners are and identifying their strengths and weaknesses. Failure to conduct this kind of basic due diligence is like being in a darkened room without a key. At best, such negligence will eventually result in over-reliance on an unreliable partner or on too few critical suppliers – witness, for example, recent high-profile shortages of semiconductors, masks and PPE (Personal Protective Equipment).
At worst, it could mean exploitation by a criminal organization. Over the past year, BSI has observed a significant number of criminal organizations trying to infiltrate global supply chains by masquerading as legitimate companies working in warehousing, transportation, and distribution. COVID-19 has highlighted just how quickly such organizations can adapt to changing conditions. Some incidents have seen truck drivers posing as legitimate transporters pick up goods from a facility and divert them to another location. Similarly, drug cartels around the world have not missed a beat in the pandemic, deploying ever more creative ways to infiltrate and ‘piggy-back’ on legitimate supply chains to ship cocaine and other illegal cargos around the world.
Risk assessment is key
To fully understand your suppliers, it’s always advisable to conduct a full risk assessment for your entire supply chain, end to end, including contractors, subcontractors, and the origins of raw materials. By identifying strengths and weaknesses, you can start to build an effective strategy to unlock opportunities and mitigate risks.
If you consider the current global supply chain landscape, geographical diversity brings in many different risks and threats, from politics and economics to the environment, social structure and social accessibility. By employing a risk-based approach to supplier auditing and supply chain risk management, you can gain resilience through insight. Tools such as BSI Connect Screen, the world’s largest proprietary global supply chain risk intelligence database, can help. It offers risk ratings in more than 200 countries to strengthen your understanding of supply chain risks and inform your decision-making.
Organizations with global supply chains must have a clear 360-degree view, and a year-round perspective – bearing in mind seasonal risks and threats such as wildfires, floods or harsh winter weather. This requirement is emphasized by the exposure of business operations to natural disasters, with about 40% of the world’s exports originating in countries that BSI rates as having a ‘Severe’ or ‘High’ risk of natural disaster exposure. These risk ratings mean that companies operating within these countries are susceptible to a wide range of natural disasters that occur frequently and may cause large amounts of economic damage or impact large numbers of people and important industries.
Different organizations face different challenges, so it’s a matter of identifying and prioritizing organizational values early in the process. For some, it might be about determining how climate change could impact operations from a business continuity perspective; for others, it may be an attempt to convert as much of the supply chain as possible to more sustainable practices, such as use of renewable energy, or adopting a circular economy approach to reduce waste.
Be flexible and stay alert
There’s a tendency for some organizations to default to a ‘one size fits all’ approach to security, business continuity or sustainability. You need to be flexible to take account of varying geographical factors and regulations.
Finally, it’s important to remember that risk assessment process must be ongoing – a supplier relationship is ever-evolving and if you just take one look, you’re only ever going to get one snapshot in time. Risk assessment must be a repeating cycle: What are the latest trends? How do they affect my supply chain? And what am I going to do about it? This becomes even more important against today’s backdrop of irreversible climate change and economic uncertainty.
In the next blog in this series, my colleague Ryan Lynch, Practice Director, Sustainability, BSI, will consider our second key question: “As regulatory regimes evolve, how do we ensure we make the supply chain decisions that can shape business success and a cleaner, greener planet?” Watch this space!