New Moody’s Analytics research into third-party risk management shows that the threat to reputations is a key driver of investment in supplier risk detection. Companies with large supply chains, operating in a global economy can be particularly exposed to disruption in the macroeconomic environment.
The research was based on in-depth interviews with third-party risk management experts within 41 multinational organisations. The companies spanned North America, Europe and APAC. These organisations came from a variety of sectors: Industrial, pharma, health, finance and insurance, tech and telco, energy and utilities.
Enterprises face increasing energy prices and rampant inflation. As a result, the cost of simply doing business has jumped since 2020. It has been caused by the pandemic, conflict and supply chain dislocation, among other factors. Coupled with sluggish demand, slow growth, and tightening liquidity, respondents noted the economic headwinds at every level of business.
Key findings include:
- 69% of businesses say they do not have the necessary visibility over their supply chains to uncover risk in their organisational networks to avoid reputational harm.
- 70% of businesses are growing their investment in third-party risk management.
- 74% rated their third-party risk management sophistication as either poor or mediocre.
Businesses pointed to a range of factors driving these assessments. A lack of data, and difficulty evaluating every organisation in a supplier network. There was also the responsibility for supply chain visibility being spread across departments.
Keith Berry, General Manager, Know Your Customer Solutions at Moody’s Analytics, said, “The past couple of years have brought supply chain risk to the fore.
“Organisations that can account for the environmental impact of their suppliers and demonstrate that they work with fair and ethical organisations can better protect their reputations and are more appealing to consumers. It’s clear that visibility of supply chain risks can provide huge competitive advantages.”
Identifying risks associated with suppliers buried in the supply chain is crucial to corporate responsibility and to protecting reputations. This is especially true for consumer-facing businesses and regulated organisations. They are particularly sensitive to reputational risk. Yet gaining visibility into operations and suppliers in lower tiers of the supply chain is a challenge, with their data unavailable or firms not required to release information.
Four key advantages of improved risk management
The qualitative research found four key advantages of improved third-party risk management:
- Avoidance of reputational damage
- Improved operational resilience
- Avoidance of fines
- Faster time to supply chain recovery following disruption.
Supply chain issues, such as those seen in the retail sector and in a recent case of an Iranian drone found to contain US parts, have brought supplier risk into sharper focus. It demonstrates the reputational impact supply chain risk can have. New regulation such as the German Supply Chain Due Diligence Act and the EU’s upcoming Corporate Sustainability Reporting Directive has further amplified the strategic importance of supply chain visibility.
Enterprise Times: What this means for business.
In today’s globalised and connected world, supply chains have grown in complexity. It’s an accelerating trend that poses significant risks to organisations globally. In today’s competitive environment, supplier performance is harder to gauge, inflation harder to contain, and disruption across the world harder to predict. Challenges can emerge anywhere, from geopolitics to natural disasters, pandemics and the digital sphere.
Enterprises face growing reputational risks as the focus on environmental, social and governance (ESG) issues moves up corporate agendas. Firms are having to be much more cautious, moving from a ‘Just in Time’ approach to supply chains. Operations were being streamlined was king, to a ‘Just in Case’ model that anticipates disruption, builds slack into inventories, and accepts a level of redundancy as part of doing business.
The report provides a useful guide to enable companies to have a better understanding of the risks in supply chain.
