Recent disruptions, such because the COVID-19 pandemic, port congestion, and the Russia-Ukraine conflict have positioned a highlight on companies’ provide chains and their resilience. Growing consciousness about environmental, social and governance (ESG) ideas has additionally raised points about extra moral enterprise practices extending all through the availability chain. These components are main firms to rethink their enterprise logistics processes.
Corporate Risk and Insurance spoke with Eric Hensley (pictured above), chief know-how officer of third-party danger administration software program supplier Aravo, about how companies will help make their provide chains extra resilient and moral within the face of present financial, social and geopolitical upheavals.
According to Hensley, lots of right now’s part and product shortages are from an over-dependence on a single geographic space or vendor.
“For example, at the pandemic’s peak, the lead time for semiconductor chips coming out of Wuhan, China doubled to 36 weeks – and we are still seeing severe shortages,” he mentioned. “To fulfill demand and mitigate financial losses, many businesses have considered reshoring or partnering with additional third-party vendors. However, these approaches can invite cybercriminal activity across supply chains, such as the hackings of SolarWinds in 2020 and Colonial Pipelines in 2021.”
These challenges, coupled with new third-party ESG laws, are creating a necessity for improved provide chain visibility throughout the ecosystem of direct and oblique suppliers, Hensley mentioned. While governments proceed to cross and implement ESG laws, there’s sturdy demand for firms to adapt current ESG frameworks and report on their progress to assembly goals.
How can companies make their provide chains extra resilient amid international crises?
Hensley provided a number of steps that may assist danger managers fortify their provide chains within the face of potential disruptions:
- Build or develop sound TPRM practices and controls. If you’re ranging from scratch, construct a third-party danger administration (TPRM) program based mostly upon greatest practices and strong controls. There are frameworks out there for companies to institute (or adapt) TPRM packages which might be digital and holistic, and guard towards the chaos inside international provide chains.
- Identify and analyze third events that would impression important operations and prioritize dependencies. Drive visibility into your prolonged provide chains, particularly third events, to grasp their dangers. Identify your most crucial and susceptible distributors and develop different sourcing agreements ought to they go offline.
- Formalize provider agreements, then handle to enhance efficiency, cut back danger. Codify your provider agreements with contracts, together with phrases and situations and service-level agreements, to share danger publicity. Track and measure your suppliers’ efficiency, maintain them accountable, and work with them to scale back danger.
- Continuously monitor for provider efficiency and danger. TPRM will not be a “set it and forget it” train. Instead, frequently run reviews of your techniques, assessments, and controls, and supply ongoing monitoring of provider/vendor efficiency to make sure that points that would impression resilience are addressed early.
- Develop a course of to handle the disruption of providers. Disruption is actuality. Develop a technique for maintaining your operations on-line, together with a JIC sourcing mannequin, prioritizing key items and providers, and sourcing optimization, with out compromising your commitments to prospects, the regulation, and high quality.
How can companies make their provide chains extra moral?
According to Hensley, an moral and sustainable provide chain means creating greener, cleaner merchandise whereas using authorized and humane enterprise practices.
“Minimizing a product’s end-to-end environmental impact is one part of the equation,” he mentioned. “Another is implementing production methods that protect the health, safety, and rights of the workers and their communities at each stage of a product’s supply chain – including n-tier suppliers.”
Hensley mentioned that moral and sustainable firms are clear with their procurement and provide chain operations. Companies should present tangible proof, supported by knowledge and verified by revered ESG rankings suppliers, that they’re compliant with legal guidelines and laws and align with their prospects’ values. If they don’t seem to be, it is a chance to completely disclose such shortcomings and commit to creating enhancements.
“These companies are also transitioning to just-in-case contingency plans to drive resilience,” Hensley mentioned. “Over-reliance on critical suppliers operating in high-risk regions is risky: if you cannot access direct or indirect materials ‘just in time,’ you might source from less-reputable suppliers as stop-gap measures. This introduces further risks into your supply chain, which can compromise your commitments to ESG regulations and values.”
Hensley believes that know-how will help firms enhance their provide chains’ resiliency and ethics by making the method easier and extra automated.
“Our latest product, Aravo for ESG, automates the due-diligence process and enforces controls to ensure third parties are compliant with anti-slavery, conflict materials, environmental, health and safety, diversity, and other ESG mandates,” he mentioned. “Aravo’s solution can alert organizations to potential hazards, such as natural disasters, geopolitical unrest, and information security threats, in real time, so they can assess their severity, determine impact points, and identify alternate suppliers to mitigate major operational disruptions.”
In the following three to 5 years, Hensley predicts that ESG laws will proceed to increase, requiring firms to be agile of their TPRM packages to trace and mitigate dangers.
“For example, the German Supply Chain Due Diligence Act comes into effect on January 1, 2023, followed by additional ESG laws in Europe,” he mentioned. “In the coming months, the US Securities and Exchange Commission will likely issue new carbon disclosure requirements with far-reaching obligations for listed companies. These regulations, and global net-zero emissions goals, create a need for Scope 3 emissions tracking, and we believe there will be significant investment in this space soon. There will also be a larger focus on the ‘S’ and ‘G’ of ESG, with companies instituting programs to assess a wide range of issues, including human rights, labor laws, diversity, supply chain governance, anti-bribery/corruption, responsible sourcing, and measuring ESG across supply chains, including third parties.”