Mapping and managing supply chain risk in a multi-tier world
Supply Chain While the old saying “what you don’t know can’t hurt you” might have applied in the past, when it comes to today’s complex supply chains, knowledge is power.
When mapping and managing risk within the supply chain, many companies focus on ‘top-down’ approaches, assessing first-tier suppliers’ performance based on their publicly disclosed data. Certainly, engaging with first tier suppliers is a logical first step as it is often where businesses feel they have greatest direct influence.
However, a study conducted by Sedex, based on findings from independent audits, clearly shows that non-compliances found at audit– which are essentially business risks – increase in number the further down the supply chain you go. At second tier suppliers, audits identify 18 per cent more risk issues than at tier one. The criticality of risk issues also increases further down the supply chain, with third tier suppliers showing, on average, the highest number of critical issues.
Businesses which don’t look beyond first tier suppliers are therefore leaving themselves open to risk blind spots, as the majority of environmental, social and governance (ESG) risks which could negatively affect revenue, corporate reputation and operational stability often lie deeper down the supply chain – where knowledge and the capacity to address these issues can be limited.
In today’s globalised world, shifting patterns of trade can quickly create new risk hot spots, and starting to map complex, global supply chains is undoubtedly a huge challenge. Even so, there are already some excellent examples of companies using data from deeper in the supply chain to enable more robust risk management and to build more resilient supply chains. Platforms enabling multi-tiered supply chains to be mapped and data to be shared beyond tier one are also providing valuable aids to tackling this challenge. In addition, due to their collaborative nature these platforms can lead to considerable cost savings compared to developing the necessary resources in-house.
While companies that monitor and understand their supply chain data are better placed to quickly identify and mitigate risks, the benefits of taking a multi-tier approach to supply chain management go beyond negating possible issues and saving money. This approach also helps businesses identify positive trends, replicate good practice and build a web of supply chain partners, ultimately helping to achieve long-term profitability and maintain a solid competitive advantage.
As recent events such as the Rana Plaza factory collapse and the UK horsemeat scandal have shown, unaddressed supply chain issues can have a devastating impact on human life, as well as implications for corporate reputations and profitability. The more visibility you have on your supply chain, the more accurately you can identify and mitigate potentially damaging risk, at the first and second tier and beyond, protecting your business from the negative and bringing many positive benefits.