Beyond the Chaos: Getting to a Better Supplier Risk Response
Look back on the challenges of 2021 to ensure resilience in years ahead
Friday, March 11, 2022
By Atul Vashistha
While many hoped vaccines would bring a return to business as usual, the unfortunate reality was that businesses faced increasing disruptions in 2021. Due to constantly emerging variants, vaccine shortages and hesitancy, the COVID impacts of 2020 – workforce shortages, border closings and travel restrictions – continued to plague business. All of which was further amplified by some of last year’s greatest challenges such as extreme weather events, increased cyber attacks, China’s energy crisis, port closures and other logistics restrictions. The challenges have seemed never ending and are continuing in 2022.
With an eye on resiliency, it’s important to look back to move forward. We can begin by analyzing risk in retrospect and learning from past performance to improve our preparedness and response. Let’s face it, you can’t control the threats, but you can definitely improve your response. A “year in review” – a look at some of 2021’s biggest challenges and how to better address them this year – can be the first step in your risk management transformation.
Chaos and Disruptions
Undoubtedly, the pandemic was the headliner of the 2021 risk landscape. Third-parties, factories and ports all over the world experienced shutdowns due to outbreaks, safety regulations, financial impacts and more. Even consumers felt the effects, with sudden spikes in demand causing massive shortages and delays. Production and transport logistics remain in chaos.
One of the most impactful events was the Suez Canal shutdown, which halted 12% of global trade. Such disruptions appear far from over, as China announced quarantines of up to seven weeks for cargo ship crews due to the new variant.
Supply Wisdom’s Atul Vashistha: “Move beyond the shortcomings of legacy practices.”
While businesses were putting out COVID-related fires, new challenges emerged. Factories in China were forced to slow or close production due to coal shortages further impacting global supply chains. By October, U.S. job openings surged to 11 million, far exceeding the number of job seekers. On top of all this, data breaches reportedly increased 17% over 2020.
Environmental, social and governance (ESG) considerations took center stage. Over 54,000 wildfires were reported in the U.S. With 21 named storms, the Atlantic hurricane season was the third most active in history. The World Meteorological Organization reported that weather-related disasters have increased five-fold over the past 50 years. It’s clear that we can expect such weather impacts to continue. Other ESG considerations from social justice movements to geopolitical tension signal more rising risks as new regulations emerge.
The reality is that not every risk event has to snowball into a business disruption for your enterprise. The key to resiliency is visibility – into your suppliers, your supply chain, and the overall risk landscape.
Visibility Enables Resilience
Today’s global supply chains are incredibly complex, and the threats to business are endless. Resiliency - the ability to quickly respond to these threats - requires knowing what’s going on with your supplier and in your supplier’s location, wherever they are on the globe, while you’re behind your desk in Austin or New York City.
COVID was a wake-up call for many enterprises as they realized they lacked a current and clear view into their suppliers and supply chains. Relying on legacy risk practices like periodic assessments, they were forced to react to a rapidly evolving global crisis with data that was months or even years old. Enterprises also realized they knew little if anything about the suppliers of their suppliers (Nth parties) that also left them vulnerable.
In a rapidly evolving risk landscape, maintaining business continuity requires clear visibility deep into suppliers and supply chains. At all times, you need to know their current health and risk status, and you need early and real-time warnings when their risk landscape changes. This intelligence enables enterprises to respond quickly to lessen or mitigate the risk or even prevent disruptions entirely.
Another shortcoming of legacy practices that COVID exposed was the hyper focus of risk programs on financial and cyber risk. Although these are critical risk factors to monitor, enterprises need to remove these blinders. Financial and cyber factors are often lagging indicators of trouble. Take, for example, COVID: What started as a location-based risk then cascaded into a people risk and an operations risk, before financial and cyber events occurred. By ignoring location, people, operations, and other risk factors, enterprises were missing critical early warnings that would have enabled more resilient responses.
Resiliency requires proactive risk actions supported by current and clear visibility, and continuous risk management is the place to start.
Key Takeaways for Risk Management Transformation
In 2022, it’s clear the dynamic risk landscape is here to stay. It’s time to move beyond the shortcomings of legacy practices and take actionable steps to modernize the approach. Here are several key takeaways to boost visibility and proactively manage supplier risks in the year ahead
- Continuous risk monitoring and real-time intelligence
As we’ve learned, periodic assessments are ineffective when a supplier’s risk landscape can change every day. Point-in-time data provides a snapshot that becomes stale very quickly and forces enterprises to be reactive instead of proactive, thereby, suboptimizing their mitigation responses.
When enterprises continuously monitor risks 24/7, they’re informed of early indicators before they cascade into a major crisis. Solutions that leverage artificial intelligence (AI) and machine learning (ML) can free your team from spending countless hours identifying risks to instead focusing their efforts on a critical risk mitigation response.
- Wider risk aperture beyond financial and cyber
While cyber and financial threats are important, they are far from a comprehensive view of all the threats to continuity. Resiliency requires awareness of early indicators that can come from a wide spectrum of risk factors. Recently, location-based risks and ESG factors have emerged as some of the most impactful early risk indicators. As you never know where the next emerging crisis could originate, it’s also critical to monitor operations, compliance, and Nth party risks.
- Move from a siloed to an integrated approach
Taking a siloed approach to risk can miss early indicators of trouble, as they lack a comprehensive view of risk. Integrate not just all risk domains into a single view, but also use this intelligence from sourcing and procurement to risk management and governance.
Today, enterprises can leverage technology that compiles full-spectrum, real-time intelligence into a dashboard that provides a single-pane view of the risk landscape. The crucial intelligence you need for proactive risk management can be available at your fingertips and accessible by functions across the organization.
Set Up for Success
With resiliency as a top priority, head into 2022 after a “year in review.” What risk events resulted in disruptions for your business? How would your response have improved with an early warning of trouble?
We can’t control the threats or know where the next crisis will originate, but whatever is next on the risk horizon, you can set yourself up for success. By taking an integrated approach to risk that continuously monitors your entire risk landscape to provide early warning and real-time risk intelligence, the resiliency improvements will make it a year for the books – in a good way.
Atul Vashistha is a leading expert on supply chain risk and global business services. He is chairman and CEO of Supply Wisdom, which he founded in 2017 as an early warning service for business disruption risk and today provides a market-leading patented continuous risk intelligence, monitoring and risk actions automation solution. He is the author of The Offshore Nation, Globalization Wisdom and Outsourcing Wisdom; serves on the boards of IAOP, Cozera and Shared Assessments; and recently served as vice chair for the U.S. Department of Defense Business Board.