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Through The Looking Glass: Supply Chain Risk Management

Javier Gutierrez |

Global geopolitical events, major regulatory changes and critical ESG factors are just a few of the main causes for supply chain disruptions and destabilization.

An effective supply chain risk management program within your organization should aim for the successful implementation of strategies that allow the business to manage risks, along its supplier ecosystem, based on continuous risk assessments and risk monitoring.

The Supply Chain Risk Management Landscape

Weaknesses in an organization’s supply chain are oftentimes blamed in the unpredictable nature of some risks. However, this is not quite the case.

Although vulnerabilities in supply chains sometimes may be unforeseen, potential threats can and should be considered in advance to avoid major disruptions in business operations, drastically reduce vulnerability and ensure business continuity.

The lack of strong supply chain risk management (SCRM) processes necessary for identifying and successfully managing growing supply chain risks in a highly interconnected global business landscape is the key deficiency in SCRM.

According to a survey conducted by McKinsey & Company to 639 top executives spanning a range of regions and industries, 71% claimed their companies experienced more risks from supply chain disruption than ever before. 72% expected supply chain risks to continuously rise.

There is no denying that the challenges faced in SCRM are directly linked to globalization, where even sensitive products have a complex supply chain. Logically, this increased complexity opens the door for potential failure points and higher levels of risk.

Tackling Risks

So, where to begin? A best practice approach for an organization looking to tackle risks is to view these in two bundles: known risks and unknown risks.

As the name suggests, known risks can be identified, quantified and should be continuously managed and monitored. The scope of this group of risks is continuously growing.

Cyber risks, for example, were once very hard to quantify. Cyber risk ratings, defined cybersecurity frameworks and a thorough due diligence in a company’s IT systems now make most cyber risks totally quantifiable.

Complement your reading with our latest article Cyber Resilience: From Third-Party to Cyber Risk Management for a comprehensive look into cyber resilience initiatives within organizations, common weak points in cyber and third-party risk management programs and much more.

On the other hand, unknown risks refer to those risks that are extremely hard to foresee. So how can you address risks that can’t be predicted? Building strong risk management processes that reduce the number of risk scenarios that haven’t been contemplated and deliver mature layers of defense combined with a risk-aware culture within the organization are key to tackle these risks and ensure a faster speed of response.

Developing a structured and mature risk management program is the only way to improve organizational resilience.

Technology Update

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Third-Party Risk Management & Supply Chain Risk Management

If your organization has a Third-Party Risk Management (TPRM) program in place you might be encompassing SCRM as well. The common distinction here is that SCRM refers to all supplier relationships in an organization’s extended enterprise.

TPRM refers to all third-party relationships in an organization’s extended enterprise. These can be suppliers, vendors and others; therefore, an organization oftentimes has more third-party relationships than supplier relationships.

Whether you choose to develop a TPRM or a SCRM program, keep in mind that your suppliers and other third-parties often have third-parties of their own, meaning you should broaden the scope of your program and consider a fourth level and beyond.

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Multi-Dimensional Third-Party Risk Management (TPRM)

TPRM is all about understanding that working with suppliers, vendors and others represents an entry point for potential risks. Take a detailed look into effective TPRM strategy, common challenges and success factors in this recent TPRM article.

Check out the latest episode of Mitratech’s Morning Coffee Show for more on vendor risk management, from regulatory pressures and resource constraints facing organizations to automation, best practices and various tools to use based on your desired program maturity.

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