The importance of supply chain risk management has skyrocketed, making it a top priority for corporate boards. This shift has been triggered by the COVID-19 pandemic, which exposed the vulnerabilities of supply chains and the significant impact of disruptions on businesses. But what are the supply chain-related issues that warrant board-level attention, and how can they be effectively managed?
The Evolution of Supply Chain Management
In the past, supply chain teams operated behind the scenes, with little need for risk dashboards or mitigation strategies. However, the pandemic has shattered these glass walls, thrusting supply chain risks into the spotlight and onto board agendas.
The Rising Challenges
Global supply chains are grappling with escalating energy and commodity costs, geopolitical tensions, and a surge in cyberattacks. In this increasingly complex environment, corporate boards are not taking supply chain continuity for granted.
Four Key Supply Chain Risks Worthy of Board Attention
1) Impact on Revenues and Costs
Supply chain risks that materially impact the bottom line are sure to capture the board’s attention. These risks may arise from a key supplier’s failure to deliver a crucial component, leading to the company’s inability to fulfill its own obligations. They may also stem from rising prices, as seen in the chip industry, where companies have struggled to pass on increased costs to their customers.
2) Reputational Impact
Companies relying on a global network of suppliers are at risk of reputational damage. This could result from a compliance scandal related to corruption or sanctions violations. If a company’s internal controls are weak, the price of non-compliance in these heavily enforced areas can be high, and the reputational damage can be substantial.
3) High-profile Risks
Risks that consistently make business headlines are likely to feature on the board’s agenda. Cyber risk is a prime example, posing a constant threat to a company’s operations. A successful attack on a supplier can compromise their customers’ sensitive data, disrupt deliveries, and potentially allow access to customers’ internal systems.
4) Impact of Supply Chain Adjacent Risks
The final group of risks is related to those already on the board’s radar. For instance, sustainability and climate risks are well-known board agenda items, but the impact of these risks on the supply chain is often overlooked. Most corporate sustainability commitments are delivered by companies’ suppliers, while climate risk is a crucial aspect of supply chain resilience.
Conclusion
The COVID-19 pandemic has elevated the importance of supply chain risk management, making it a boardroom priority. As businesses navigate this new landscape, effective management of these risks is crucial for ensuring business continuity and resilience.
What are your thoughts on the role of supply chain risks in boardroom discussions? How do you see these risks evolving in the future? Share your thoughts and comments below.
