Supply chain risk is not a new phenomenon, but it has certainly intensified. As the pandemic began its global spread in early 2020, 94% of Fortune 1000 companies reported supply chain disruptions. Today, global supply chains continue to flounder, earning a spot on the 2022 Davos Agenda and in the minds of procurement and supply chain leaders worldwide. Improving visibility into potential supply chain risk is a must, and third-party data can help manufacturers do just that.
Global problems highlight gaps in risk insights
The disruption caused by the pandemic made it clear that most supply chain risk mitigation processes fall far short of what’s needed. McKinsey research shared during Davos found that many organizations lacked visibility into their entire supplier ecosystems. Fewer than half report visibility to Tier 1 suppliers, only 21% to Tier 2, and a mere 2% to Tier 3 and beyond. Eleven percent admitted they had none!
Rob Handfield, executive director of North Carolina State’s Supply Chain Resource Cooperative writes, “Organizations need to map out their supply networks—including their tier one, two and three suppliers—and conduct an analysis to identify the potential risks associated with them.” That’s where third-party data can help. With the right datasets integrated in predictive analytics or risk screening applications, organizations can better understand potential threats and take appropriate action.
Pandemic vulnerabilities aren’t the only reason driving the need for more data for risk analysis and due diligence. Handfield also notes, “Russia’s invasion of Ukraine put added pressure on supply chains already weakened by Covid, introducing a number of problems. One major one we’re seeing is the shortage of raw materials needed for chip production.”
1. Monitor for emerging regulatory risk with sanctions data
Geopolitical conflicts and instability also increase regulatory risk. Since the invasion, for example, governments around the world have imposed thousands of sanctions, with new ones being introduced constantly. Just last month, the U.S. added 14 international suppliers to Russian military supply chains to the sanctions list, as well as expanding individuals targeted by sanctions to include political officials’ spouses and adult children.
Integrating aggregated sanctions, watchlists and PEPs data into your due diligence and risk monitoring workflows keeps you current without the need to check dozens of different sites.
2. Identify reputational risks with adverse media and ESG news
By now, we’ve all seen how a viral tweet can turn into a firestorm of controversy that damages an organization’s reputation. Rising consumer and investor interest in the environmental, social and governance (ESG) commitments of manufacturers increases reputational risk. From poor environmental or human rights activities related to mining of raw materials to violations of anti-bribery and corruption laws by a business partner, failing to identify ESG threats anywhere in your supply chain leave you exposed.
In addition, governments worldwide have introduced laws to encourage good ESG practices. Just this year, the European Commission adopted a proposed Directive to “foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance.” Likewise, the UK recently implemented environmental reporting regulations, and the U.S. Securities Exchange Commission (SEC) announced a draft rule on corporate climate disclosures.
Screening global print, broadcast and online media helps surface warning signs of both reputational and ESG risk to enable proactive risk mitigation. One warning: Choose a news API that allows you to narrow results to focus on adverse or ESG news mentions according to your organization’s risk considerations. Otherwise, finding those red flags will be like searching for a needle in a haystack.
3. Improve awareness of financial risks with company and legal data
The financial stability of key suppliers is crucial to a smooth supply chain. Between the global pandemic and geopolitical conflicts, however, many companies are in a precarious financial position. The OECD predicts, “The number of non-financial corporations in distress, i.e. firms that are anticipated to have a negative book value of equity and therefore a high risk of insolvency, is expected to increase worldwide.” Moreover, financial instability in lower tier suppliers can still have a domino effect that impacts others in the chain.
Ingesting third-party data related to company financial information or legal cases into risk analytics platforms can bring warning signs of financial instability into focus. It can be as obvious as a bankruptcy filing, but other types of litigation targeting a supplier could post a risk too.
Technology thought leader Bernard Marr writes, “External data sources can help you understand what your competition is doing, as well as how trends such as consumer behaviour patterns, market dynamics or even the weather can impact your performance.” In the case of manufacturers and complex supply chains, third-party data can also enhance risk analytics so you can respond to threats faster. Do you have what you need?
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