How to improve management of supply chains risks – and reap rewards

This is an era of exponential risk, exacerbated by interconnected supply chains where manufacturers face increasing threats and regulations affecting their supply chains.

This is creating an opportunity to develop better systems to deal with the challenges and gain a competitive edge.

To successfully navigate the intricate and evolving web of rules for issues such as environmental protection, human rights, bribery, sanctions, and forced labour, companies should regularly review their processes and technology.

The task is complicated by geopolitical instability, a rise in modern slavery incidents, and other evolving risks.

Understanding changing threats and following the latest regulations is more difficult where supply chains are multi-tiered, and information on some suppliers is limited. Even if compliance failures are several tiers removed, they may cause widespread damage.

This often requires manufacturers to assess risks beyond immediate suppliers, working globally across multiple supply chains and grappling with fragmented data spread across various systems.

A unified risk management framework, driven by accurate data and automated tools, can help them proactively identify and assess threats and efficiently mitigate the dangers.

Worldwide legal issues

Legal developments are one of the biggest challenges and may bring time-consuming reporting requirements. For instance, regulations on human rights and environmental protection are often multinational in scope, though some countries may have different rules. This complicates compliance for companies acting across jurisdictions.

The UK Modern Slavery Act requires businesses to report on their supply chains and produce a slavery and human trafficking statement every financial year, outlining how they ensure their operations and those of their suppliers are free from forced labour.

There are similar provisions in America, where the US-Mexico-Canada Agreement (USMCA) prohibits the importation of goods made with forced labour.

“Although still under review, implementation of the directive is anticipated to have a profound impact on businesses in the EU and beyond.”

In the past, sanctions compliance was primarily a matter of list-checking, but Russia’s invasion of Ukraine has massively increased the number of sanctioned entities. Compliance teams must also adapt to the increasingly sophisticated methods used by sanctioned entities to avoid detection.

Bribery and corruption are other concerns. The EU Commission has proposed tougher anti-corruption measures in response to a 2023 survey that revealed Europeans’ growing doubts about the effectiveness of existing laws.

The new draft directive would make all offences under the UN Convention Against Corruption illegal in the EU and increase penalties. Although still under review, implementation of the directive is anticipated to have a profound impact on businesses in the EU and beyond.

Speed and resilience

Damage from breaching regulations may go beyond a financial penalty – potentially hurting a manufacturer’s reputation, losing business and straining relationships with stakeholders.

Compliance is key to maintaining competitiveness. Those who invest in technological solutions will be best equipped to build a more secure, compliant, and resilient operation.

“When evaluating each supplier, the first step is to ask the right questions.” 

Given the rising risks across complex, interconnected supply chains, it is essential for manufacturers to integrate risk management into every layer of their operations. By embedding a proactive, data-driven approach, they can build a resilient framework to anticipate and swiftly respond to emerging risks before they escalate.

When evaluating each supplier, the first step is to ask the right questions. Who are they? What risks do they present? And, critically, who are their suppliers?

It is vital to thoroughly vet potential partners’ financial stability, compliance history, and any links to forced labour or sanctioned entities. Suppliers should then be regularly monitored in case their status on these issues changes - risk management is not a one-time process.

Improving competitiveness

Real-time data integration tools and automated solutions are key to increasing the speed and efficiency of this process, mitigating threats and minimising costs. Such technology can consolidate risk profiles into a single, unified source to assess factors such as sanctions exposure and indicators of forced labour.

Automation allows businesses to respond to risks in real-time rather than relying on slower, manual processes. This is important when time-sensitive decisions are needed to identify threats and avoid potential disruption of operations.

This approach can make compliance even easier when combined with a “value at risk” model, which quantifies the potential financial impact of supply chain disruptions.

This allows manufacturers to prioritise higher risk suppliers and allocate resources accordingly, ensuring a more resilient and efficient operation, and focusing resources on the most significant threats.

“Compliance is not a list-ticking exercise – when done well it’s a way to maintain business continuity”

Automated, data-driven solutions can provide the necessary transparency. By integrating high-quality datasets, businesses can quickly evaluate suppliers globally, enabling faster and better-informed decisions about partnerships and compliance.

Investing in predictive analytics and monitoring tools not only helps in navigating the complex regulatory landscape but also in preventing operational disruptions, allowing manufacturers to swiftly adapt to changing circumstances.

This holistic approach to risk management ensures that manufacturers are well-prepared for compliance issues and for any future operational problems.

Compliance is not a list-ticking exercise – when done well it’s a way to maintain business continuity, preserve reputations, and improve competitiveness in an increasingly uncertain world.