The global spotlight on companies’ environmental, social and governance (ESG) performance continues to grow as governments across the world are placing a greater regulatory focus on ESG risks—including those occurring in a company’s supply chain. Examples of such regulations include Germany’s Act on Corporate Due Diligence Obligations in Supply Chains, the EU’s proposed Corporate Sustainability Due Diligence Directive and the U.K. Modern Slavery Act.
As the above regulations show, there are myriad ESG risks for companies to contend with in their supply chains. Environmentally harmful practices, child labor, dangerous working conditions and unethical corporate governance practices are some of the ESG risks companies should be focusing on in their supply chains. In order to remain compliant with regulations, companies must be prepared to monitor and mitigate ESG risks in their supply chains.
Given that many regulations impose fines for violations, companies cannot afford to risk non-compliance. Monitoring the supply network for ESG-related violations is also essential for protecting a company’s reputation. Simply put, even though companies are not to blame for their suppliers’ violations of supply chain regulations, they are responsible for identifying and mitigating them.
This is a tough challenge to solve, especially if a company is relying on manual processes. Multinational companies may have tens of thousands of suppliers, and they typically lack visibility across such a vast supply network. Additionally, there are a multitude of risks that aren’t addressed through regulations that companies should be aware of, including labor strikes and natural disasters.
Determining where risk may be lurking in complex supply chains is only possible with a digital solution. Supply chain risk management (SCRM) solutions—like Sphera Supply Chain Risk Management—can help companies monitor their supply chains more accurately in real time and gain the visibility needed to mitigate supply chain risks.
Armed with a digital solution, companies can begin to manage risk more effectively as part of a holistic SCRM strategy, which has four stages. First, supply chain risks must be identified. This process includes creating risk profiles for each element of a company’s supply chain. Companies can then start monitoring their risk objects such as suppliers and supply paths to determine potential risk events before they become critical. Furthermore, the use of artificial intelligence (AI) allows companies to monitor large amounts of data in real time.
The next step is to assess the probability that risk events will occur, as well as the impact that those risks will have. Finally, companies can begin working to mitigate risks in their supply chains by determining how they will both prevent and respond to them. It’s important to remember that a comprehensive SCRM program includes both proactive and reactive strategies. Companies that stay ahead of risk instead of simply responding to it will ensure that they are better prepared to face business and compliance challenges now and in the future.
The Sphera Supply Chain Risk Management solution allows companies to automatically evaluate supply chain risks, understand their impact and put a mitigation strategy in place. For large multinational companies with an extensive supply network, Sphera Supply Chain Risk Management also offers the scalability and standardization needed to manage and mitigate supply chain risks proactively—including third-party risks.
Even if a company isn’t ready to implement a holistic SCRM strategy, the Sphera Supply Chain Risk Management solution offers modular structures that allow companies to build one step by step. With an SCRM strategy supported by the right tools and data, organizations can gain visibility beyond their direct suppliers into the sub-tiers. In other words, companies can find out who their suppliers’ suppliers are, as well as the businesses that deliver to those suppliers and so on.
Increased visibility allows companies to accurately monitor their entire supply base for ESG-related violations and risks. Supply chain risk will always exist; what matters is how companies manage and mitigate it. With the right data, software and expertise, companies can ensure their supply chains are compliant in the long term.
–Paul
Learn more about Paul Marushka.
