Navigating the storm: How supply chain risks are shaping board agendas

Navigating the storm: How supply chain risks are shaping board agendas

Once relegated to the background, supply chain management has now made its way into the heart of corporate board discussions. So what exactly are the supply chain concerns that can command board-level attention and how can these be effectively addressed? RegTech giant Moody’s Analytics has undertaken the challenge to answer this. 

Previously, supply chain teams were typically tucked away in the corporate back office, with little necessity for a risk management dashboard, clear risk prioritisation, or a comprehensive mitigation strategy. This picture has drastically changed in the light of recent events.

The invisible barriers of the back office have been shattered, in part due to the widespread disruption instigated by the Covid-19 pandemic. Prior unaddressed supply chain risks and vulnerabilities have risen from the depths, claiming their place on boardroom agendas.

The worldwide supply chains are currently beset with challenges including escalating energy and commodity prices, rising geopolitical strain, and a spike in cyberattacks. Amid such multifaceted operational environments, corporate boards no longer take supply chain continuity as a given.

From Moody’s Analytics perspective, supply chain risks warrant board-level discussion in at least four situations:

  1. Repercussions on revenues and costs: Boards are sure to pay attention when supply chain risks start affecting the company’s bottom line. This could happen when a crucial shipment from a key supplier fails to arrive, thereby hindering the company’s fulfilment of obligations. Another instance could be rising costs, as witnessed in the chip industry pre-pandemic, where businesses struggled to pass on heightened costs to customers. Such substantial risks often reside within operational bottlenecks caused by dependency on a single supplier.
  2. Damage to reputation: Companies can be exposed to significant reputational damage by relying on a global supplier network. Such harm could originate from a compliance scandal resulting from corruption or violation of sanctions. Companies with weak internal controls could face substantial non-compliance penalties in these heavily regulated areas. The resulting reputational damage could be significant.
  3. High-profile risks: Risks that repeatedly feature in business headlines worldwide are likely to make their way to boardroom discussions. One key example is cyber risk, which continuously threatens company operations. An effective attack on a supplier could jeopardise customer data, allow access to customer systems and disrupt supply if the supplier is offline for an extended period. To mitigate such risks, boards are interested in robust supply chain cyber risk management strategies.
  4. Consequences of adjacent supply chain risks: These are risks already on the board’s radar but whose supply chain implications are less considered. For example, while sustainability and climate risks are common board agenda items, the impact on the supply chain often goes unnoticed. Most corporate sustainability efforts are undertaken by suppliers, and climate risk is a key element of supply chain resilience work.

Read the full report here.

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