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Supply Chain Risk Management (SCRM) Complete Guide

Supply chain risks—and the very concept of supply chain risk management (SCRM)—have changed radically in the last six years. SCRM used to be confined to logistics and product price/performance, a view that has become far too narrow and myopic to manage modern risks.

 

Today, private and public-sector organizations must deal with many macro supply chain risk drivers, from trade wars and industrial espionage to modern slavery and climate change, with social media and the 24/7 news cycle amplifying reputational risk exposure. To address these diverse risks and develop a future-proof SCRM solution, organizations must integrate the right technology, ensure tailored compliance processes and governance, and listen to expertise about modern SCRM.

Table of Contents

What is Supply Chain Risk Management?

  • Supply Chain Risk Management in 2022
  • Identifying, Assessing, & Mitigating Risks

Threats Posed By The Top Supply Chain Risk Categories

  • Geopolitical Risk & Foreign Ownership, Control, and Influence (FOCI)
  • Modern Slavery Risk
  • Cyber Security Risk
  • Deep Supply Chain Network Risk
  • Pandemic-Related Supply Chain Risk
  • Environmental, Social and Corporate Governance (ESG)

Why is Supply Chain Risk Management Important?

  • Organizations That Don't Check Their Supply Chain's Vitals Will Be Left Behind
  • SCRM Compliance

Developing Your Own SCRM Plan and Taking Action

  • What Are The Building Blocks of an Effective Supply Chain Risk Management Program?
  • Level Up Your SCRM with Exiger
Real World Experience

What is Supply Chain Risk Management?

Supply chain risk management is the strategic process of identifying, assessing, and mitigating the potential risks in your supply chain. This process can take many different forms, but taking these steps will help ensure better supplier relationships and verify that your company is operating ethically and legally. While these known risks have presented themselves throughout the years, SCRM is also about mitigating unknown and future threats.

Supply Chain Risk Management in 2022

Modern SCRM is about way more than whether your shipment will arrive on time. The type and volume of risks within a supply chain have expanded into new areas. All at once, organizations are being exposed to a new frontier of supply chain issues. The types of events and concerns that drive these risks, and that supply chain risk managers must consider, include:

  • Macro supply chain issues
  • Vendor instability
  • Compliance risks
  • Natural resource shortages
  • Government-led investigations
  • Regulatory enforcement actions
  • Criminal prosecutions
  • Evidence of fraud
  • Supplier operational instability or financial duress
  • Weather events and disasters
  • Global and regional shortages of crucial materials,
  • Geopolitical conflicts and trade wars
  • Human rights and modern slavery
  • Climate change and varied other concerns implicating ESG risk
  • Cyberattacks
  • Staffing shortages

Identifying, Assessing, & Mitigating Risks

While some problems may be unforeseen and unavoidable, many common supply chain risks can be mitigated by developing effective policies and procedures. In addition, taking action before a supply chain issue escalates can save your business time and money.

 

Exiger helps to illuminate risk through its advanced due diligence, screening, and analytics tools. When coupled with personalized consulting expertise, businesses and governments can build customized solutions for limiting their exposure to supply chain or vendor risks while maintaining compliance with all government regulations and industry-specific requirements.

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Threats Posed By The Top Supply Chain Risk Categories 

It is better to consider supply chain risk management as a health assessment of an organization's suppliers across various risk types in today's world. Understanding the total risk exposure across your company's vast supplier network is complex. With so much data and limited access to ownership information, blind spots are common.

 

Exiger's combination of people, process, and technology leverage the best of automation and expertise to give you supply chain peace of mind through entity vetting, supply chain analytics, industrial health checks, and more. We asked our experts to share some thoughts about the Top Supply Chain Risk categories we're frontrunning for our clients.

Geopolitical Risk & Foreign Ownership, Control, and Influence (FOCI)

This category underscores the breadth and diversity of risks and interests at stake in today's supply chain risk management. FOCI is especially important to the defense-industrial sector, where the U.S. Government and its contractors acquire material vital to national security.

There has been rising geopolitical and commercial disruption stemming from the continuing U.S. – China uncoupling. As a result, we are predicting increasing U.S. blacklisting of Chinese firms, like the China Telecom ban this past October. It's also likely the Chinese Communist Party (CCP) will externally express their aggression toward the U.S. and the West through overt economic coercion and market abuse, as well as covert cyber campaigns, espionage, and associated IP theft. Meanwhile, there will be unpredictability within the CCP directed at its own key industrial and economic sectors through stricter regulation. Individually and combined, these three avenues will cause supply chain shocks that will impact the U.S. and most other economies. It will consequently drive U.S. onshoring of manufacturing deemed critical to national security. If China attacks Taiwan, absorbing its advanced semiconductor production capability, the global semiconductor supply chain will be thrown into disarray.

Tim Stone

Senior Director, Supply Chain Risk Management

Modern Slavery Risk 

Regulatory and consumer pressure have made Modern Slavery Risk a key supply chain focus going into 2022. The current administration is taking measures against forced labor. This is forcing companies to address the risks that lie deep in their supply chain. They are beginning this journey by asking questions such as who their suppliers' suppliers are and where are raw materials in their products produced. Companies should also seek tools that utilize real-time information to proactively identify, mitigate, and manage these risks.

Dan Banes

President, Commercial Tech

Cyber Security Risk

Cyber risk plays a role in virtually every supply chain and is critical to modern SCRM and supply chain resilience. Public- and private-sector organizations must identify, defend against, and remediate the effects of so-called "supply chain attacks" that can occur through third-party software and sometimes even hardware. In addition, bad actors often use cyberattacks to steal proprietary data, including IP and sensitive client information.

Cyber risk indicators generated by severe vulnerabilities targeted by hackers, like Log4j, will continue to multiply in 2022. Therefore organizations have to confirm their own systems are mitigating these vulnerabilities and confirm that their partners throughout their supply chain do the same. Regulations are on the rise in the cyber security practice arena for critical infrastructure/federal system operators. Those controls will increase as mandated best practices switch from self-assessments to third party certified standards. Organizations will have to know how protected and prepared their partners are for everything; from ransomware to alternatives for resilience when systems go down.

Matt Hayden

Senior Vice President, Exiger Government Solutions

Deep Supply Chain Network Risk

The most well-equipped and technologically advanced threat actors – many powered by nation states – understand that the most advanced firms no longer have traditionally exploitable attack surfaces. They have, in turn, begun to leverage non-traditional threat vectors such as less secure secondary suppliers (or fourth party or deeper vendors). These may be providing inconspicuous widgets or insecure software installations which can be used for attacks. The most forward-thinking firms have started to manage beyond their direct supplier and vendor risk(s). They are harnessing deep machine learning and AI technologies to analyze and scan their truly cavernous supplier networks. This technology can analyze billions of supply chain records from disparate sources across hardware and software supply signals. They dig deep into their supply chains to mitigate indirect, inherited risks today to avoid being exploited tomorrow.

Skyler Chi

Director, Deputy Global Head of SCRM & TPRM

Pandemic-Related Supply Chain Risk

It's no secret that the pandemic fractured global supply chains through, among other things, government-mandated shutdowns, labor shortages, and demand-signal disruption. Faced with the sudden and frightening scarcity of products—PPE and pharmaceuticals, to name two key examples—U.S. government, industry, and citizenry awoke to America's lopsided reliance on international supply chains for critical goods in a time of crisis. This was indeed a wake-up call: a jarring realization that, through decades of globalization, the U.S. had outsourced crucial supply needs, breeding vulnerabilities that could—and in the pandemic's case, did—implicate life and death.

Environmental, Social and Corporate Governance (ESG)

A chain reaction can occur across several overlapping risk events in a globally connected economy. Recent geopolitical events, which call to mind a toppling row of dominos, exemplify the interconnectedness and complexity of the risks implicated in modern supply chain risk management. It is easy to see how a geopolitical dispute can set in motion a trade war, price spikes in essential commodities, energy shortages, staffing shortages causing industrial slowdowns – all of which cause disruptions to global supply chains.

Environmental, social and corporate governance (ESG) risk indicators are not a nice-to-have anymore, but a must-have. The discussion around what those indicators are and should look like when assessing third parties and their supply chains will continue into 2022. Regulators and consumers will continue to weigh in, and technology and data firms will refine their methods to compete in providing the best-in-class tools. One thing is certain, doing nothing is not good enough. Also, consumers are aware that big corporates have found ways to look like they are taking ESG seriously. However, their supply chains tell a different story. Tools which visualize the problem and provide actionable intelligence will be key for corporates in order to write those stories and mitigate the associated risks next year and beyond.

Erika Peters

Managing Director, Global Head of SCRM & TPRM

 

Why is Supply Chain Risk Management Important?

Supply chain risk management was traditionally about getting goods from Point A to Point B. Indeed, until only a few years ago, SCRM—as a professional discipline—was equated with the logistics of "just-in-time" production, which aims to minimize the time, labor, and materials in a manufacturing process by aligning raw material orders from suppliers with production schedules. But dynamic socio-economic and geopolitical forces have transformed supply chain risk management into an ever-changing landscape.

Supply Chain Risk

Organizations That Don't Check Their Supply Chain's Vitals Will Be Left Behind

Supply chain risk management is far more than logistics and price/performance. A modern SCRM program that focuses solely on this traditional view of a supply chain would be like trying to measure a person's health by exclusively using an oxygen sensor. To be sure, the sensor would provide valuable data about oxygenation of the person's blood yet won't necessarily tell you anything about the person's vital signs, including body temperature, pulse rate, respiration rate, and blood pressure. While the sensor can thus confirm the patient has sufficient oxygen in his blood, it wouldn't tell you if the patient had just dropped dead from an aneurysm. In the same vein, an organization's supply chain health is about far more than one narrow risk.

 

The financial impact from mismanaging supply chain risk is real. Recent pandemic disruptions have cost the U.S. economy trillions, with shareholders and board members seeing this loss. Customers are frustrated with unmet demand, organizations are in reputational peril, and major players in nearly all industries routinely suffer costly disruptions. Having SCRM-focused technology, processes, and expertise to understand, navigate, and monitor today's supply chain risk is more than nice to have as we approach 2023: it's a must-have. Organizations that adapt by investing in SCRM will be equipped with the knowledge to manage risk and proactively build resilient supply chains, flourishing in this new operating environment. Those that don't will get edged out, losing customers and revenue.

SCRM Compliance

Governing agencies are cracking down, forcing businesses to adapt their operations to maintain compliance in multiple regulatory areas, including human rights compliance, cybersecurity and privacy compliance, ESG compliance, and third-party supply chain risk compliance.

 

When it comes to meeting these regulatory requirements, your organization is not the only one under the microscope; the compliance of your third-party affiliates and supply chain partners reflects directly upon the compliance of your own business. To ensure your enterprise is not exposed to cracks in your supply chain's compliance, it's in the company's best interest to perform in-depth supply chain risk management and identify any vendors that could impact your compliance rating.

Developing Your Own SCRM Plan and Taking Action

Your supply chain is only as strong as its weakest link. Rooting out the risks lurking deep within your supply chain requires resources designed to take large volumes of complex data, find facts fast, analyze them and present it in a way that pinpoints the risks that matter most to you.

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What Are The Building Blocks of an Effective Supply Chain Risk Management Program?

Although the prospect of building an effective SCRM program can be daunting for those organizations new to the party, the "how to" of managing supply chain risk can be captured in three key pillars:

Tools & Technology 

Make no mistake: there's always going to be supply chain risk. Risk is everywhere. What matters is how much risk exists from a particular event or piece of information, and the immediacy of that risk. Through risk management tools that combine automated due diligence, risk assessments, and continuous monitoring of an organization's third-party population (vendors, partners, customers, etc.), you can prioritize and triage risks according to their immediacy as well as your organization's values and operational needs. 

Automated SCRM tools already used by some of the world's largest companies can help manage risks from tens of thousands of third-party relationships, whether those third parties are providing parts and materials used to manufacture an end product, supplying the computer hardware and software for an organization's public-facing or internal operations, or represent an organization's customers.

Process & Governance

Because modern supply chain risks are multifaceted and implicate many different parts of an organization, effective supply chain risk management means creating an appropriate governance structure with the right stakeholders at the table. This group of stakeholders often includes an organization's IT and security officers, compliance, legal, marketing, public relations (for reputational risk), traditional logistics and price/performance supply chain managers, and others. 

 

An organization must assign responsibility to these stakeholders: Who owns each kind of supply chain risk? Who are the risk advisers? Who is the ultimate decision-maker for responding to a critical risk event? An organization must have an appropriate forum to advise and consult with one another on these kinds of matters, as well as a documented decision-making process for managing risk—whether that involves taking mitigating action or knowingly accepting the risk and doing nothing.

Combined Expertise

Because supply chain risks come in all shapes and sizes, affecting nearly any functional or geographical part of an organization, today's SCRM professionals must marry an understanding across many disparate areas:

  • Brand and reputational risks
  • Logistical risks
  • Compliance and regulatory risks
  • Operational and financial risks
  • Foreign ownership, control, and influence risk
  • Cyber risk
  • Others 

Succeeding involves tapping expertise from diverse stakeholders and, to some degree, an organization educating itself on SCRM best practices in today's highly interdependent and sensitive risk environment. But organizations don't need to go it alone. For example, engagement with regulators can yield a better understanding of how peers are approaching supply chain risks. A new generation of supply chain risk professionals is emerging who can strategically contribute to an organization and help navigate risk no matter where the dysfunction arises. 

Organizations can also valuably benefit from external expertise. For example, risk management organizations can advise on building a SCRM program from scratch and help implement the right technology to manage supply chain risk sustainably.

 

Speak to an Exiger Supply Chain Expert: Contact Us

Level Up Your SCRM with Exiger

With the landscape of supply chain risk perpetually changing, it's challenging for organizations to keep up with new technology, processes, and expertise in SCRM. Exiger offers award-winning technology in supply chain risk management and third-party risk management. Our team of in-house experts is also dedicated to protecting companies from risks within their supply chains.

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