In KPMG's Global CEO Outlook Survey 2018, 72 percent of Australian CEOs said that the only way for their organisation to achieve greater agility was to increase the use of third-party partnerships. This interconnectedness means that effective supplier risk management is more critical than ever.
The organisations that will succeed in today’s highly connected environment are those that create value through the extended supply chain. However, this involves taking advantage of the upsides, while mitigating the potential risks.
Supplier risk management can be challenging, largely due to:
Managing these challenges can have some consequences on a business. These include:
These consequences do not happen in isolation, and when multiplied can have catastrophic implications. These issues are not new and affect multiple industries.
KPMG's Global CEO Outlook Survey 2018 showed that 74 percent of Australian CEOs have reconsidered an external partnership because the third party (amongst other things) did not fit in well with their organisation’s culture. However, they intend to keep working with third parties, with our survey showing the following priorities for the next 2 to 3 years:
There are a number of well documented supply chain disasters that have impacted major organisations in recent years. For example, Ticketmaster identifying malicious software on connected third-party software that compromised the privacy of its customers; Nestle facing issues with modern slavery in its supply chain; or Apple dealing with manufacturing issues that meant its ‘AirPod’ product deliveries were delayed by months.
To prevent supply chain risk, there are a number of areas of the extended value chain that need to be effectively managed. These include:
Without managing these areas, supply chain risk can damage an organisation’s reputation, license to operate, and its financial viability.
Assessing the comprehensive suite of supplier risks appropriately and consistently can result in a number of common pain points including:
In KPMG's experience, organisations will typically go through a 'build', 'control', 'anticipate' approach to managing supplier risk, depending on the maturity of their ecosystem. Elements to start working on include:
For organisations that are further on the third party risk management journey, more comprehensive steps include:
Third party collaboration is not only here to stay, but will continue to grow. In future, supply chains will be powered by sophisticated algorithms, simulations and predictive analytics which will include:
New legislation such as the modern slavery act, the focus on anti-money laundering, and anti-bribery and corruption will have a large part to play. Disruption through external parties will need to be closely monitored to achieve a competitive advantage.
Without focusing on risk, an organisation could face issues with credibility, license to operate and financial viability. Supplier relationships are vital to ensure organisations remain competitive, but need to be proactively managed across the supplier lifecycle to achieve sustainable outcomes for all involved.