According to new Moody’s Analytics study on third-party risk management, the danger to reputation is a major driver of investment in supplier risk detection.
69% of organisations claim they lack the visibility into their supplier chains needed to discover risk in their organisational networks and avoid reputational loss. 70% of organisations are increasing their investment in third-party risk management.74% of respondents assessed their third-party risk management sophistication as inadequate or moderate.
Businesses cited a variety of issues as motivating these assessments, including a lack of data, the complexity of evaluating every organisation in a supplier network, and the division of responsibility for supply chain visibility between departments.
“The last couple of years have brought supply chain risk to the fore,” said Keith Berry, General Manager, Know Your Customer Solutions at Moody’s Analytics. Organisations that can account for their suppliers’ environmental effect and demonstrate that they operate with fair and ethical organisations can better safeguard their reputations and appeal to consumers. Visibility of supply chain risks can clearly bring significant competitive advantages.”
Identifying hazards connected with suppliers buried in the supply chain is critical to corporate responsibility and reputation protection, particularly for consumer-facing firms and regulated organisations that are highly sensitive to reputational risk. Gaining visibility into operations and suppliers in the lower layers of the supply chain, however, is difficult since their data is unavailable or enterprises are not required to share information.
Supply chain difficulties, such as those observed in the retail industry and a recent example involving an Iranian drone discovered to have US parts, have brought supplier risk into clearer attention and demonstrated the reputational impact supply chain risk can have. The German Supply Chain Due Diligence Act, as well as the EU’s impending Corporate Sustainability Reporting Directive, have increased the strategic importance of supply chain visibility.