Our recent experience has shown that minor supply chain disruptions can have major consequences on organisations and the market. For one, material shortages mean companies are unable to deliver to their customers on time and therefore face severe cuts in revenue. Additionally, disruptive events in the supply chain through environmental and social risks cause reputational damage to organisations. This leads us to ask the question, were there no warning signs? Warning signs are exactly what is needed today, and these can be put in place by implementing what is known as supply chain risk management to be ahead of future risks. Some European countries, like Germany, have already put in place laws that oblige organisations to set up risk management in their supply chain and report on their mitigation activities. So how to go about setting up risk management in your organisation? Here we shed some light on what you need to be doing.
1. Define the due diligence data you need to collect
There may be multiple risks your organisation wants to assess, such as environmental and social risks that support your ESG activities and compliance with legislation such as the German Supply Chain Act. Having a clear understanding which due diligence data you require from your suppliers is critical in making risk management effective.
2. Select who will lead this activity
Define a person or team responsible for risk management. This will help your organisation keep up to date with the assessment and regular reviews of risks. Furthermore, this also is a great opportunity to create supply chain risk and integrity reports for your organisation, your customers, and lawmakers.
3. Make everyone part of the job
Supply chain risks affect many functions within your organisation and different teams may have specific requirements they must meet where supply chain risk management provides the perfect support. Bringing these teams into the picture and engaging them to be part of the job at hand not only supports the data collection but also creates an awareness within the organisation that fosters collaboration.
4. Select the key suppliers
Now, which suppliers do you need the information from? This is a key step as much information is in key suppliers’ upstream supply chain. Assessing all your suppliers, in the same way, would mean lots of work and a lot of data that does not have a high-risk impact. Defining who you need the information from helps you to prioritise the risk management to the most critical fields and helps you to stay on top of things.
5. Choose a solution that supports your needs
Choosing a solution that can support your data collection requirements is critical. You want a solution that provides the necessary infrastructure for easy data collection but maintains certain flexibility for you to be active in adapting data requests or collaborating with the supply chain. Overall, you must be sure that you can trust the information and can pinpoint where it comes from at all times while maintaining data confidentiality with the supply chain.
6. Define the supplier response process
Making sure your suppliers also respond to your data requests can be a difficult task. However, defining a minimum overall standard for suppliers and gaining visibility on response rates helps drive responses up.
7. Tackle the risks that arise
After assessing the risks in the supply chain any identified risks must be mitigated actively. Having a clear communication channel with suppliers to collaboratively mitigate the identified risks is crucial for reducing the likelihood of a risk event taking place. Furthermore, the mitigation activity must be reported to legislators for the German Supply Chain Act.
Xylene enables you to engage with your supply chain beyond direct suppliers through its award-winning supply chain transparency solution. Xylene Mapping is a supply chain management software solution providing your organisation with visibility, compliance, and ESG scoring across your supplier network.
Get in touch to find out more about Xylene and how to manage your supply chain risks effectively.