by George Tabeart, Senior Operational Risk Manager & IRM Financial Services Group Member

In the last few years, over 80% of global financial services firms reported that they had experienced significant supply chain disruptions. These disruptions have been caused by various factors, including financial, operational, cyber, ESG, and other risks.

Introduction

Geopolitical and economic uncertainty, including tariff wars and shortages in skilled labour, are putting financial services supply chains under pressure. Direct and indirect suppliers are heavily relied upon, sometimes unknowingly, to support smooth operations and innovation, often considered prerequisites for success.

The negative impacts of a vulnerable supply chain on your firm could include increased costs, service interruptions, project delays, regulatory censure and ultimately a negative impact on customers and profits. On a more macro level, a global catastrophe, loss of internet, transport route disruption, or power interruption could undoubtedly knock out a whole range of services for a prolonged period. Not to mention the knock-on effects on more micro-level risks in the supply chains on your firm’s specific operations.

Integrating Supply Chain Risk Management into Enterprise Risk Management

Supply Chain Risk Management (SCRM) is a critical component of a well-functioning Enterprise Risk Management (ERM) framework. By integrating SCRM into your ERM framework, you can ensure a holistic approach to identifying, assessing, and mitigating supply chain risks across your entire organisation.

Supply chain risks can be broadly categorised into geopolitical, economic, environmental, technological, and operational risks. For example, geopolitical tensions like the Ukraine war can disrupt supply chains by causing delays and increasing costs. Economic uncertainties, such as tariff wars, can lead to price volatility and supply shortages, or increased or port fees. One tip is to ensure that your entire supply chain is understood, and your firm’s risk universe or taxonomy incorporates the types of risks faced, as those above.

Key Strategies for Effective SCRM

A robust procurement and supplier management framework is essential for mitigating these risks. This framework should:

Be Integrated with your Risk Framework: Ensuring that your supplier management framework is aligned with your internally established ERM framework, including your risk taxonomy, risk appetite statements, impact indicators, KRIs and relevant risk management processes.

Contextualise Risk Management: Risk management should be tailored to your firm’s specific environment and needs. This involves understanding the unique risks your firm faces and developing strategies that address these risks effectively.

Establish Effective Communication: Effective communication is key to managing supply chain risks. Ensure that all stakeholders, including suppliers, are aware of potential risks and the strategies in place to mitigate them. Regular updates and transparent communication can help build trust and ensure everyone is prepared to respond to disruptions.

Prioritise Critical Suppliers: Focus on suppliers that impact your most important business services first. These suppliers are crucial to your operations, and ensuring their resilience can help maintain continuity and minimise disruptions.

Make SCRM a Continual, Cyclical and Trigger based process: Continuously assess and manage risks throughout the supplier lifecycle alongside activities such as supplier assurance. This involves identifying potential risks, evaluating their impact, and implementing mitigation strategies.

Establish Excellent Relationship and Performance Management: Maintain strong relationships with suppliers and regularly monitor their performance. This ensures that suppliers meet your agreed standards/KPIs and can adapt to changing conditions.

Include Contingencies and Exit Plans: Have clear exit plans for disengaging from suppliers that no longer meet your requirements or pose significant risks. Develop contingency plans for the loss of key suppliers. This includes identifying alternative suppliers and ensuring they can quickly step in if needed.

Provide Effective Staff Training: Proper training for staff that manage suppliers in your business is crucial to ensure they understand and can effectively implement supply chain risk management strategies. Training should cover risk identification, assessment, mitigation, and communication as well as supplier management processes.

In today’s volatile environment, supply chain resilience is more important than ever. Effective supply chain risk management requires robust collaboration between risk professionals, procurement/contract management professionals and those within your supply chain. By working together, these groups can optimise SCRM strategies, effectively train business contract owners, and enhance overall business resilience. This approach ensures that risks are identified, assessed, and mitigated comprehensively, leveraging the expertise of both teams and your suppliers to maintain operational continuity and minimise disruptions.