• Categories: Risk
  • Published: Jun 28, 2022
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Among the increasing range of governance-related podcasts, one of the more useful is Dr Sabine Dembkowski’s Better Boards. Her recent interview with Anahita Thoms was particularly timely, given the COVID pandemic’s disruption to the global supply chain. Putin’s war on Ukraine has added serious food-related supply chain issues that are still being revealed.

Dembkowski’s own take on her interview with Thoms—the gist of the answer to the question posed here—was as follows.

1. Supply chains need to withstand shocks

Supply chains are often not as resilient as they need to be. Recent history shows us that they need to withstand unexpected shocks, such as pandemics, geopolitical issues or legislative changes. These ‘system shocks’ can highlight dependency, shortages, production slowdowns and even loss of production.

Trade wars can also be disruptive for organisations heavily dependent on imports. Suddenly they face tariffs or increasing import costs. Costs may become so significant that they threaten the entire business model.

Another major issue is legislation with an impact on supply chains. This may relate to, for example, human rights and environmental issues. These are common throughout the European Union and need to be a high priority issue for boards.

2. Supply chains are a board responsibility

In the past, boards may have felt that supply chain management was the responsibility of the chief executive and the procurement team. However, many boards now understand that disruptions in supply chains pose a real risk to their organisation including to its reputation.

3. Supply chains are value chains

Supply chains are the value chains at the heart of business, particularly in organisations that rely directly on exporting and importing. Supply chain efficiency can dictate time to market of a new product. Altering supply chains can decrease production costs as well as emissions, so the cost drivers and business impacts of each link in the supply chain need to be properly analysed.

Supply chain planning and stakeholder engagement can create synergies between an organisation and its suppliers, as well as local communities and stakeholders, and in turn create a competitive advantage. Monitoring supply chains is, therefore, an opportunity as well as a necessity.

4. Directors need to explore the possibility of diversifying their supplier base and digitising their supply chain

Most companies are currently concerned with making their supply chains more resilient to future prices. It will be important to explore opportunities to diversify the supplier base and digitise the supply chain. Organisations need to anticipate—not just react.

5. Diversification must be ongoing

Sourcing products and components from just a single source makes supply chains vulnerable, but whether greater diversification is viable depends on the organisation. For highly complex products, it always starts with analysing the weak points of the supply chain and building a sustainable business relationship with suppliers. This can be a long process. A risk-based analysis can show how far it is possible to diversify more. This should be an ongoing effort.

6. Don’t look at supply chains in silos

Anahita Thoms advocates for a three-pronged approach—the business, the profitability challenges, and the reputation — rather than operating in silos. She recommends analysing supply chains, then looking at the values of the company, and then the risks.

For more on this topic also see Matthew Scott: ’Questions Boards Should Be Asking About Supply Chain Management’