New research reveals the importance of supply chain risk detection

The threat to company reputations is seeing 70 percent of businesses ramping up investments in supplier risk detection

In recent months, consumers have witnessed Ikea cut ties with a supplier over a breach of its labor policy, as well as evidence that UK supermarket suppliers are linked to illegal deforestation in the Amazon. So, it is no surprise that consumers are demanding increased visibility of company’s supply chains.

New qualitative research from Moody’s Analytics into third-party risk management showed that businesses are aware; in fact, the research found that a key driver behind risk detection investments is the threat to company reputation.

Specifically, the research found that 70 percent of businesses are increasing their investments into third-party risk management. Sixty-nine percent claimed they do not have the necessary visibility over their supply chains to uncover potential risks, and 74 percent rated their supply chain risk management sophistication as either poor or mediocre.

Respondents pointed to a range of factors driving these assessments: a lack of data, difficulty evaluating every organization in a supplier network, and the responsibility for supply chain visibility being spread across departments.

However, identifying risks buried in the supply chain is crucial to corporate responsibility and protecting reputations, especially for consumer-facing businesses and regulated organizations which are particularly sensitive to reputational risk.

Research found four key advantages of improved risk management: avoidance of reputational damage, improved operational resilience, avoidance of fines, and more efficient supply chain recovery following disruption.

Keith Berry, General Manager of Know Your Customer Solutions at Moody’s Analytics, said: “The past couple of years have brought supply chain risk to the fore. Organizations that can account for the environmental impact of their suppliers and demonstrate that they work with fair and ethical organizations can better protect their reputations and are more appealing to consumers.”

With new regulations like the German Supply Chain Due Diligence Act and the EU’s upcoming Corporate Sustainability Reporting Directive being implemented alongside such provoking research, the strategic importance of supply chain visibility cannot be understated.