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    When does supply chain risk become “board-worthy”?

    May 2023

    When does supply chain risk become “board-worthy”?

    Supply chain risk has ascended the corporate agenda – and is now a consideration for the C-suite. Which supply chain-related issues can reach the board? And what can be done to effectively manage them?

    Not long ago, a company’s Supply Chain team was firmly in the back office. It typically had little need for a risk dashboard, easy-to-explain prioritization, or a presentable mitigation strategy.

    Now the back office has glass walls.

    The Covid-19 pandemic brought about immense disruption to business and everyday life. The previously ignored risks and vulnerabilities associated with supply chain disruption began ascending corporate board agendas.

    Global supply chains have been hampered by rising energy and commodity costs, geopolitical tension, as well as an increase in cyberattacks. In an increasingly complex operating environment, corporate boards are no longer taking supply chain continuity for granted.

    In our view, there are at least four ways that supply chain risks become significant enough to become worthy of board discussions:

    1) Impact on revenues and costs

    Boards will most definitely sit up and take notice if supply chain risks cause a material impact to the bottom line. Material impact may occur when a key supplier’s major shipment of a crucial component does not arrive, and the company cannot fulfill its own obligations as a result. It may also be a consequence of growing prices, as we’ve seen in the chip industry even before Covid-19 began, where companies until recently were unsuccessful in passing on increased costs to their customers. You often find these material risks inside production and operational bottlenecks, for example, caused by a dependency on a single supplier.

    2) Reputational impact

    By relying on a global network of suppliers, companies can become exposed to reputational harm. It could be a compliance scandal stemming from corruption or sanctions violations. If a company’s internal controls are weak, it could pay a high price for non-compliance in these heavily enforced areas. And, needless to say, the reputational damage can be substantial.

    3) High-profile risks

    When a risk is a staple of business headlines across the globe, it has a good chance of making it on to the board’s agenda. A key example is cyber risk, which poses a perennial threat to a company’s operations. A successful attack on a supplier can compromise their customers’ sensitive data, allow (in some cases) access to customers’ internal systems and disrupt deliveries when a supplier goes offline for more than a couple of days. To avoid such an eventuality, boards want to see a robust supply chain cyber risk management strategy.

    4) Impact of supply chain adjacent risks

    The last group of risks is connected to those already on the board’s radar. For instance, sustainability and climate risks are nothing new to a board agenda, but for most companies, less considered is the risk’s supply chain impact. Most corporate sustainability commitments are delivered by companies’ suppliers, while climate risk is an important focus of a Supply Chain’s resiliency work.

    Learn how Moody’s Analytics can help your team manage Board-Level Supply Chain Risks