Third-Party Risk Transparency and Visibility

By:

Srimathy Mohan
Associate Professor, Hal Fearon Fellow
Department of Supply Chain Management
W.P. Carey School of Business
Arizona State University

Gopalakrishnan Mohan
Professor of Supply Chain Management
Senior Associate Dean of Faculty
Chair, Hal Fearon Fellows
W.P. Carey School of Business
Arizona State University

 

The recent pandemic has elevated the importance of understanding the health and potential risks of the lower tiers of the supply chain. How does a firm identify risks in the lower tiers of a supply chain? What processes and technologies are being used to map the sub-tiers of the supply chain? How do you spot and identify financial or operational distress sooner? How do you isolate risk in the sub-tier? How can you effectively structure a cadence for review, monitoring, and action once a risk is identified in the sub-tier?

Understanding how to identify, monitor, and mitigate risk

The research aims to explore the above issues by understanding how to identify, monitor, and mitigate third-party (first-tier and beyond) supply chain risk. Identifying the risks involves mapping several tiers of suppliers and understanding the key links. Monitoring requires supply chain visibility and communication. Risk mitigation strategies vary depending on the situation and require a combination of advanced planning and adaptive strategies.

Two research phases

Phase one analyzed published academic and practitioner articles on supply chain risk management (SCRM), focusing on those published during the pandemic to understand how SCRM strategies were employed to strengthen resilience throughout global supply chains. The highlights of the review include:

1. Building resiliency through SCRM includes an improved understanding of the risk landscape and strengthening the components that help combat those risks. For unknown risks, building a risk culture that reacts quickly is critical.
2. Managing the risks beyond tier-1 suppliers requires improved transparency and visibility of those risks. Better visibility, identification of risks, digitized supply chains, and the use of technology such as Blockchain help in laying the groundwork for supply chain resiliency.

Phase two involved detailed data collection and analysis conducted in two parts. The first part was an executive survey of the top leadership of CAPS member companies. We had a robust response that included more than half the companies with an annual revenue greater than $10 B. The responses revealed:

1. One-third of the companies were involved in supply chain mapping beyond tier-1.
2. Firms with high geographical diversity showed more aggressiveness in mapping. 
3. Though mapping was progressing, the current communications were still old-fashioned and hence limiting the real-time visibility. 
4. Pre-crisis strategy such as scenario planning and post-crisis, post-mortems were at nascent levels of development and use.
5. Firms looked to move their risk management to have more proactive characteristics, and hope to achieve this by applying analytics to the digital data coming from the mapping efforts.

The second part of phase two involved detailed interviews with supply management leaders from eight CAPS member companies, including large OEMs, semiconductor manufacturers, and aerospace and defense firms. The takeaways from the interviews validated the information from the survey analysis.

1. Increased frequency of assessments and responses are becoming part of risk management cadence.
2. Digital tools for supplier mapping have created awareness around early warning assessments of global risks and their impact in deeper tiers of the supply chain.
3. Scenario planning is a critical capability in the selection of the mapping and risk management tools.
4. Supply chain mapping is hierarchical in nature, starting with “process maps” as the bottom layer, and culminating in “supply network mapping” and “global value chain mapping” at the higher levels of hierarchy.

To access the full research report, Third Party Risk Transparency and Visibility, click here.

CAPS is a B2B nonprofit research center serving supply management leaders at Fortune 1000 companies. CAPS Research inspires leaders with profound discovery and executable strategies to shape the future of supply management. Research reveals the destination, benchmarking charts the course, and networking creates the path to transformation. All CAPS offerings are sales-free, bias-free, and practitioner-driven. CAPS was established in 1986 at the W. P. Carey School of Business at Arizona State University in partnership with the Institute for Supply Management. Learn more at www.CAPSResearch.org.