Creating supply chain risk in the age of globalization – TechCrunch

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Not only. Sentiment: Risks across the geopolitical spectrum have been higher than usual in recent years. For businesses with supply chain operations around the world, these risks are difficult to avoid. Resilience and sanctions relief are key considerations when planning for the coming months and years.

Working with suppliers in or near unstable countries poses a significant risk to companies, as the risk increases and business continuity becomes more uncertain. That is true for the supplier’s own supply chain (what we call “suppliers”). For most companies, it is not possible to identify all the subcontractors and suppliers that are connected at multiple levels.

Instead of devoting enormous resources to tracking each supplier, businesses should identify which suppliers can be considered “critical” to their business continuity. They should then focus on monitoring and tracking those vendors’ critical suppliers and contractors. That provides a sufficiently accurate snapshot that can be used to accurately assess the geopolitical risk of key suppliers.

When wars and international conflicts are going on, there can be sanctions. As the rapidly evolving situation in Ukraine has demonstrated, the global sanctions landscape can change practically overnight, with new businesses and individuals routinely being designated as “sanctioned” entities. A company in the U.S. that continues to work with someone on that list risks hefty fines and reputational damage.

Just as a nearby war shuts down business, so does a difficult economic situation.

It is important in such cases to verify who the business owners are, as they may not be marked as “end user owners” if a company simply vets its suppliers under the company name. In my experience, less than 30% of organizations are checking beneficial owners against sanctions lists, even though due diligence is required by OFAC.

A lack of transparency in many supply chains is exacerbating these risks. A Deloitte study found that less than three-quarters of procurement officers reported having good visibility into their critical suppliers, and only 26% said they were able to predict risks among those suppliers. Only 15% of respondents reported visibility to second and third tier suppliers.

Businesses need value-based policies and systems to enforce across the supply chain. Mission-based rules can govern policies and regulations, which specify what actions to take when hazards are detected. Supplier management systems must assess suppliers in accordance with this article and release their level of exposure.

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