The three Ds of supply chain risk management for retailers

3 min read
Sep 2, 2021

Retailers – and indeed any businesses with supply chains – face damages to their finances, reputation and future competitiveness if they don’t take supply chain risk management seriously. Many only truly begin to dedicate time to the matter once disaster has already struck. At our recent retail cohort, risk managers discussed how they’re tackling some key issues affecting supply chains.

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When a container ship got stuck in the Suez Canal in March, the impact filtered through to countries, businesses and consumers all around the world. Although the Ever Given was freed within days, this maritime traffic jam showed how one event can reverberate throughout an intricate network of suppliers that make up a global supply chain.

Supply chains expose retail businesses to a myriad of risks that could severely damage their finances, reputation, and future competitiveness. What’s more, retailers are often one of the last points in the chain before the end consumers - or at least, they’re the “name” with the most at stake when it comes to end-customer satisfaction.

As such, managing supply chain risk is key for retail organisations.

Two recent Risk Leadership Network member meetings brought together retailers from across the Northern and Southern Hemispheres to discuss the issue of supply chain risk management. We host cohorts for other sector-specific discussions too, shaped by member needs, as well as cross-sector meetings.

Our members identified three top trends to monitor – the three Ds – to stay on top of supply chain risk management (members benefit from the full meeting notes from this discussion, as well as other guides and tools, on our Intelligence platform).

1. Digital transformation

Digitisation and automation are already changing supply chain management by offering greater visibility around the global movement of products and resources. By automating distribution centres, retailers can maximise their capacity to process goods while enhancing order accuracy.

Increased reliance on technology does present some risks too, however. Our members have found that recovery options for failed IT systems are limited - a particular concern in an age of increased cyber risk. One strategy to address this concern that was discussed at the meeting is the use of internal cyber-related crisis management exercises. This can help shape information security risk management processes and improve incident readiness.

2. Delivering on sustainability

Taking a stance on ethical sourcing should be a top priority for retailers. Not only are consumers increasingly demanding this, but so are other stakeholders - particularly investors and insurers.

A sustainable supply chain is a key element of your ESG rating. You can work with your suppliers to improve your rating. For example, our members are increasingly asking suppliers to demonstrate their efforts to identify and reduce the risk of modern slavery in their own operations and further into the supply chain.

Also, by strengthening your own assurance programme, you can ensure your organisation’s confidence in your suppliers’ words and actions, and also monitor for any gaps or blind spots. A sourcing agent can also assist with checks and balances, as well as supply chain traceability.

3. Diversifying the chain

Diversification is a key challenge for many retail businesses. While you may believe your supply chain to be diversified on a regional basis, for example, a bit of homework might show that suppliers are owned by the same company or have parent companies based in the same country. This could cause issues if, for example, an export ban is placed on goods traded between certain countries.

When looking for alternative suppliers in a bid to diversify, consider how the company could impact, not only the price of your products, but also your overall business model. Having a robust definition of your third-party risk management also helps when making these strategic decisions.

Supply chains are often seen as just another cost area, when in fact they tend to be fundamental to how businesses operate, particularly in the retail sector. As such, supply chain management should have a strong presence in strategic decision-making, backed up by a commitment from senior leadership. Without this, your business may find itself in a continual loop of fighting fires at an operational level.

Find out more about upcoming Risk Leadership Network member meetings here.

To read the in-depth Q&A on lessons learned from members’ BCP implementation, and to have access to all our other content, tools, templates, member meetings and global network of risk leaders, discover our approach here.

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