It just isn’t One concept: risk across the geopolitical spectrum has been higher than usual in recent years. For businesses with global supply chain operations, these risks are difficult to avoid. When it comes to planning for the months and years ahead, things like resilience and avoiding sanctions are key.
Working with suppliers in or near volatile countries creates significant risk for companies, as business continuity becomes more uncertain as risk increases. This also applies to the supplier’s own supply chain (what we call “subsuppliers”). For most companies, it is impossible to identify all the subcontractors and subsuppliers connected with the many levels of separation.
Rather than expending vast amounts of resources tracking down each subsupplier, businesses should identify those vendors that are labeled as “critical” to their business continuity. Then, they should focus on tracking and monitoring those vendors’ own critical suppliers and contractors. This provides an accurate enough snapshot that can be used to more accurately assess the geopolitical risk of critical suppliers.
Where wars and international conflicts go, sanctions are likely to follow. As the rapidly evolving situation in Ukraine has proven, the international sanctions landscape can change practically overnight, with new businesses and individuals regularly designated as “blocked” entities. A company in the US that continues to do business with those on that list risks significant fines as well as damage to its reputation.
Just as an adjacent war shuts down business, so does a difficult economic climate.
Checking who the owners of the businesses are is critical in such situations, because if a company only checks for their suppliers who have been sanctioned in the company name, the sanctioned “ultimate beneficial owners” may not be flagged. In my experience, less than 30% of organizations are screening beneficial owners against the sanctions lists, even though due diligence is required by OFAC.
A lack of transparency in many supply chains is exacerbating these risks. A Deloitte survey found that fewer than three-quarters of procurement executives reported having good visibility into their critical-level suppliers, and only 26% said they could predict losses among those suppliers. Only 15% of respondents reported visibility to second- and third-tier suppliers.
Businesses need value-based policies and systems to implement them throughout the supply chain. A mission-based rubric can govern procedures and rules, specifying what actions to take when hazards are identified. Supplier management systems should be designed to assess suppliers and rate their level of risk based on this rubric.