Insight

The board view of supply chain risk and resiliency

Questions for directors to consider as they assess the company’s supply chain risk and resiliency in light of the outbreak of COVID-19.

The board view of supply chain risk and resiliency

“The COVID-19 impact on supply chain disruptions is widespread and severe,” said Brian Higgins, Advisory Principal and Supply Chain Leader for KPMG LLP. “It has really emphasized the need for more interconnected, transparent, agile, and flexible supply chains globally.”

With challenges related to the outbreak of COVID-19 piling on top of existing supply chain issues due to trade negotiations, politics and geopolitics, and climate change, supply chain risk and resiliency has vaulted to a key position on the board agenda after catching even the most prepared companies off guard. Recovering from an acute supply chain shock can take a long time, as evidenced by the years it took companies to reconcile lost business and processes due to damage from the 2011 earthquake that hit Japan’s Fukushima prefecture.

Higgins—who has worked on supply chain assessment, transformation, and digitization across many industries—says that recent changes to tax law, as well as ongoing U.S. trade negotiations, had already compelled companies to re-examine their supply chain strategies. But, as the effects of COVID-19 continue to mount, even companies that were already in the process of making shifts to sourcing and logistics have significant work ahead of them. (See COVID-19: Managing supply chain disruptions.)

“No industry is invulnerable to COVID-19 disruption,” said Higgins. “Expect material shortages and logistics challenges, as well as labor concerns due to quarantine procedures or illness.”

Although strategic planning during a crisis can be challenging, Higgins encourages directors to keep the following questions in mind as they assess the company’s supply chain risk and resiliency:

  • Does management understand the risk environment and exposure across its supply chain? What measures are being taken to stabilize the company’s supply chain?
  • Does management have a clear view of the end-to-end supply chain, including the various tiers and sub-tiers?
  • How effective is the company’s supply chain risk management framework and processes? What role does supply chain risk management play in the overall operating model?
  • How is management monitoring supply chain risks on an ongoing basis? Are there mitigation plans in place for potential disruptions?
  • Does the company have visibility into where facilities for its key suppliers are located? Has the company and its suppliers collaboratively worked on contingency plans to ensure the continuation of supply?
  • With COVID-19, does the company know its true Value at Risk (VaR) across the supply chain? How will this event affect revenue and customer behavior? 

 

To read more about how to assess supply chain risk and resiliency, click here

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