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Boards must seek assurance on supply chain security

Author: ICAEW Insights

Published: 10 Jan 2024

A new report paints a stark picture of the potential fallout for businesses and consumers from supply chain disruption, including empty shelves, damaged reputations and business losses.
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Businesses need to ensure their supply chains are resilient and secure in the face of growing global supply chain pressures, the Chartered Institute of Internal Auditors (IAA) is urging.

Organisations should turn to internal audit for assurance that their supply chain is robust enough to mitigate the risk of reputational harm and the profit impact caused by supply chain failures, a new report by the Chartered IAA says.

Supply Chain Resilience and Security: Harnessing the Potential of Internal Audit  reveals that supply chains are under particular pressure as seasonal rushes combine with existing pressures caused by geopolitical uncertainties and extreme weather events. It says cyber threats, crop failures, labour shortages, post-Brexit issues, pandemic recovery and the ongoing war in Ukraine are all exacerbating supply chain risks.

The report says boards need to ensure that supply chain operations are not just efficient, but resilient enough to handle disruptions and optimise financial performance. An extensive research report from McKinsey in 2020 – Risk, resilience, and rebalancing in global value chains – indicated that companies can expect to lose 42% of one year’s EBITDA every decade.

Organisations should beef up their focus on supplier risk management and evaluate and test the resilience of their supplier networks regularly, the Chartered IAA advises. That relies on effective communication channels with suppliers, using appropriate technology solutions and engaging in joint risk management exercises to ensure they are well-equipped to handle disruptions.

The Chartered IIA also says boards should check that they are not overly dependent on single suppliers or regions to bolster their supply chain resilience. 

Meanwhile, the rise in cyber threats means integrating robust cyber-security measures into supply chain risk management strategies is vital. This includes proactively assessing vulnerabilities and recommending ways to bolster cyber defences to ensure that supply chains are not only efficient, but also secure against the growing risk of cyber attacks.

The adoption of technologies such as data analytics, AI and blockchain is crucial in bolstering supply chain resilience, it says, and should be used to provide deeper insights into supply chain risks, enhance predictive capabilities and improve overall supply chain management.

The report makes several recommendations, including the need for boards to have a forward-looking risk management approach and to engage with internal audit functions more strategically. This involves evaluating, assuring and enhancing the resilience of supply chains.

Anne Kiem OBE, Chief Executive of the Chartered IIA, says: “Reliable supply chains are the backbone of our economy and crucial for all of us to live our daily lives. In today’s dynamic market, embracing innovative strategies and being agile in supply chain management isn’t just wise – it’s essential for keeping shelves stocked and lives uninterrupted. Internal audit can play a vital role in assuring that supply chains are resilient, secure and able to withstand unforeseen disruptions.” 

Nick Wildgoose FCA FCIPS, CEO Supplien Consulting , says: “This excellent report again highlights the fact that many organisations are failing to recognise the compelling business case to be made from appropriate investment in supply chain resilience. The starting point has to be ensuring you have transparency across your supply chain. This isn’t just about resilience, but increasingly it’s about making sure you are compliant with growing regulatory requirements.”

To bolster the resilience of their organisations’ supply chains, Wildgoose says finance teams should focus on ensuring that there is a good understanding of the potential costs and profit impacts of supply chain disruptions or other failures. This includes understanding the environmental, social and governance and reputational impact.

“Organisations should also ensure they make appropriate investments in supply chain resilience resources – including technology and data – to support the business. And finance has an important role to play in ensuring there is alignment between business objectives and functional areas such as procurement and operations to achieve the best financial outcomes.”

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