Global supply chain expert calls for more pro-active third-party risk management

Jelle Groenendaal | Chief Product Owner

The war in Ukraine, COVID-19, adverse weather events around the globe and climate change have shown the importance of resilient supply chains. Recently, Yossi Sheffi published a new book in which he emphasizes that a pro-active approach to third-party risk management is key to achieving supply chain resilience.

Yossi Sheffi is a Professor of Engineering Systems at the Massachusetts Institute of Technology where he serves as Director of the Center for Transportation & Logistics. He is an influential thinker and recognized as one of the world’s preeminent experts on business and supply chain resilience. He wrote more than 6 books on supply chain risks and resilience and has published in renowned journals such as the Wall Street Journal.

In his latest book The New Abnormal, in which he reflects on the COVID-19 crisis and other major business disruptive events, Sheffi argues that organizations should act more proactively. By proactive third-party risk management Sheffi means (1) early anticipation to supply chain threats, (2) obtaining deeper insight into the supply chain and (3) ensuring more collaboration between organizations and their third parties and suppliers.

Early anticipation to threats

Sheffi stresses that early detection of a disruption and recognition of its implications allows a company to find alternative supply sources, alert customers, change manufacturing plans, and, in general, be proactive. Similarly, early anticipation is also required to timely mitigate cyber and technology risks introduced by third parties and suppliers.

According to Sheffi, one of the most effective ways to understand the overall risk exposure and enable a pro-active response is to know all the locations of suppliers’ facilities that make all the parts that go into the company’s product and which customers buy products that use these parts. Armed with such a map, a company can pinpoint where natural disasters or a COVID-19 outbreak is taking place, and decide which of its parts supply, product deliveries, and customers will be affected.

Deeper insight into supply chains

Sheffi also notes that organizations should invest in obtaining a better insight into risks introduced by the third parties of third parties (i.e. tier 2, 3 and beyond). According to Sheffi, supply chain managers who previously focused their attention one or two levels down into their supply chain will have to develop the systems and discipline to track even more deeply into the chain.

More collaboration between organizations and their third parties

Finally, Sheffi observes that COVID-19 proved that organizations were all dependent on each other. Therefore collaboration with third parties and suppliers is a critical component of the new (ab)normal supply chain environment. According to Sheffi, it can determine whether an organization has adequate supply, as well as aid with innovation and other value-add opportunities. He also observes that organizations must work together to mitigate today's operational risks and thereby improving the overall resilience of the third-party ecosystem.

Tooling is indispensable

To conclude, in The New Abnormal Yossi Sheffi demonstrates that dedicated tooling such as 3rdRisk is indispensable to put proactive third-party risk management into practice. 3rdRisk takes Sheffi's advice to heart and optimally supports collaboration between organizations and their third parties.



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