Why it's critical to identify supply chain risks before they escalate

Archana Kotecha, Founder and CEO of the Remedy Project and Chief Impact Officer for Diginex, recently lead a Masterclass in supply chain resilience, challenging industry leaders to look honestly and critically at their supply chains and ask themselves: in today’s social and political climate, is my supply chain prepared to absorb shocks?  

The current system is built around compliance with regulations. For many businesses, this is already built into their infrastructure in the form of supplier assessments, policies, audits and reporting structures. However, ambitions for a resilient supply chain ought not, and in fact cannot, stop there.

Below, we’ve listed our key takeaways from the Masterclass. The session recording is also available online here.  

Compliance VS Resilience

What’s the difference? Compliance establishes a minimum threshold but it is, by nature, reactionary.  

When regulations change, businesses must adapt their processes and activities to meet new requirements. However, compliance frameworks are designed to respond to existing obligations, whereas resilience requires organisations to anticipate and respond to risks that may emerge before regulations catch up.

Shocks have been shown regularly to disrupt supply chains and being unprepared can lead to serious expenses for businesses. Compliance, therefore, is the starting point, but it is not a strategy.  

Resilience, on the other hand, is about whether an organisation can evolve and recover quickly in a world shaped by geopolitical conflict, labour exploitation risks, regulatory expansion, and operational volatility. It relies on a more sophisticated system of processes for collecting and analysing data relating to your supply chain. The key question is whether supply chain systems can surface risk early enough to prevent disruption.

Pressure does not disappear

When a business’s operating environment experiences a shock, pressure is transferred to the most vulnerable points of a supply chain, whether through purchasing practices, production demands, labour arrangements or supplier relationships, and this can result in excessive overtime, workplace instability, labour shortages and delayed payments among other things.  

The challenge in absorbing a shock lies in knowing which part of your supply chain took the brunt of it.  

To illustrate this, one only needs to look at current examples where global disruption has had cascading impacts on livelihoods and production systems.

Recent geopolitical tensions demonstrate how quickly disruption can cascade through global supply chains, affecting production costs, labour availability, transportation routes, and supplier performance.  

These examples illustrate that resilience is not a simple matter of operational continuity, but of clarity on where the transfer of pressure has created new risks and whom these new risks threaten.  

The kind of resilience that will define your business involves anticipating vulnerabilities before they turn into legal, operational, or reputational crises.

So what’s missing?

Risks very rarely emerge from a single issue.  

You will have read about the WRO issued by the US halting imports of bicycles and parts manufactured in Taiwan by Giant Bicycles.  

Structural vulnerabilities in Taiwan's manufacturing industry were visible long before any enforcement action took place by the US authorities.  

The issue was not that these problems were unknown or that there was a lack of information. The debt bondage, passport retention issues, poor living and working conditions were extremely well documented across various sectors of Taiwan. Those signals were just not being connected, interpreted, and acted upon early enough.

Real resilience requires careful triangulation of risk. Neither a purely top-down nor a purely bottom-up view is sufficient on its own. The challenge is connecting audit findings, worker feedback, grievance mechanisms, remediation outcomes, procurement practices, and supplier realities to build a complete picture of risk.  

And what should be done?

A key takeaway from the Masterclass is that bottom up visibility is underrepresented when it comes to collecting data within supply chains. Resilient supply chains require systems that surface information from workers directly and act on that information quickly.  

Ultimately, resilience requires visibility. When looking at your supply chain systems and structures, ask whether you have a good idea of the grievance mechanisms available to workers, whether you have invested in strong relationships with your suppliers, whether you have any systems in place for worker voice, whether, when problems have arisen in your supply chain, remediation has been used as a learning opportunity so that these liabilities don't recur.  

Sustainability is not a badge you can choose to wear or not to wear

Conversations in boardrooms revolve around return on investment, the cost of compliance, the cost of sustainability. This year alone, however, has shown what can happen to a business that is not prepared to ride the wave of geopolitical tumult and increasing, diverging regulations.  

Another word for resilience in this context is preparedness and in a landscape defined by uncertainty, preparedness will always be the lesser expense.  

This Masterclass is part of an ongoing series on optimising your supply chain and mitigating risk. The next Masterclass on how real time data surfaces risk before a crisis will take place on the 17^th June.  

‍