Supply chain risks and managing the corporate governance implications

The reach of effective corporate governance should not be reserved to inside an organisation. Culture, accountability and standards of acceptable behaviour need to extend to an organisation’s network – including its supply chain. 

We see this supported by Government with regulation such as the Modern Slavery Act 2015 and the Payment Practices and Performance Regulations 2017.

44% of boards think governance regulation will increase

The Modern Slavery Act moves to eradicate slavery from supply chains and networks – with organisations which have a turnover of £36 million or more having to publish a formal statement outlining what measures they are taking to do this. The Payment Practices and Performance Regulations regulation looks to ensure that organisations are fair in their payment timing to third party providers and suppliers. This aims to reduce debt and cash flow issues, particularly for smaller organisations - although these do also impact large organisations, Carillion is a prime example. 

The general perception from Boards in middle market businesses is that governance regulation and legislation will increase – with 44 per cent agreeing this would likely be the case.

Organisations therefore need to ensure they are taking the right steps now – to prevent future risk exposure. These can include: 

  • carrying out a supply chain audit;
  • making spot checks onsite at third parties and suppliers; and
  • ensuring that all contracts cover relevant regulation standards and specify where accountability lies should errors occur. 

In a previous article we explored the importance of business resilience, and this concept applies equally to an organisation’s supply chain. Organisations that rely heavily on suppliers and third party services need to be safe in the knowledge that those third parties also have continuity plans in place. Any disruption to supplier operations will then have less severe implications for the end user or client. 

If you don’t know how resilient your supply chain is, or are concerned that you do not have the right measures in place to reduce risk, please contact Carolyn Brown

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