Supplier risk – the board’s perspective

Effectively managing the supplier ecosystem demands an increasingly broad perspective – as much about executing strategy effectively as it is about reducing cost, managing the downside, and building resilience. 

As effective supplier risk management increasingly becomes a matter of board consideration, organisations are thinking about how they can enhance their approaches. This includes strengthening capability, extending testing to include key third parties, and enhancing the role of procurement functions to support the delivery of strategic objectives.

Strategic conversations on supplier management

Conversations about supplier management and third-party risk are increasingly happening at a strategic level. The focus is not only on cost management, but on the opportunities that effective supplier management can bring, not least maintaining a streamlined operating model and remaining agile while accessing specialist skills, products, and the capacity to scale. Material arrangements of this nature are increasingly commonplace and often fundamental to an organisation delivering on its strategic objectives. This is driving board scrutiny of management oversight of these arrangements and how they safeguard the business while delivering value and managing cost.

Supplier risk: A board level concern

Supplier risk is now a topic of strategic importance to boards, it should not be seen as the remit of just procurement, risk, and finance functions alone. With many organisations more dependent than ever on others to deliver their strategy, they need a clear understanding of the risks associated with key agreements, how vulnerabilities are managed throughout the value chain, and confidence that their most material third parties can deal with the unexpected and respond effectively.

Boards are increasingly acting as the counterbalance to the danger that management are too focused on cost or too optimistic in relation to supplier performance. However, the need to balance cost alongside risk and resilience remains a key consideration. Boards also want management to have an agile mindset, recognising the constantly evolving landscape that requires continuous monitoring.

Engaging with testing and crisis simulation

The shift from ‘tell me’ to ‘show me’ is increasingly evident, and we’re seeing boards more interested in engaging with testing. In our experience, board engagement in testing and crisis simulation is incredibly valuable and a natural extension of firms’ work on operational resilience.

Testing and engagement can help build confidence when making decisions around material outsourcing and third-party arrangements, as well as strengthen relationships with key third parties. If all customers need simultaneous support, how important is your organisation to a third party? Is the relationship dynamic understood and effective? Where there are limitations, are the contingency arrangements understood?

Organisations are increasingly considering whether cultural alignment with third parties and their relationship ‘off the page’ will help them to respond to significant events.

Evolution of the procurement function

There are strategic benefits to be captured here, but capturing these benefits requires building the necessary capabilities. We believe procurement functions in particular are at an inflection point, with a growing number of strategic, operational, and regulatory initiatives converging around them. This is demanding an increasingly broad focus, not least in respect of risk, resilience, and sustainability alongside cost. Given the role of procurement in organisations, they are uniquely positioned to support the business to deliver on its strategic objectives and vision.

Elevate your supplier strategy

Effective supplier management and third-party risk are critical for achieving strategic objectives and maintaining resilience. As organisations increasingly rely on external partners, it's essential to understand and manage these relationships proactively. We encourage you to reach out to us to discuss how we can support your organisation in navigating supplier risk and building resilience.

Contact us to explore tailored solutions that can drive success in this evolving landscape.