The evolution of supply chain management: From cost control to risk management

Welcome to the first part of our three-part series on the transformation within Supply Chain Management (SCM). In this series, we explore how the focus within SCM is shifting from cost optimisation to risk management and regulatory compliance. This first article provides an overview of Third-Party Risk Management (TPRM) and Supply Chain Risk Management (SCRM) as essential components of modern SCM.

The shift within supply chain management

In recent years, SCM has undergone a significant transformation. Whereas the emphasis was previously on cost reduction, risk management has now taken centre stage. This shift is driven by the increasing complexity of supply chains and the growing threat of cyberattacks and other disruptions. Incidents within the supply chain can have far-reaching consequences, both economically and socially. As a result, European and national governments have introduced stricter regulations, making risk management an integral part of SCM. In the following parts of this series, we will delve deeper into the impact of NIS2 and DORA on supply chain security.

European directives such as NIS2, CSDDD, and DORA are placing increasing obligations on companies to ensure the security and transparency of their supply chains.

The rise of third-party risk management

Third-Party Risk Management (TPRM) plays a crucial role in contemporary SCM strategies. This discipline focuses on identifying, assessing, and mitigating risks associated with external suppliers and service providers. These risks can range from operational and financial threats to data security and regulatory compliance issues.

A concrete example is the bankruptcy of a supplier of critical components, leading to significant disruptions in business operations. Similarly, a cyberattack on an external service provider could result in a data breach, exposing sensitive information. By implementing robust TPRM strategies, such as regular risk assessments and strict contractual agreements on data handling, companies can minimise the impact of these risks and safeguard business continuity.

Data security and business continuity as a priority

As cyber threats increase in frequency and complexity, data security is becoming a top priority for organisations. Protecting business data and IT infrastructure is not just an internal matter but also requires strict oversight of external parties. A striking example is a cyberattack on a supplier of a major technology company, resulting in the theft of confidential data.

To prevent such incidents, companies must take proactive measures, such as enforcing stringent security requirements, conducting audits, and continuous monitoring. Additionally, it is crucial to establish continuity plans to minimise operational disruptions and strengthen the resilience of the supply chain.

Increased regulatory pressure and compliance requirements

Beyond risk management, organisations are also facing increasing regulatory pressure. European directives such as NIS2, CSDDD, and DORA require companies to make their supply chains more transparent and secure. This not only demands a deep understanding of relevant legislation but also the implementation of robust compliance programs.

To comply with these regulations, organisations must demonstrate that they are in control and maintain continuous monitoring and control mechanisms. This ensures that companies can respond to changing regulations in a timely manner and proactively mitigate risks.

A new approach for a changing landscape

The shift from cost control to risk management and compliance marks a fundamental change within SCM. Standing still is not an option. That is why we support organisations in redefining their strategies and optimising processes to effectively manage risks and comply with increasingly stringent regulations.

Smart technologies, such as the solutions offered by 3rdRisk, can help companies maintain control over their supply chains while optimising costs and workforce allocation.

In the next part of this series, we will delve deeper into supply chain security under NIS2 and how organisations can adopt a pragmatic approach to meet the requirements. Stay tuned for valuable insights and practical advice on keeping your supply chain secure and compliant.

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This blog has been written with Rico Plomp, Senior Manager Cyber Security at Eraneos Netherlands.