How to manage risk in complex and fast-paced value chains

Over the past decade, the regulatory landscape for manufacturers has shifted dramatically, with governments introducing supply chain regulations to address factors such as environmental damage, human rights abuses, and forced labour. Manufacturers must understand and comply with these evolving regulatory requirements to avoid legal repercussions, protect their reputations, and maintain operational efficiency.

Yet manufacturers operating across borders within multi-tiered supply chains face heightened risks. When supply chains become complex, visibility into the deeper tiers—where risks may hide—can be limited. A single instance of poor practice, even several tiers removed, can lead to widespread ramifications. Ensuring transparency and continuous oversight through robust data solutions is essential to managing these risks effectively.

The expanding landscape of regulation

A growing number of regulations require manufacturers to exercise comprehensive due diligence across their supply chains. In Germany, the Supply Chain Due Diligence Act, implemented in 2023, mandates businesses with operations in the country to ensure their supply chains respect both human rights and environmental standards. Compliance with the act goes beyond high-level audits and requires visibility into every supplier’s practices. Manufacturers must assess their entire value chain for potential violations, a significant challenge given the global nature of today’s supply networks.

Similarly, in the UK, the Modern Slavery Act of 2015, alongside its recent amendments, obliges businesses to produce annual statements outlining how they prevent forced labour within their operations. This sentiment is echoed in several international frameworks, such as the United States-Mexico-Canada Agreement (USMCA), which prevents the import of goods into the United States produced using forced labour. Failure to comply with these regulations can lead to significant fines, operational delays, and serious reputational harm.

Evolving risks in global supply chains

Today, global supply chains are exposed to growing risks and rapidly changing threats. Sanctioned entities, financial instability, bribery and corruption, and modern slavery are just some of the risks manufacturers face. The onus remains on firms to implement robust third-party risk management frameworks that prevent them inadvertently doing business with illicit actors.

One of the biggest risks is sanctions exposure, which stems from a growing number of sanctions, particularly those following Russia’s invasion of Ukraine in 2022. Prior to the invasion, sanctions checks were often a list-checking exercise for a small number of organizations. Manufacturers now need to adopt a responsive, sophisticated approach that verifies whether a supplier is sanctioned and assesses ownership structures and influence pathways. Many sanctioned companies are using innovative methods, such as Russia’s ‘shadow fleet’ in the oil and gas sector, to bypass detection while retaining control of assets.

Additionally, the risk of modern slavery within supply chains is increasing. Data from Moody’s Grid database found that incidents of modern slavery in the EU rose by 17% between 2022 and 2023. Similarly, in the UK, reports have almost doubled over the past five years.

Bribery and corruption are also pressing concerns for manufacturers. A 2023 EU Commission survey revealed growing scepticism among Europeans about the effectiveness of current anti-corruption legislation. In response, the EU Commission proposed a new directive to strengthen anti-corruption efforts across member countries. These rules aim to make all offenses under the UN Convention against Corruption mandatory in EU law and ensure stricter penalties. While still a draft, this new directive is expected to have a significant impact on businesses in the EU and beyond when it comes into force.

By embedding risk management into every layer of their operations, manufacturers can create a more resilient framework that anticipates and mitigates potential threats before they escalate. This proactive, data-driven approach not only identifies vulnerabilities across an entire supply chain but provides the agility needed to respond swiftly to emerging risks in increasingly interconnected supply chains.

Tools for de-risking supply chains

De-risking supply chains begins with asking the right questions, particularly when onboarding new suppliers and monitoring networks for risk. It’s essential for manufacturers to understand who they are doing business with, gaining insight into material risk factors like financial stability, business practices, and where operations are located. However, de-risking is not a one-time process. Manufacturers must continually monitor suppliers for changing risk factors, using integrated data solutions to flag potential instances in real-time.

Automated solutions offer significant advantages here, allowing manufacturers to build comprehensive risk profiles based on key factors such as sanctions exposure, risk of human rights violations, and jurisdictional anomalies. These systems can help mitigate risks and streamline compliance efforts, providing continuous visibility across an entire supply chain. By leveraging perpetual automated monitoring tools, manufacturers can avoid the manual burden of tracking evolving relevant risk factors, which can free resources for more strategic decision-making.

A particularly effective strategy is to incorporate a 'value at risk' model into supply chain and operational risk management frameworks. This approach quantifies the financial impact of potential supply chain disruptions, helping manufacturers prioritise the most critical areas of risk. By focusing on areas with the highest potential impact, manufacturers can allocate resources more efficiently, ensuring effective compliance and operational resilience.

Managing risks in multi-tier supply chains

For manufacturers, assessing risks deep within their supply chain—beyond direct suppliers—presents significant challenges. Many large organisations use multiple systems to manage risk and compliance, leading to fragmented data and reduced transparency about entities in their network. In these cases, the key to effective risk management lies in consolidating data across the entire supplier network to create a unified view of risk.

Automated, data-driven solutions can help provide manufacturers the tools to create this greater level of transparency. By integrating high-quality datasets into risk analysis processes, businesses can more quickly assess companies worldwide, enabling manufacturers to make faster, better-informed decisions about who they work with and how they ensure compliance.

As the regulatory landscape continues to evolve, manufacturers who invest in a robust, data-driven risk management framework can be best positioned to navigate change and complexity.