06 Jan 2016

Opaque supply chains can obscure legal risks

Understanding and managing supply chain risks can be crucial to anticipating future legal challenges and ensuring regulatory compliance.

Singkham

An annual report from insurance company Zurich and the Business Continuity Institute has found that a majority of businesses lack sufficient understanding of where and why disruptions occur in their supply chains. However, maintaining a clear understanding of supply chain operations and risks is crucial if businesses are to avoid inadvertent compliance failures or litigation threats.

Wider knowledge necessary

Poor awareness of second and third-tier suppliers' operations can expose larger companies to supply chain compliance risks associated with labour and production. For example, last year's passage of the Modern Slavery Act in the UK will hold larger companies to account for ensuring suppliers' compliance with labour standards. Moreover, as supply chains continue to globalise, understanding their structure can be crucial to anticipating localised legal and regulatory risks. As general counsel become more involved in their companies' risk management strategies, maintaining a close eye on legal risks within the supply chain is crucial to bolstering preparedness and building resilience to potential disruptions.

Future risks

The BCI report interviewed 537 business continuity and supply chain professionals across 67 different countries, with the majority hailing from the financial services, professional services and manufacturing sectors. Of those interviewed, only 31 per cent said that their companies had investigated down the entire length of the supply chain when a disruption occurred. Supply systems are often complex, with 35 per cent of businesses reporting more than 21 key suppliers. However, almost 10 per cent of respondents said that their companies did not identify key suppliers. When respondents looked at the risk outlook for the next five years, new laws and regulations were the second most cited cause of anticipated supply chain disruptions. Reports of past supply chain disruptions being caused by new laws and regulations were most common among respondents from businesses in Latin America, Sub-Saharan Africa and Europe. Sources: Law Gazette; Business Continuity Institute

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