Board Priorities in 2025: Supplier risk management
16 January 2025
Boards can strengthen business resilience with proactive supplier risk management
As businesses increasingly rely on intricate global supply chains, managing supplier-related risks—whether operational, financial, or reputational—has become a critical priority. Boards must take a proactive role in overseeing supplier risk management to safeguard their organisations against potential disruption and ensure long-term success.
The growing Importance of supplier risk management
Supply chain disruption stemming from geopolitical tensions, cyberattacks, sanctions, fraud, bribery, corruption, modern slavery, environment and social disruption, or natural disasters can have severe impacts on operations, finances, and brand reputation. For instance, heightened regulatory scrutiny around labour practices, sustainability, and ethical compliance means that supplier risks can have legal and reputational consequences if not properly managed.
Key legislative changes reflect this Urgency. The Corporate Sustainability Due Diligence Directive introduces mandatory human rights and environmental due diligence for large EU and non-EU companies operating in the EU. Separately, the upcoming 'failure to prevent fraud' corporate criminal offence, effective from September 1, 2025, enables prosecution of large organisations for fraud committed by their agents, subsidiaries, or supply chain partners. The EU Forced Labour Regulation also demands that companies address concerns over the ethical production of supply chain goods. In the UK, modern slavery laws are expected to evolve with stricter requirements for supply chain due diligence.
Strategies for managing supplier risks
To manage supplier risks effectively, Boards must ensure that a robust risk management framework is in place, emphasising the identification, assessment, and mitigation of risks across the supply chain. This begins with supplier due diligence. Organisations must assess suppliers’ financial stability, operational resilience, and compliance with ethical, regulatory and legal standards before on-boarding. This helps to identify risks and vulnerabilities early and builds a foundation for understanding the inherent risk profile of each supplier.
Ongoing supplier monitoring is equally critical. Boards should implement systems to track performance, compliance, and emerging risks on a continuous basis. Regular audits and performance reviews, combined with real-time data analytics, can enable organisations to stay ahead of emerging risks and take action early.
Stress testing supply chains through simulated risk scenarios—such as supplier failures or geopolitical disruption—can highlight weaknesses and improve crisis management strategies. By emphasising monitoring, proactive planning, and developing substitutability plans, Boards can enhance supply chain resilience, safeguarding their organisations from costly disruption.
