Prospering in the New World of
Supply Chain Risk Management
How and why leading supply chain groups look beyond
costs to redesign their supply networks

Introduction
Corporate boards and executive leaders are waking up to a new world with the disconcerting
realization that they don’t know what they don’t know about their supply chains.
This lack of transparency marks a pivotal andCEO of intelligent supply chain risk management

pervasive challenge to the board’s strategic oversightplatform RAAD360. This contrasts deeply with otherand governance of supply chain risks, and it comescore business capabilities such as customer experience

with a heavy price tag. A slew of major supply chain

management and omnichannel selling that havedisruptions have triggered double-digit market shareleveraged innovations and technology to facilitateand stock valuation declines in many organizations

dramatic improvements and increases in shareholder

while driving valuable customers to competitors. Bothvalue over recent years.

types of damage take years to overcome.

The need to update supply chain risk management

While the increasing frequency of so-called once-in-

now qualifies as a board priority. Under the board’s

a-generation disruptions have exposed the fragility

oversight, management can address this strategicof global supply chains, the underlying problem has

imperative by assessing the weaknesses of current

for years resided in the standard supply chain model,

supply chain models, getting in place the operationalwith its all-consuming and narrowly defined focus

and strategic components of their new strategic

on cost/efficiency, to the exclusion of reliability,

oversight responsibilities, and understanding the

responsiveness and resilience.

enabling competencies present in organizations whose“In most organizations, supply chain risk management
has been conducted with all of the verve of buying
insurance,” notes Michael Loveless, co-founder andproactive supply chain risk management approaches
have helped them achieve double-digit market-shareand shareholder value growth.

In light of current occurrences around trade barriers,
42% of organizations are moving to diversify their
supply chain to numerous regions.
Source: Protiviti 2021 Global Finance Trends Survey, www.protiviti.com
financesurvey.

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Prospering in the New World of Supply Chain Risk Management · 2

Supply chains are not cost centers
Boards should rethink their approach to strategic

hubs continue to place extreme pressure on supply

oversight and governance of supply chain risk in the

chains designed predominantly for low-cost production

face of a still emerging post-pandemic environment.

rather than for reliability and resiliency.

They also must consider the short- and long-term
effects of the Russia-Ukraine war, which has createdfurther turmoil in supply chains and resulted in acomplex scheme of supply chain-related sanctions withwhich impacted organizations must comply. The same
historic changes should motivate executive leadershipteams to overhaul existing supply chains and related
risk management strategies.

Such disruptions painfully illustrate the need to
pay more attention to the location of key suppliers,
reliability of second- and third-tier suppliers,
availability of qualified alternative sources of supply,
how long suppliers can operate and meet obligations
amid a catastrophic event, and how long companies
themselves can operate amid a prolonged disruption
in their supply chains. Sourcing of commodities,

As executive management and the board embark on thismaterials and components that are a priority fromjourney, they should keep the following context in mind:

a national security standpoint, particularly related
to healthcare and other strategic needs, are also

Fragile supply chains are not a new development— they represent a longstanding issue.

receiving closer attention by both the public andprivate sectors, as is the concentration of key
suppliers in a given country or region.

The global pandemic did not break global supply chainsas much as it exposed entrenched fragilities in those
networks in harsher terms compared to previous
disruptions, such as the United States’ imposition,
during the Trump administration, of punitive tariffs

Remember :• Fragile supply chains are not a new development– they represent a longstanding issue.

and related restrictions on China in response to thatcountry’s economic policies and commercial practices.
The Biden administration has doubled down on these• Supply chain risk management’s impacts toshareholder value are substantial and enduring.

policies by strengthening anti-China alliances andimplementing additional sanctions.
Yet regional COVID-19 surges continue to wreak havoc
on supply chains. For example, outbreaks in China
have resulted in lockdowns in manufacturing-heavy
locations such as Shanghai, severely impacting global
supply chain networks. Russia’s unprovoked invasionof Ukraine stimulated the largest, most comprehensive
collection of economic sanctions in modern history.1• The focus on costs has been all-consuming
and incomplete.
• A lack of transparency stems from low levelsof trust.
• Lawmakers and regulators are taking actions
to ensure more reliable, responsive andsecure supply chains.

In addition, extreme weather events in manufacturing

1“The War in Ukraine: Globalization Takes Another Hit,” Protiviti Flash Report, March 23, 2022:
www.protiviti.com/US-en/insights/flash-report-032322-ukraine-war-globalization-hit.

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Prospering in the New World of Supply Chain Risk Management · 3

Supply chain risk management’s impacts toshareholder value are substantial and enduring.
A groundbreaking academic study offers an eyeopening quantification of the magnitude andduration of the costs that publicly listed companies
bear from major supply chain disruptions. The
authors estimate that during the year leading up toa public announcement of a supply chain disruption,organizations, on average, experience a 107% dropa sole-source or single-source supplier or vendor incountries on the other side of the world, and adopt
just-in-time manufacturing and delivery techniques
saved money; that is, until a major disruption — anearthquake, trade tariffs, a global pandemic, a regional
ice storm, a fire in a single manufacturing plant, a new
COVID-19 outbreak, and so on — inflicted expensive
losses in organizations without more diverse supplierbases and other “just-in-case” buffers.

in operating income, a 114% decline in return on

Measures such as cost of goods sold reflect an incomplete

sales and a 93% reduction in return on assets. “Moreaccounting of total costs because they fail to address

importantly, firms do not quickly recover from thecosts related to business continuity management,

negative economic consequences of disruptions,” thelogistics workarounds, customer satisfaction declines

authors conclude. “During the two-year time period

in response to delays, and more. Additionally, a cost-

after the disruption announcement, the changes indominant approach to supply chain risk management

operating income, sales, total costs, and inventories

tends to neglect or, at the very least, short-change theare insignificantly different from zero.” Whilesignificant value derived from designing and operating

this study was published in 2003, it underscores themore reliable and responsive supply chains.

2structural flaws in most supply chain risk management
approaches today. Moreover, the disruptions evaluatedin this research are not of the same scale and impact as
more recent supply chain upheavals.

A lack of transparency stems from low
levels of trust.
Over the years, the supplier and vendor community

The focus on costs has been all-consuming
and incomplete.

developed resistance to requests for information-sharing

The traditional view of supply chains as a cost centeror perceived to be used, to extract lower prices andproduced substantial efficiencies but, at the same time,other concessions from suppliers. Vendors avoided

created substantial risks. In many organizations, treatingthese requests or responded with vague information

cost of goods sold as the dominant performancein order to protect themselves in subsequent

measure drove a series of decisions and behaviors

negotiations. The good news is that a growingthat ultimately resulted in relying on a core contract

number of supply chain leaders and CEOs recognize

manufacturer in one country — frequently, that country

that communication and collaboration models are

was China. Decisions to decrease inventory levels, use

fundamentally broken and need to be redesigned toissued by their sourcing counterparts inside customer
companies — often because this information was used,enable greater reliability and responsiveness.

2“An Empirical Analysis of the Effect of Supply Chain Disruptions on Operating Performance,” Kevin B. Hendricks and Vinod R. Singhal, July 2003: www.chainlinkresearch.
com/media/docs/original/Effects_of_Supply_Chain_Disruptions_on_Operating_Performance-Vinod-Singhal.pdf

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Prospering in the New World of Supply Chain Risk Management · 4

Lawmakers and regulators are taking actions
to ensure more reliable, responsive and securesupply chains.
Global rules-makers and regulators continue to increaseand enhance requirements for greater visibility into
internal practices related to cybersecurity; national
security; ESG standards, including specific measuresand policies as well as human trafficking concerns;
and other business practices among all tiers of
suppliers. Institutional investors, shareholder activists,
consumers, employees and regulators are driving
companies to look upstream at their supply chain as
well as downstream to their distribution channels to
reduce the carbon footprint in their value chains andproduct lifecycles. Similar attention and pressure focus

The SEC’s recent carbon footprint disclosure proposal
will potentially have a direct impact on shareholder
valuation and require much greater supply chain
visibility and more detailed reporting. The evolving
global sanctions against Russia implemented as a resultof its war on Ukraine must be monitored not just by
financial services organizations but also those in mostindustries, as there are far-ranging impacts on supply
chains. Recent supply chain-related price increases
also have stimulated investigations into accusationsof price gouging and monopolistic practices designed
to keep supply constrained and prices high. This
concern motivated the U.S. Federal Trade Commission
to perform months-long audits of nine large consumer
products companies in late 2021 and earlier this year.3

on human rights abuses in global supply chains, driving
the need for more robust human rights due diligence.

Boards and senior leaders should recognize that supply chain risk management increasingly affects thecustomer experience. Customers dissatisfied by the lack of reliability and sustainability in cost-dominant
approaches to supply chain management inevitably will turn to alternatives that may cost more but deliver
higher levels of service, increasingly real-time visibility into supply chain and logistics activities, reduced ESG
footprints, and on-time delivery guarantees.

3“FTC Launches Inquiry into Supply Chain Disruptions,” Federal Trade Commission press release, November 29, 2021: www.ftc.gov/news-events/news/pressreleases/2021/11/ftc-launches-inquiry-supply-chain-disruptions.

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Prospering in the New World of Supply Chain Risk Management · 5

Supply chain oversight equates to shareholder value
From a strategic oversight perspective, boards needraises other governance-related questions about theto know whether the organization can get goods toorganization’s fundamental approach to supply chain

market when disruptions strike. Addressing that risk

risk management:

Are reliability and responsiveness sufficiently addressed or do cost concerns crowd out these crucial
enablers of supply chain resilience?
Do our CFO, COO and supply chain leaders define, measure and manage cost in a comprehensive way(e.g., are disruptions and risks sufficiently addressed in “total” cost quantifications)?
Does the supply chain risk management model hinge on “good days” of operation vs. accounting forhigh-risk and worst-case scenarios?

Is risk evaluated in a holistic and expansive way, taking into account different types of risk (e.g.,
operational, regulatory, geopolitical, weather, reputation, etc.) and current as well as future risks? (Forexample, electric vehicles comprise only a sliver of total vehicle sales today for most automotive brands,
but they also represent 95% of an automaker’s anticipated future profits, making supplies of critical raw
materials such as cobalt, lithium and manganese a crucial longer-term risk consideration.)

Do financial models used to monitor supply chain performance address revenue assurance?

Are supply networks being redesigned to drive flexibility and resilience in the face of disruptions?

Are C-suite leaders able to quickly identify how different parts of the organization are managing supply
chain risks in a way that protects the value each of those areas generates for the enterprise as a whole?
Does supply chain risk management recognize and respond to regulations and government directives
pertaining to secure and resilient supply chains; ESG mandates, measures and policies; potential humantrafficking; and restrictions related to Chinese-owned/affiliated and Russian-owned/affiliated suppliersand companies?

Given their accountability for shareholder value,

costs eaten from a margin standpoint, or are theyboards also will want updates from their CEO, CFO

passed on to customers? If the latter option is used,

and COO regarding how tradeoffs involving supply

how is that projected to affect customer experience

chain cost increases affect profitability. Are higher

and profitability?

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Prospering in the New World of Supply Chain Risk Management · 6

Intelligent supply chain risk management
Another question looms large for boards and• Measure risk across multiple dimensions:executive management: What approaches andExemplars identify and measure risk across allpractices distinguish leading supply chain risk

operations and regions, and they do so with greater

management capabilities from the rest of the herd?

frequency than other organizations. They also assess

RAAD360 research on supply chain risk management

risk across different time dimensions — current

exemplars and Protiviti’s experience working withrisks as well as those likely to pose challenges toboards and C-suites to help improve and optimize

short-term and long-term operations based on

supply chains show that organizations with leading

the organization’s strategic trajectories. These risk

supply chain risk management capabilities typically doassessments and ongoing scenario planning activities

the following:

are conducted in a proactive manner.

• Look beyond traditional cost evaluations: While• Collaborate across the organization: Leading

cost is an important risk consideration, it should beorganizations recognize that many different factors

evaluated and monitored in conjunction with supply

can affect supply chain operations, including issues

chain reliability and responsiveness. Managing thethat reside beyond supply chain processes in othersupply chain based on revenue assurance requires

parts of the enterprise. As such, exemplars involvea comprehensive understanding of the costs ofnumerous organizational leaders and functions

disruptions as well as the investments needed toin supply chain risk management planning andensure access to supplies.

execution, including finance, legal, compliance,sourcing, customer management, and credit
management, among others. This collaboration,

Here’s what organizations with leading
supply chain functions dowhich is centered on identifying risk triggers
throughout the organization, helps establish andsustain true resilience.

• Look beyond traditional cost evaluations• Measure risk across multiple dimensions• Collaborate across the organization• Redesign supply networks• Treat technology as a facilitator while
recognizing humans still matter• View CFO-COO unity as a crucial risk
management enabler• Redesign supply networks: As the cost advantagesof offshoring, outsourcing, single-sourcing andthe like continue to dissipate in the face of more
frequent large-scale disruptions that reverberate
globally, leading organizations are diversifying
their portfolio of suppliers, production locations anddistribution channels. These network redesigns are
far more comprehensive than, for example, movingfrom China to Southeast Asia, a shift that does
little to address logistics-related disruptions. We
see more companies rethink network design basedon far-reaching supply chain risk analyses that put
more options on the table, including near-shoring
and reshoring as well as building factories anddistribution centers closer to where products are sold.

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Prospering in the New World of Supply Chain Risk Management · 7• Treat technology as a facilitator while• View CFO-COO unity as a crucial risk management

recognizing humans still matter: Supply chain

enabler: Inside organizations with more advanced

risk management exemplars treat technology —supply chain risk management capabilities, CFOs

including advanced tools — as a facilitator, rather

are collaborating with COOs and other supply chain

than the primary driver, of supply chain risk

leaders more directly, frequently and effectively.

management improvements. Consider artificial

Leading CFOs are contributing their insights andintelligence, which does an excellent job of ferreting

expertise to supply chain planning on a monthly, if

out and filtering risk data from external feeds

not more frequent, basis. (While CFOs and COOs haveand then identifying patterns. Optimizing thoselong worked together to address supply chain risks,

insights requires human input — especially

we see a more unified approach to this collaborationfrom supply chain professionals who have forgedamong exemplars.) This sense of shared purpose

relationships with suppliers, work onsite inhelps organizations respond to new disruptions

warehouses and troubleshoot in supply depots.

faster and more effectively. For example, when Russia

Those experiences and insights are rarely, if ever,recently agreed with China to convert from U.S.

captured by enterprise systems and the advanced

dollars to the yuan in its trade with China, leading

tools that pull from those systems. Technology

CFOs immediately reached out to their supply chain

should not hinder human input into supply chain

counterparts to discuss the implications of thisrisk and the overall value chain risk.

currency issue, which may or may not provoke aninternational trade transformation.

“Companies can’t keep hobbling along with short-term fixes for their supply chain woes, even if suchmeasures do help ease pressure and aid in getting goods to customers. They also need to stop playing “kickthe can” when encountering fundamental supply chain problems that demand long-term solutions. Operating
the supply chain as a cost center, prioritizing leanness and cost-effectiveness above all else, and continually
putting off supply chain network redesigns are not sustainable approaches in this volatile environment.”
David Petrucci, Managing Director, Supply Chain Global Leader, Protiviti

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Prospering in the New World of Supply Chain Risk Management · 8

In closing: Look beyond the pandemic
COVID-19 continues to be an albatross around

Organizations have performed dramatic transformations

the neck of global supply chains as outbreaks andof their customer experience approaches, sales channels,

lockdowns create backlogs and delays worldwide.

finance functions and other strategic capabilities. It is

These challenges, together with those sparked bytime for senior leadership teams to conduct a similar

Russia’s war on Ukraine, painfully illustrate that

overhaul of supply chains and how their supply chain

the shortcomings of traditional supply chain risk

risks and costs are identified, quantified and managed

management need to be addressed. Supply chainsin a comprehensive and coordinated manner. As thatgoverned by a cost-dominant mindset have beentransformation progresses, boards will need to rethinkextremely fragile for the past two decades, verging on

their approach to strategic oversight and governance ofa breaking point that hit home during the recent flurry

supply chain risks.

of these latest “once-in-a-generation” disruptions.

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Prospering in the New World of Supply Chain Risk Management · 9

ABOUT PROTIVITI
Protiviti (www.protiviti.com) is a global consulting firm that delivers deep expertise, objective insights, a tailored approach, and unparalleledcollaboration to help leaders confidently face the future. Protiviti and its independent and locally owned Member Firms provide clients with consulting
and managed solutions in finance, technology, operations, data, digital, legal, governance, risk and internal audit through its network of more than 85
offices in over 25 countries.
Named to the 2022 Fortune 100 Best Companies to Work For® list, Protiviti has served more than 80 percent of Fortune 100 and nearly 80 percent of Fortune
500 companies. The firm also works with smaller, growing companies, including those looking to go public, as well as with government agencies. Protiviti is awholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

ABOUT OUR SUPPLY CHAIN AND OPERATIONS PRACTICE
Managing the inherent risks of people, processes, and technology in relation to day-to-day business operations has become increasingly complex.
Overly manual, reactive and siloed operational methodologies of old are unsustainable and cannot continue.
Our supply chain and operations experts work closely with key stakeholders to integrate industry best practices and tailor business solutions to help:• Reduce operating costs;• Increase productivity and service; and• Reduce the capital required to support business goals and objectives.
We help organizations implement operational risk capabilities that are agile and flexible in order to effectively and efficiently respond to the everchanging environment.
Supply Chain Resilience
As companies work to compete in today’s business environment, their supply chains have become increasingly global and complex. Continuous
downward cost pressures and higher customer demands for quality, speed of delivery, and overall performance require companies to continually
identify opportunities to innovate.
To help organizations address these growing challenges and complexities, Protiviti’s operations and supply chain experts work closely with key
stakeholders to integrate industry-leading practices and tailor business solutions to meet the organization’s needs. We drive supply chain resiliencethrough an innovative approach using emerging technologies and solutions that help our clients identify and manage supply chain risk.

CONTACTSDavid Petrucci
Managing Director
david.petrucci@protiviti.com

protiviti.com

Christopher MonkManaging Director
christopher.monk@protiviti.com

John F. Weber
Senior Director
johnf.weber@protiviti.com

Prospering in the New World of Supply Chain Risk Management · 10

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