Supply chain risk management issues to look out for in 2024

The pressure exerted on supply chains in recent years showed no signs of letting up in 2023. Alex Minett, Head of Global New Markets at CHAS, looks at seven supply chain risk management issues likely to feature highly in the next 12 months and suggests how businesses can respond.

While the disruptions caused by COVID-19 are largely behind us and Europe is recovering from the energy crisis, supply chain risk management remains a critical area of focus for businesses worldwide.

Alex Minett, Head of Global New Markets at CHAS, a Veriforce company, delves into seven key issues likely to dominate the supply chain landscape. From evolving legislation like the UK Building Safety Act to the growing importance of ESG laws, climate change impacts, and the crackdown on greenwashing, each aspect will demand a strategic response from companies in construction, manufacturing, transportation and other industries vital to Great Britain’s economy.

The article also explores the significance of Scope 3 emissions, the rising emphasis on social value, and the increasing reliance on third-party verification, offering insights into navigating these complex challenges.

What is supply chain risk management?

Supply chain risk management (SCRM) is the process of identifying, assessing, and mitigating risks within a supply chain to ensure its smooth and efficient operation. This involves analysing the entire supply chain to spot potential disruptions, such as supplier issues, logistical delays, quality problems, or natural disasters.

SCRM aims to maintain the integrity and flow of goods and services from origin to end customer. It encompasses strategies like diversifying suppliers, establishing contingency plans, and implementing technology for real-time monitoring. Effective SCRM is crucial for controlling costs, maintaining customer satisfaction, and enhancing a company’s resilience against unforeseen challenges.

UK Building Safety Act 2022 Secondary Legislation

Building safety is once again headline news in the UK, with 2023 standing out as the year of the RAAC crisis. However, 2023 also saw the long-awaited introduction of legislation under the Building Safety Act 2022, including The Building Regulations (Amendment) (England) Regulations 2023, which came into effect on 01 October 2023.

Related reading: What are the key updates to the building safety act in 2023?

While largely focused on higher-risk buildings (HRBs), the legislation includes criteria that anyone undertaking projects subject to building regulations should understand. Firms operating in the construction sector should pay special attention to the dutyholder regime, which comes with a host of new responsibilities.

It’s also worth noting the role of the Building Safety Regulator, which is now the only body with the power to approve the construction and occupation of higher-risk buildings. In addition, look out for statements from the new National Construction Products Regulator (NRCP), who are already taking enforcement action against defective construction products. Learn more about how this legislation affects supply chain risk management by reading the UK Government’s guidance on the Building Safety Act.

Progress of international ESG laws

Sustainability reporting requirements are set to become increasingly stringent throughout 2024 and beyond. New EU directives such as the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) are expected to apply to businesses large and small over the next few years. Germany has already introduced the German Supply Chain Due Diligence Act (GSCA) in early 2023 in anticipation of the new rules.

Related reading: What is ESG, and why is it important?

The EU’s Regulation on deforestation-free products also entered into force in June 2023 to ensure key “high-risk” goods exported or placed on the EU market are deforestation-free. Elsewhere, the USA is tightening regulations on ESG disclosure, with the US Securities and Exchange Commission (SEC) establishing a climate and ESG task force to target ESG-related misconduct. Engaging with internal and external stakeholders, industry peers, and regulatory bodies can help businesses stay up to date on developing ESG standards and legislation and ensure they are aware of when new rules affect their operations.

Ongoing impact of climate change

Acute weather events such as flooding or wildfires, such as those that spread across Europe in the summer of 2023, can dramatically impact global supply chains. While companies can play their part by staying compliant with environmental objectives to tackle the long-term impact of climate change, weathering the storm of unpredictable climate events requires a more proactive approach.

Related reading: 5 simple steps to achieving net zero

As standard, businesses should integrate climate risks in their supply chain risk management strategies by practising supply chain mapping and putting contingency plans in place, such as dual sourcing. Supporting local or domestic suppliers can lessen the impact of weather-related disruption with the added benefit of contributing to overall environmental and sustainability goals. Businesses should also consider what risks changes such as increased temperatures can pose to employees, especially in industries with outdoor work.

Greenwashing crackdown

New guidance in the UK and abroad has led to an intensified focus on greenwashing  — the process of spreading misinformation to consumers about an organisation’s environmental and sustainability claims.

In the UK, the Financial Conduct Authority (FCA) has put forward a package of new measures to build transparency and trust. Meanwhile, the EU has set new minimum norms for how companies substantiate, communicate and verify their environmental claims under the Green Claims Directive.

In the US, the Federal Trade Commission (FTC) is tackling big business greenwashing with an update to its “Green Guides“, offering clarification on when deceptive marketing around sustainability violates federal law.

Businesses should focus on transparency within their operations and supply chains and be ready to evidence a genuine commitment to sustainability.

Scrutiny on scope 3 emissions

Accurately measuring Scope 3 emissions, which refers to indirect emissions throughout a company’s value chain, is a serious challenge, but its importance is continuing to grow. Already, under Public Procurement Notice 06/21, companies bidding for public procurement contracts worth over £5 million must measure their Scope 3 carbon emissions annually and show that they have a Carbon Reduction Plan in place to meet 2050 Net Zero goals. Starting in 2025, European companies, and those with European operations based elsewhere, will have an obligation to disclose Scope 3 emissions.

Transparent supply chains are key to collecting the correct and most accurate data; stay proactive and establish reporting expectations with suppliers upfront.

Spotlight on social value

Opportunities to embed social value are becoming more widespread as stakeholders focus on quality and sustainability instead of cost alone. One of the recurring issues around social value is that it has been difficult to define. However, new frameworks aimed at standardising social value processes are being introduced, providing a guide for organisations looking to enhance their corporate social responsibility (CSR) initiatives. Not only will they offer consistent methods of reporting social value, but they will also outline best practice guidance.

Related reading: What is corporate responsibility and why is it important?

By adopting the use of proxy values against social value key performance indicators, there will also be more clarity on how social value is measured.

Increasing focus on third-party verification

Third-party verification is becoming a smart choice for businesses dealing with complex risk management environments. More organisations are seeking this verification for reassurance in forming new partnerships. Additionally, various industries and governments are making it a requirement for compliance with certain standards and laws. This shift highlights its growing importance in ensuring trust and adherence to regulations.

Now is the time to prepare for 2024 and beyond