Supplier Risk and its Impact on Corporate Risk

Supplier Risk and its Impact on Corporate Risk

Kari Miller, Regulatory and Product Management Leader, Pilgrim Quality Solutions, an IQVIA company

Risk is a major focus in most businesses today, regardless of industry. In the past few years, the Life Sciences have seen a steady rise in supply chain issues resulting in lost market caps, recalls, regulatory fines, and other financial impacts valued in the billions of dollars. So it’s no surprise that minimizing business and operational risks, as well as legal and regulatory compliance, is on every executive’s mind, and for good reason.

Supplier risk, put simply, is the probability associated with a supplier causing an interruption in an organization’s supply chain and to the availability of products and services within that supply chain. Supplier impact, at a minimum, two legs of the three-legged Governance, Risk, and Compliance (GRC) stool: Risk and Compliance. It is safe to say then that the impact of suppliers on an enterprise is significant.

Risk on the Rise

When you couple the global nature and length of supply chains with operational strategies such as lean manufacturing, just-in-time manufacturing, zero inventory, outsourcing, and subcontracting, supply chain risks are increased as even minor supplier disruptions will have a cascading effect on supply. There is little to no safety net to prevent these effects.

While lean, just-in-time, off-shoring, and outsourcing strategies have allowed companies to reduce overall costs while improving efficiencies and expand more quickly into new markets, they also expose companies to risk. These risks include the potential of a supplier suddenly going bankrupt, closing operations, taking short-cuts in quality, experiencing capacity issues, regulatory compliance pressure, a data breach, or even being acquired.

The Chain Reaction Effect

It’s been said that one risk leads to another. While the source of that phrase is unknown. Its truth is readily apparent. Supply chain disruptions, product and service shortages, and quality issues can result in poor financial performance, drops in stock prices, brand reputation issues, and most importantly, an organization’s ability to serve patients, thereby impacting public health.

One McKinsey study of medical products companies claims that supply chain risk events are the second leading contributors to large monthly declines in share price, “resulting in drops of 10 percent of more.” The cost of a major recall in a medical device organization has been as high as $600 million. Penalties and fines of $900 million have been recorded, and that figure doesn’t include losses of goodwill and market share.

Managing the Costs

There are many types of supply chain disruptions that can occur and they can be very expensive; expenses that go well beyond the loss of a sale. Ironically, the risk circumstances that have a relatively low probability of occurrence, typically result in the greatest severity of impact, because when they do occur, they have cascading risk impact throughout the organization. Although such risks cannot be completely eliminated, their impact can and should be reduced. Regulatory bodies around the globe recognize this as well, and have implemented regulations and guidances around supplier controls to managing this risk and its potential fallout on organizations and the public.

Reduce Supplier Risk, Reduce Organizational Risk

E-book

This e-book addresses ways to reduce supplier risk in your organizations, and the role of Quality in that process.

Reduce Supplier Risk, Reduce Organizational Risk

 

Pilgrim Quality Solutions

Pilgrim pioneered quality management software more than 25 years ago for regulated enterprises that needed a better way to deliver, track and oversee quality-related activities.

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