Tick box compliance no solution to supply chain management says IRM report

The Extended Enterprise: Managing Risk In Complex 21st Century Organisations report therefore urges companies to prioritise behavioural risk over tick box compliance to tackle uncertainties in the modern economy's complex delivery networks and enable better understanding of risk. The report argues that the modern commercial obsession with systems and processes obscures the real problem in supply chain risk management-a failure to understand and predict human behaviour and build trust. Responding to supply chain weaknesses and scandals by adhering to additional rules and regulations is not the answer and can be counterproductive, it says.hideAs one of the report's authors and IRM member, Peter Neville Lewis, explained: "Ticking boxes is easy-and dangerous. Boxes were ticked at Rana Plaza...and at BP. Developing a sophisticated understanding of 'personal risk management' may be harder but, as companies as diverse as John Lewis and Tata Industries show, it helps create the ethical behaviour that controls risk across an organisation-however big or complex." Traditional approaches to supply chain risk management do not always bear fruit. For example, figures from a Chartered Institute of Purchasing and Supply (CIPS) survey of UK businesses this August revealed that nearly 75% of supply chain professionals admitted they had zero visibility on the first stages of their supply chain. Furthermore, the report points out that no organisation today has direct control over every aspect of its operations or reputation. "Whilst stronger control may improve performance in simple systems, this is not true in complex systems. A complex system cannot be controlled. However it can be influenced. And the more the system is able to adapt and learn, the greater the probability that it can be influenced or nudged into the desired state. Traditional understanding of governance and risk management has been dominated by process thinking, but in the extended enterprise we need to give at least as much attention to relationships, attitudes and behaviour," says the IRM in the report's executive summary. Therefore the Extended Enterprise: Managing Risk In Complex 21st Century Organisations report highlights the importance of transition from risk management of a single organisation to a coherent programme that meets the global and interdependent challenges of today's joint endeavours. Although supply chain risk management is an important component, understanding and managing risk in the extended enterprise goes further. It looks beyond supply into the complex network of relationships that underpin public and private economic activity in modern economies, says the IRM. The report defines the extended enterprise as a structure where a number of organisations come together in a joint endeavour in order to achieve outcomes that they could not have achieved on their own. It details how risk managers and organisations can understand their extended enterprises and manage the risks of the relationships that bind them. It considers how risk management approaches should in turn be adapted. According to the report's editor and IRM's technical director Carolyn Williams: "Today's extended enterprise environments achieve amazing outcomes but also display many of the characteristics of complex systems, with all the potential for volatility and uncertainty that implies. By modelling the extended enterprise in practice, we provide risk practitioners with the tools to start understanding organisational exposure to extended enterprise risks-wherever in the chain they are. By their very nature, complex systems cannot be managed or controlled, but they can be influenced, so this will demand from the future risk manager new skills in leadership and in the understanding of culture, ethics and behaviour." Mapping the extended enterprise should help identify those risks that need to be communicated, key points where failure could occur and highlight differences in culture and environment that might affect perceptions of risk, says the report. A pro-active risk communications plan, including specific plans for incident response, should be an essential element of an extended enterprise risk programme, it argues. In the world of the extended enterprise the role of the board has to change from one of 'command and control' to one of leadership, coordination and influence, the report says. "Relationship management and collaborative working across the extended enterprise become essential. Boards need to develop a clear understanding of their extended enterprise. This includes an appreciation of the relative power, incentives, motivations, culture and ethics and operating conditions of the key participants," it explains. As well as supporting organisational performance, the report claims that a better understanding of risk across the extended enterprise is vital in tackling wider problems including slavery, abuse, environmental damage and dangerous working conditions. The report argues that wilful blindness by organisations to these issues within their broader networks is unacceptable. Firms must ask themselves whether any claims that they make about their values hold true across their extended enterprise, it says.

Tick box compliance no solution to supply chain management says IRM report

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