Assessing risk in supply chains has typically been managed using a combination of tier one site audits and supplier questionnaires. New laws and regulations, along with investor expectations, and requiring companies to know far more about their supply chain than questionnaires can produce. It’s true that there are some questions that only your supplier can answer, but if your company’s strategy relies heavily on supplier provided information, then you may want to consider adding supply chain risk management technology to your risk management stack. Below are some of the costly limitations of questionnaires.
Limited Accuracy and Reliability
Questionnaires are subjective in nature and rely on self-reported data from suppliers. This inherent subjectivity can lead to inaccuracies and inconsistencies in risk assessments. Suppliers may not always provide complete or truthful information, potentially masking potential risks that can later result in supply chain disruptions. Moreover, questionnaires are lagging indicators and by default do not capture real-time data, making it challenging to stay up to date with evolving risks or changes in supplier behavior. For instance, the US Uyghur Forced Labor Prevention Act (UFLPA) requires companies to constantly monitor their supply chain for risk of forced labor. Without accurate and reliable information, companies may be exposed to unforeseen risks and vulnerabilities.
Lack of Real-Time Visibility
Questionnaires provide a snapshot of a supplier's risk profile at a specific point in time. However, risk factors in supply chains can change rapidly, and static questionnaires cannot provide real-time visibility into emerging risks or evolving supplier practices. Risks such as environmental impact, labor conditions, or regulatory compliance require ongoing monitoring and continuous evaluation. A study by Björklund et al. (2019) found that due to concerns about reputation and legal consequences, suppliers may underreport labor abuses or provide misleading information. Relying solely on questionnaires may result in a false sense of security and an inability to respond promptly to emerging risks.
Limited Depth and Breadth of Information
Questionnaires typically cover a predefined set of questions, often focused on basic risk areas such as financial stability, labor practices or environmental protocols. However, supply chain risks are multi-faceted and can extend beyond these limited areas. Risks related to environmental sustainability, social responsibility, cybersecurity, or geopolitical factors may not be adequately captured through questionnaires alone. A narrow focus can lead to blind spots, leaving the company vulnerable to unaddressed risks that could have a significant impact on operations and reputation.
Difficulty in Evaluating Supplier Performance
Questionnaires provide a one-dimensional view of suppliers' risk profiles but may not offer a comprehensive assessment of their overall performance. Evaluating supplier performance requires a holistic approach that considers multiple factors, including quality, delivery reliability, sustainability practices, and ethical standards. Relying solely on questionnaires may overlook critical performance indicators, leading to suboptimal decision-making and potential disruptions in the supply chain.
Inability to Identify Hidden Risks
Risk doesn’t sit still until you find it. Questionnaires rely on the information provided by suppliers, which may not always reveal hidden or unknown risks. Supply chains are complex networks with multiple tiers of suppliers, and risks can arise at any level. Questionnaires may not capture risks associated with sub-tier suppliers or upstream dependencies, leaving the company unaware of potential vulnerabilities. Without a deeper understanding of the supply chain ecosystem, companies may fail to identify and mitigate hidden risks until it is too late.
While questionnaires can provide a starting point for risk assessment in supply chains, relying solely on them is insufficient and leaves companies exposed to significant risks. To effectively monitor risk, companies should adopt a more comprehensive approach that combines questionnaires with real-time data, ongoing monitoring, and deeper supplier evaluations. Leveraging technology solutions, data analytics, and collaboration with industry partners can help enhance risk visibility, identify emerging risks, and ensure the resilience of the supply chain. By embracing a more dynamic and holistic risk management approach, companies can safeguard their operations, protect their reputation, and maintain long-term sustainability in an increasingly complex business landscape.
FRDM is working at the front of supply chain risk management utilizing tip of the spear technology to uncover risk anywhere in the supply chain, and provide companies with tools to work with suppliers to minimize risk. We help companies comply with regulatory requirements like UK Modern Slavery Act, Australia Modern Slavery Act, UFLPA, German Supply Chain Due Diligence Act (LKSG), the forthcoming EU Corporate Sustainability Due Diligence Directive (CSDDD) and others. We’d love to share more about our vision for transparent supply chains.
Björklund, M., Kimbung, E., & Kolk, A. (2019). Managing reputational risks in global supply chains: The case of child labor. Journal of Business Ethics, 155(3), 703-725. doi:10.1007/s10551-017-3484-2.