APRA's tightening up on supply chain accountability

Are you ready?

APRA says you must have suitable processes to manage further supply chain disruption. So, they are mandating that you do just that. Here's how Supplier Relationship Management (SRM) can help.

APRA’s findings are underpinned by three key findings from their consultations with industry leaders:

1. Organisations do not have suitable controls in place to manage risk events
2. Organisations have a low tolerance to withstand supply chain disruptions
3. Organisations have increased their reliance on suppliers to produce core goods and services

These findings have led to APRA’s requirement for member organisations to adapt and enhance policies that effectively address each organisation’s ability to mitigate supply chain threats. These are:

• Operational risk management- determine, evaluate, and manage operational risks through efficient internal controls, monitoring, and remediation.
• Business continuity - continue to deliver critical operations within tolerance levels during severe disruptions.
• Service providers management – effectively monitor and manage risks associated with service providers through a comprehensive framework.

Addressing and mitigating supply chain risk has become the primary objective of many organisations, with 83% of organisations stating that improved risk management is now a strategic imperative. However, many organisations need help to identify the actions that need to be taken to execute their plans.

How SRM can increase Supply Chain Accountability

SRM aids in identifying the value each supplier provides for your organisation. In addition, it unlocks additional benefits through formalised management of strategic supplier Risks and Performance.

By emphasizing collaboration and shared information across strategic supplier partnerships, SRM offers a structure that supports businesses to suitably oversee an uplift in the three key challenges identified by APRA.

Challenge 1: Ineffective controls that led to risk events

Solution: Enhancing Governance to manage Operational Risk

Risk Management leaders are three times more likely to have Business Continuity Plans in place and three times more likely to hold regular Risk reviews with key suppliers. Establishing a robust SRM Framework that identifies strategic suppliers and outlines critical contact points and communication pathways for each strategic supplier better positions organisations to proactively identify risks, implement mitigation plans and limit potential impacts.

The benefits of SRM include preferential access to labor and materials, which have proven to be the differentiating factor in overall business performance over the past three years.

Challenge 2: Low tolerance to withstand supply chain disruptions

Solution: Supply Chain Resilience by Building Business Continuity Plan

Within the last 12 months, 70% of businesses reported labor shortages, and 55% of businesses have experienced major challenges forecasting supply and demand for their services. As a result, consumers have experienced lengthy delays and a drop in overall supplier satisfaction. To suitably mitigate these challenges, organisations must first be able to understand which of their suppliers is most critical in delivering their core products and services. Supplier Segmentation and corresponding Treatment Strategies outline organisations' actions to suitably realize partnership value and mitigate supply chain risk. In addition, Business Continuity Plans for strategic suppliers are crucial to ensuring supply continuity and navigating supply chain disruption.

Research has shown that Australian businesses are now holding an additional $12b of stock in local warehouses, which reduces potential supply risk and highlights an example of implementing business continuity strategies.

Challenge 3: Increasing reliance on outsourced service providers

Solution: Manage Service Providers by Gaining Visibility of your Supply Chain

40% of supply chain disruptions during the pandemic came from 4th party suppliers and beyond, yet only 2% of organisations have visibility of these suppliers. As a result, 98% of organisations need help identifying and managing downstream supply chain risks. In addition, as sustainability targets become a community expectation of organisations, downstream visibility increases in importance for measures such as Modern Slavery. Participating in 360-degree feedback sessions with strategic suppliers allows for collaborative discussion and the co-creation of initiatives that collectively mitigate the inherent risk of outsourced providers.

Next steps for organisations

Organisations will have 12 months to comply with the APRA policies or face more significant consequences for non-compliance. For organisations to satisfy the standards, they should:

• Increase existing internal regulations and policies and;
• Implement an effective SRM program to develop supply chain strategies, emphasizing transparency and sustainability for all organisational stakeholders

To ensure successful implementation, organisations must ensure that updates to their processes, frameworks, training, and development are clearly articulated to all stakeholders and align with the organisation's long-term strategic objectives.

If you are having challenges implementing new processes to manage further supply chain disruption or would like to understand how good your supplier management programme is, then contact us today at inquiries@stateofflux.co.