Is your supply chain sustainable and resilient enough?

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Hello and welcome to this edition of the C-speak podcast,

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inspired by Seaspeak, the official  language of the seas

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that provides clear communication amongst ships captains.

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We bring together Forvis Mazars experts to discuss the big strategic

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challenges facing business leaders today.

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They're going to share their views, knowledge and practical

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tips to help businesses gain competitive advantage.

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I'm your host, Mark Kennedy, partner at Forvis Mazars.

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And today, I'm really excited to welcome three

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of our experts in the area of supply chain.

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The first is Olga Bezhentseva,

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who's a director in our commercial advisory

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practice who focuses on the delivery of strategic commercial advice,

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procurement and supply chain management services.

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We're also joined by Alice Strevens.

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Alice is a director in our Human Rights and Social Impact team, with 11 years

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experience of developing and implementing strategies to improve labour standards

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and human rights and global value chains.

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And last, we are joined by Darya Oglezneva,

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who is a director in our forensic and investigation services team.

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And she has significant experience conducting distributor and third party

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audits for companies seeking assurance that their partners are compliant

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with anti-bribery and corruption regulations.

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Thank you Olga, Alice and Darya, for joining us today.

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Today we're going to talk in a little bit of depth

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about the findings in our recent C-suite barometer,

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which showed that reviewing supply chains, operations and processes

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is the third top priority for UK business leaders.

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It's ahead of talent attraction and retention strategies,

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which is quite interesting, actually.

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And it's,

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I think stands out from some of the global feedback

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we've got on that C-suite barometer.

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So today we're going to try and dig into a little bit of why supply chains

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are topping up the agenda in the UK, what some of the challenges are,

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and what kind of areas business leaders might want to prioritise

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if they're going to be successful in managing supply chains well.

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So before we begin, and maybe I'll start with you, Olga,

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I was interested in trying to kind of define what do we mean by supply chain.

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Or value chain.

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What what are we talking about and why is it so important for so many businesses?

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Mark, thank you.

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And thank you for inviting to speak on this podcast today.

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actually, the definition of supply chain is not that straightforward.

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And I'm sure that my colleagues will present different sides

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of supply chain and what I will be talking about.

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Just to say that in today's fast moving and competitive world,

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the definition of supply chain goes

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much beyond just simple flow of goods and service provision.

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In my opinion, it's safe to say that supply chain

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is an extension of the companies they work with.

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More importantly, through this extension,

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they also spread their values and ways of working to achieve their main purpose.

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And this purpose is delivering value to the end users and just, by concluding,

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definition, from

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my perspective, I just need to say that supply chain,

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for any company is a network of interconnected organisations

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which contribute obviously to the value chain, throughout the lifecycle.

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Alice, when you think about it, how do you define it?

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Is it is is the same or do you have a different angle?

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I think it's very similar really, but from the perspective of understanding

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risks to people and planet, it's really about the interactions

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that are happening throughout that value chain.

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in particular, where a process is occurring to add value to a product

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or service.

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And this is really where, supply chain responsibility comes in.

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Traditionally, organisations would think about supply chains

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in terms of reputational risk, but increasingly there is a recognition

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that risks to people and planet can also be financial risks for organisations.

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Okay.

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So you know, and you're bringing in that risk perspective quite strongly.

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And I think we'll come back to that later.

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And again, just maybe to kind of set the parameters.

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Darya, how do you look at that interpretation or that definition.

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Thank you Mark.

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I agree with everything Olga and Alice

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have said because of what I do.

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I'm trained to think of supply chains in terms of fraud and non-compliance risk,

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all of which can lead to both financial underperformance and reputational damage.

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Let alone regulatory scrutiny.

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And in this sense, supply chain encompasses any third party

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that a company deals with in conducting their business,

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whether it is your service provider that overcharges for their work,

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or a distributor that offers bribes to win

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contracts for delivery of your company's products.

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But we also

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should not forget of agents and intermediaries

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that are helping your organisation to set up operations in a new country,

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which we might not immediately think of as being part of,

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a supply chain.

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That's really interesting.

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And it does open out, I think, a kind of a landscape

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that's much broader than often we think about certainly

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than I would think about somebody who is not so expert in this area.

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maybe just to to dive into the the C-suite survey a little bit.

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I think one of the big risks that came out strongly that

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that, executives were worrying about was the area of cyber security.

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Third party risk was another one regulatory compliance and fraud.

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All three of you have mentioned those

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in passing, as we were setting up the kind of overall landscape.

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But from a sustainability perspective,  Alice, what are the biggest worries

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that one might have in relation to third parties, particularly.

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So one of the biggest challenges is visibility.

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Most organisations will know who they pay so that tier one of the supply chain,

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but they'll have limited

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visibility as you go further down into the into the value chain.

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This is a particular challenge, right?

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Because if you can't see what is happening, you don't know where the risks

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those risks are either from how you're deriving financial value or your

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responsibility to identify, prevent or mitigate risks to people and planet.

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So that in and of

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itself is is one of the primary issues and is also,

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we're seeing a greater expectation through legislation

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of organisations needing to have that level of visibility.

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In addition, there's a challenge with, how do you go from risk identification?

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So an understanding of where risks may be present

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to the identification of actual impacts.

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And for a lot of organisations this is a resource issue.

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How do I really get under the hood of my supply chain

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to understand where those impacts occurring are occurring

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and which therefore may have a threat to people and the planet

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or indeed to reputational financial risks?

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For my business?

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So conducting, really thorough risk assessments,

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but then engagement with stakeholders in the value chain

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to determine where those impacts are happening is really, really critical.

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Another issue for organisations is leverage.

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Once you understand what's going on is how do you work to that

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to remediate the issues or to address those issues?

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If you are just one entity

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with a low level of leverage, and this is where participation

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in multi-stakeholder initiatives, working with sector colleagues comes in.

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And then finally, it's really about the quality and ease of gathering data.

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For most organisations, that will be a much more significant requirement to be

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able to demonstrate what is happening in the supply chain through data.

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But a lot of organisations still rely on spreadsheets and unverified

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information coming through from suppliers,

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and that is going to need to change in the coming years.

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Yeah.

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And I think that's that's probably an area where we can provide a lot of help,

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I suspect.

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And as you said,

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the data issue doesn't take away responsibility.

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Absolutely.

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So compliance and fraud came up in the survey

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and you mentioned it in your introduction as well.

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What do you see when you're working with clients?

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What are the kind of issues that you you've noted recently?

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Mark, it will come as no surprise that

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global compliance landscape is becoming increasingly complex

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when it comes to just financial crime here in the UK.

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A company needs to think of UK bribery act

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anti-money laundering regulations, sanctions,

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corporate criminal offence for facilitation of tax evasion,

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as well as the new failure to prevent fraud

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that is due to go live any time now.

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Extraterritorial reach

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of these regulations means that a UK company will be liable

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for breaches that occur anywhere in the world.

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This means that overseas third

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parties up and down your supply chain are in scope.

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Cultural differences

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and the way business is conducted in different parts of the world

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add another layer of complexity to ensuring compliance for organisations.

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Okay, and that complexity, I presume, means a lot of cost

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in managing some of these issues as well as the reputational and other damage

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if you get it wrong.

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Olga, as we've seen, supply chains are really important for everyone.

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I think most businesses are heavily dependent on supply chains

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in some shape or form these days.

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The priorities seem to differ quite a bit between larger and smaller companies,

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and I think what we were seeing,

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say on the smaller company side is that cost reduction,

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is a big issue dealing with new technology, a big issue.

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And I was interested in your view on that.

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And maybe your view more broadly on

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what you see is very critical to companies of any size.

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Absolutely. Thank you. Mark.

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Yes we work with

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small, medium and large companies, and obviously

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we help them to shape and understand their supply chain.

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And as you mentioned, it's absolutely, right that,

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for small companies, cost saving is seen as a priority.

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in my opinion, mainly because they have fewer resources

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and tighter margins than larger companies.

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However, which would tend to me some advantage is,

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such as smaller companies are more adaptable

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and flexible to the changes of the external environment.

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And, this can be

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any activity is

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starting from partnership with a local suppliers and organisations

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developing innovative approach,

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of addressing supply chain jointly with those suppliers.

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But one aspect is utilising new technologies as we know,

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technologies were available predominately for larger companies because of cost.

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Now even simple features such as data analysis,

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availability of information can become a game changer for smaller companies.

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And one factor which I would like to,

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stress, which is important for both,

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small or larger

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size of company is its importance of,

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ensuring that your supply chain is resilient

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and by saying resilient is making sure

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that the supply chain is available, because availability

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is one of the critical factor which measures success of supply chain.

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And, it's particularly important,

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because in the world of, disruption, conflicts, climate change,

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resilience is becoming a significant point.

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We all need to think about.

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Yeah. And I think that that's good advice.

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And we've seen a lot,

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I suppose, in the last couple of years where supply chains have been threatened

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or interrupted, as you say, and so that the resilience

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and failsafe element is, is really critical.

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Alice, I think sticking with the kind of larger company view.

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It came out very strongly

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that for large companies, sustainability was their number one concern

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when when we looked at the survey results and that's by quite a margin.

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It was it stood out as their, their main, priority.

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What's driving that you think?

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Firstly, I think it's a significant shift in sustainability related legislation

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primarily that's driven from within the European Union.

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So both national and pan-European law.

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But a lot of that legislation, and it's similar to what Darya is saying

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is extraterritorial, or rather it's purposefully cross-border.

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So for organisations who, either trade

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within the European Union or a part of the value chain of

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or other organisations that do, it becomes a market access requirement,

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and we will see an increasing amount of information requests on actors

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within the supply chain to provide verified, reliable data

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to organisations that need to comply in order to then,

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be able to be competitive against their peers.

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In addition to that, stakeholders becoming more vociferous.

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So as you get larger your stakeholders, whether

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that's investors, your clients, as I've just mentioned,

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or broader stakeholder communities are expecting increasing,

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supply chain or

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sustainability responsibility from companies.

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And then finally, we're going to see the introduction

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of mandatory assurance on sustainability disclosures.

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At the moment, that is primarily linked to the Corporate

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Sustainability Reporting Directive in the European Union.

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But as the IFRS, S1 and S2 standards come through as well,

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assurance of sustainability information will become the norm

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and with that assurance will become, will come a greater reliance on

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verifiable, accurate information.

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That's really interesting.

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And I suppose, it does for boards

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pose that question around what assurance have you got today?

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And while related to the future and what you can do.

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Sorry. Go ahead.

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Yeah.

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And and how you can make that journey from where what state is my information

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today versus actually how will I create, an audit file

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that can be presented to an auditor in order for them to give that opinion?

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And there's a long journey for a lot of companies to go on for that.

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Yeah, and it does.

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I suppose

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you've all touched on different risks that one might be trying to manage there.

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So again,

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it's really going to become quite central, I suspect to many companies

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in how they manage that.

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Well, Darya, the survey showed that over 70%

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of companies are doing risk assessments on their suppliers periodically.

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And again, the top risks that jumped out were around cyber and business continuity.

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Fraud was fourth from the top, which I was a little bit surprised that,

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do you think boards are focussed enough on that fraud issue?

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Simple answer is no.

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it is still quite often the case that there is no board member,

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charged with fraud, risk management

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and fraud counts on the agenda and only when it happens.

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And by this time it is firefighting.

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This should, however, change very soon with the help of the failure

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to prevent fraud offence that is due to go live this year in the UK.

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Not only will organisations

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be required to implement fraud prevention procedures,

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the key change will be the focus on organisations

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being the perpetrator rather than the victim of fraud.

00:16:16:07 - 00:16:19:11
This is quite revolutionary I must say.

00:16:19:24 - 00:16:22:16
Many companies and their boards

00:16:22:16 - 00:16:26:20
are used to thinking in terms of protecting their organisation

00:16:26:20 - 00:16:29:10
from becoming a victim of fraud.

00:16:29:10 - 00:16:33:08
This will now change and will require a radical

00:16:33:08 - 00:16:36:22
rethinking of existing fraud risk management frameworks.

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If up or down your supply chain,

00:16:40:14 - 00:16:43:06
a third party is committing fraud

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that somehow benefits your organisation.

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This can create exposure to risk and liability

00:16:51:05 - 00:16:52:08
for your company.

00:16:52:16 - 00:16:54:13
And so it is not only about

00:16:54:13 - 00:16:57:18
implementing controls to prevent your service provider

00:16:57:18 - 00:17:02:01
from overcharging the company, but also establishing procedures

00:17:02:01 - 00:17:05:13
to prevent your organisation and your supply chain partners.

00:17:06:07 - 00:17:10:16
Being an extension of your organisation as Olga has mentioned earlier,

00:17:11:04 - 00:17:14:00
from perpetrating fraudulent activities.

00:17:15:13 - 00:17:17:03
Okay, that's really interesting.

00:17:17:03 - 00:17:18:09
And as you say,

00:17:18:09 - 00:17:21:18
quite a kind of revolutionary change in the legal perspective on it.

00:17:22:15 - 00:17:25:15
is that is that unique in the UK?

00:17:25:21 - 00:17:28:09
In other words? Yeah, it's very good.

00:17:28:09 - 00:17:30:19
It is quite unique in the UK.

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It follows in terms of being a failure to prevent.

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It follows in the footsteps of failure to prevent bribery

00:17:37:17 - 00:17:40:17
and failure to prevent facilitation of tax evasion.

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But when it comes to fraud,

00:17:43:08 - 00:17:47:03
it is quite revolutionary in the world.

00:17:47:24 - 00:17:48:15
Yeah, yeah.

00:17:48:15 - 00:17:50:22
No, I was thinking I haven't, I haven't heard this

00:17:50:22 - 00:17:52:09
the same in other jurisdictions.

00:17:52:09 - 00:17:55:09
And, and I presume, as you said earlier, that

00:17:55:12 - 00:17:59:12
a lot of this is going to be played outside of the UK as well,

00:17:59:22 - 00:18:03:04
by virtue of the supply chain stretch that most companies have.

00:18:04:01 - 00:18:05:12
Absolutely. You all right?

00:18:05:12 - 00:18:09:07
It has extraterritorial reach that we've been talking about.

00:18:10:13 - 00:18:12:07
And again,

00:18:12:07 - 00:18:15:11
what Alice mentioned earlier about having that audit

00:18:15:11 - 00:18:19:03
file, right, to support your ESG reporting.

00:18:19:23 - 00:18:22:23
Now, if this audit file,

00:18:24:04 - 00:18:28:04
is not up to standard and,

00:18:29:05 - 00:18:31:13
a claim can be made that you as to

00:18:31:13 - 00:18:35:02
your ESG reporting is unsupported.

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And as such, you might be committing fraud by misrepresentation.

00:18:39:09 - 00:18:43:06
This new offence will make it much easier

00:18:43:09 - 00:18:47:11
for the regulator to prosecute your organisation for that.

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And the what's at stake is an unlimited fine.

00:18:52:01 - 00:18:52:24
Okay, great.

00:18:52:24 - 00:18:55:24
Which again is something we've seen more of in other areas like,

00:18:56:18 - 00:18:57:24
data privacy and so on.

00:18:57:24 - 00:19:00:17
But again, the very owners for companies,

00:19:00:17 - 00:19:04:05
if they fall into the trap of having risks unmanaged there.

00:19:04:16 - 00:19:09:01
So I think standing back from the survey results overall,

00:19:09:20 - 00:19:13:03
the UK C-suite seem to be generally feeding back

00:19:13:03 - 00:19:16:03
that they were satisfied with their performance of supply chains.

00:19:16:18 - 00:19:18:24
In our conversation, we've noted a number of areas

00:19:18:24 - 00:19:20:06
that they may want to think about.

00:19:21:10 - 00:19:22:21
again, because of either

00:19:22:21 - 00:19:25:21
new legislation, as we've just mentioned, are some challenges

00:19:25:21 - 00:19:29:16
which are beginning to be monitored and and looked at in different ways.

00:19:30:03 - 00:19:30:19
I was interested

00:19:30:19 - 00:19:34:13
just to go around the table before we conclude and get your kind of top

00:19:34:13 - 00:19:37:13
tip to a board that might be listening.

00:19:37:17 - 00:19:40:10
in terms of what can take you

00:19:40:10 - 00:19:43:11
from good to great in your opinion, and maybe I'll start with Olga,

00:19:43:11 - 00:19:46:00
go to Alice and then Darya.

00:19:46:00 - 00:19:46:19
Okay.

00:19:46:19 - 00:19:48:13
Yes, it's hard to pick one,

00:19:48:13 - 00:19:53:10
but I will and, I will, my tip will be

00:19:54:10 - 00:19:58:15
look at your supply chain, start understanding your supply chain,

00:19:58:15 - 00:20:03:24
including tier one and two suppliers, and do everything possible

00:20:04:04 - 00:20:07:00
to improve the resilience of your supply chain.

00:20:07:00 - 00:20:12:05
And by saying that is not about writing your policy or incorporating your clause

00:20:12:05 - 00:20:18:00
in your contract terms, it's about working with your supply chain collaboratively.

00:20:18:07 - 00:20:22:06
And I just mentioned earlier today it's about understanding,

00:20:22:15 - 00:20:26:17
actors within the supply chain and also undertaking risk assessment.

00:20:26:22 - 00:20:29:22
So, once again, to conclude,

00:20:30:00 - 00:20:33:13
work collaboratively with your supply chain to improve resilience.

00:20:34:18 - 00:20:36:08
Great, Alice?

00:20:36:08 - 00:20:37:15
Thank Olga.

00:20:37:15 - 00:20:40:15
I mean, all of those things are absolutely critical.

00:20:41:06 - 00:20:45:03
perhaps one of the areas that I think is important from a sustainability

00:20:45:03 - 00:20:47:00
perspective is how do I identify

00:20:47:00 - 00:20:50:19
what I need to work on and prioritise, because otherwise there's just too much.

00:20:51:07 - 00:20:55:15
So I would say to all companies, start by conducting a double materiality

00:20:55:15 - 00:21:00:18
assessment to look at impacts and then financial risks and opportunities.

00:21:01:00 - 00:21:04:00
And it's those collective

00:21:04:18 - 00:21:07:16
risks that are actually, material to your business that you can

00:21:07:16 - 00:21:10:21
then prioritise and gives you a roadmap of where to start.

00:21:11:11 - 00:21:13:22
Very good. And Darya?

00:21:13:22 - 00:21:18:13
When it comes to fraud and regulatory compliance in your supply chain.

00:21:18:13 - 00:21:21:14
My top tip is conducting a thorough risk assessment

00:21:21:24 - 00:21:24:18
and take it seriously as well,

00:21:24:18 - 00:21:27:18
as Olga and Alice have mentioned.

00:21:27:22 - 00:21:30:22
This will provide you with understanding

00:21:31:05 - 00:21:34:06
of which parts of your supply chain are most vulnerable

00:21:34:15 - 00:21:38:24
and allow to use the always limited resources most efficiently.

00:21:40:00 - 00:21:40:18
Mark, you have

00:21:40:18 - 00:21:45:18
mentioned earlier that the C-suite survey shows most companies

00:21:45:18 - 00:21:50:17
do risk assess their third parties, and this is absolutely the right thing to do.

00:21:51:15 - 00:21:54:17
We also said that supply chain

00:21:55:07 - 00:22:00:12
landscape is becoming increasingly complex, and one aspect of this complexity

00:22:00:21 - 00:22:05:02
is the sheer number of third parties within modern supply chains.

00:22:06:01 - 00:22:10:14
And imagine conducting the same level of due diligence on thousands

00:22:10:14 - 00:22:14:14
and thousands of third parties that you work with to one into two.

00:22:15:10 - 00:22:17:17
That's completely unnecessary.

00:22:17:17 - 00:22:21:03
Instead, conduct a thorough risk assessment

00:22:21:03 - 00:22:25:02
and calibrate your due diligence requirements to fit the risks.

00:22:26:04 - 00:22:29:21
I will say that with careful training and monitoring,

00:22:30:03 - 00:22:35:04
it is possible within normal risk appetite to protect your company from

00:22:35:08 - 00:22:40:19
from supply chain fraud and to business in a legal and ethical way.

00:22:41:23 - 00:22:44:02
That's a very positive note to end on.

00:22:44:02 - 00:22:46:11
And I'm glad, actually.

00:22:46:11 - 00:22:49:11
And interestingly, if I was to summarise what you've all said.

00:22:49:13 - 00:22:52:12
Risk assessment, build a roadmap

00:22:52:12 - 00:22:55:12
and build resilience, that's maybe a neat way of covering it.

00:22:56:05 - 00:23:00:00
That brings us to the end of this episode of C-speak by Forvis Mazars.

00:23:00:11 - 00:23:04:13
Thanks to Olga, Alice and Darya for joining us and sharing their insights.

00:23:05:11 - 00:23:08:08
Please do look out for more supply chain insights

00:23:08:08 - 00:23:11:24
that we put out on our website and and through social media.

00:23:12:10 - 00:23:16:11
The guys are regularly publishing and contributing to debates, on how

00:23:16:11 - 00:23:21:01
the industry is developing and wants to thank you, particularly for listening.

00:23:21:01 - 00:23:23:10
I hope the podcasts helped you to begin

00:23:23:10 - 00:23:26:17
to navigate some of the challenges that our experts have talked about today,

00:23:27:07 - 00:23:30:16
and if you enjoyed the show, please do subscribe on Apple

00:23:31:01 - 00:23:36:07
or Patreon or wherever you get your and your, podcasts.

00:23:36:07 - 00:23:38:04
And be sure to come back to our next discussion

00:23:38:04 - 00:23:42:16
where we'll have some more experts talking about other issues in the coming weeks.

00:23:43:03 - 00:23:45:18
Until then, this is Mark Kennedy  from Forvis Mazars.