Global Supply Chains are vulnerable to numerous kinds of disruptions such as those impacted by external risks (Geopolitics and Natural Disasters, mergers and acquisitions), and internal supplier risks (financial bankruptcy and compliance risks). Supply chain disruptions can cause a massive 62% loss in finances. [[Source: Zippia]](https://www.zippia.com/advice/supply-chain-statistics/#:~:text=Supply chain disruptions can cause a massive 62%25 loss in finances.)
For companies in most sectors, a single prolonged shock to production could wipe out 30 to 50 percent of one year’s earnings before interest, taxes, and depreciation. [Source: McKinsey]
Moreover, supply chains account for 60% of all carbon emissions globally. For companies in most customer-facing sectors, end-to-end emissions (Scope 3 emissions) are much higher than the direct emissions in their own operations (so-called Scope 1 and 2 emissions).
Why now?
In 2021, a Netherlands court ruled that by 2030, Shell must cut its CO2 emissions by 45% compared to 2019—including supplier emissions. According to the court’s wording, Shell’s GHG emissions include both Shell’s direct CO2 emissions and those of its suppliers. In Shell’s annual report for 2022, Scope 3 emissions from the purchase of goods and services were 114 million tonnes of CO2 while Scope 1 and 2 are 51 and 7 million tonnes respectively.
No target to reach by 2030 for Scope 3 emissions has been set, in contrast to Scope 1 and 2 which received a 50% reduction from 2016 base levels.
The impact of supply chain disruptions can be minimized through mitigating risks and alternate strategies could be set in place, once we have a holistic understanding of the risks affecting suppliers. For many years, supplier risk management has been a major issue for procurement departments. Today, 71% of procurement decision-makers say that they are focused on this matter[1]
A supplier risk is any negative factor that may prevent a supplier from fulfilling an order on time or the expected quality.
However, the current supply chain risk management platforms are either:
However, a narrow view of supplier risk drastically restricts decision-making and there are no solutions that can generate a holistic risk assessment through successfully integrating internal and external data. Companies like Reuters provide risk assessments for major suppliers but fail to provide data on location-specific sub-suppliers.
Having a holistic picture of supplier risks, one informed by both the supplier performance as well as external factors such as market analysis and geopolitical development, can give visibility into suppliers and help make informed strategies.
The Status Quo at Shell: Currently, Shell does not have a dedicated supplier risk management tool that can also aid in decision-making. The internal supplier data is added manually by a team in Chennai and leads to a lot of inconsistency because: