In the world of Supply Chain Risk Management, there are generally two types of risk analysis:
Predictive Risk - Predictive risk uses information known about locations, industries and products in order to make inferences about the risk for a particular supplier.
Evidentiary Risk - Evidentiary risk uses information that is particular to that supplier. It isn’t using inference or making assumptions, the evidence is concrete.
FRDM is one of the few tools focused on supply chain risk management that utilizes both risk types in order to give you a more comprehensive overview of your risk profile. By not relying on just one of these risk types, you can be sure that you’re getting a more accurate picture of where your human rights risks lie.
Predictive Risk
As one of the first Supply Chain Risk Management companies in existence, FRDM has been focusing on predictive risk for the past 5 years. Frustrated by the reliance on self assessments and supplier engagement, we decided there had to be a better way to assess risk without involving the entities whose business models are being evaluated.
FRDM’s predictive model draws data from a vast array of sources in order to create risk ratings for as many country, industry and product combinations as possible. While the model is predictive, it’s not guess work. We’re looking at hard data around the countries and industries in question in order to create analyses that accurately reflect the work conditions in these areas. We then apply these analyses to the suppliers in our system in order to create risk scores and rankings:
Our predictive scores use the countries, industries and products associated with that supplier, but we don’t stop there. There are times when you can’t avoid sourcing mission critical material from high risk areas. It is at this point, after you have a roadmap for your risk exposure, that supplier engagement becomes integral. An important aspect of our predictive risk model is the idea that suppliers willing to provide policy documents, certifications and concrete procedures displaying their commitment to protecting human rights will be safer for your supply chain continuity, even in high risk regions and industries. As such, our risk ratings take into account this documentation when calculating risk scores. This gives you the ability to mitigate your risk and have the mitigation reflect in our analysis:
Just like your supply chain doesn’t end with your direct suppliers, your products aren’t created in a vacuum. Our product based risk assessment is constructed just llike the products themselves, we use predictive Bill of Materials we call Product Genomes in order to determine the likelihood of your products having their raw materials being sourced from problematic areas:
This predictive tool gives you the information you need to have intelligent conversations with your upstream suppliers around where they should look for new, safer sourcing opportunities. All of this with the dual goals of rooting out human rights violations and ensuring your supply chain isn’t interrupted.
Pros of Predictive Risk Assessment:
- Not reliant on supplier engagement
- Provides risk assessment even when hard data is lacking
- Can give multi-layered assessment based on factors difficult to apply to individual entities
- Can give proactive assessment before evidence surfaces.
Cons of Predictive Risk Assessment:
- Not necessarily tied to individual entities
- Can sometimes ignore mitigating factors
- Will sometimes conflict with business needs
Evidentiary Risk
FRDMs Trading Partners and Sanctions modules utilize third party data aggregators to source direct evidence of your suppliers' business relationships. We then map those relationships to give you unparalleled views deep (as far as 9-tiers) into your supply chain:
These relationships are not theoretical. Unlike our predictive models, the data where using here directly tracks to these entities. There can potentially be hundreds of sources, but here are a few examples of the data types we’re using:
- Customs documents
- Shipping manifests
- University research reports
- Ownership records
- Financial reports
Depending on the nature of the documents, we’re able to provide not just the type of relationship but even the last date recorded, the volume of shipments and even the products involved. We filter through these documents to provide the most actionable risk factors so that you can make evidence based decisions regarding your supply chain relationships:
This may result in moving suppliers, or getting affidavits and assurances that past relationships are severed or sourcing is shifted. How you utilize this data is up to you, but having it at your fingertips is integral.
Pros of Evidentiary Risk Assessment:
- Directly ties to your supply chain
- Gives detailed information your risk exposure including dates and products involved.
- Specific enough to make nuanced decisions about supplier relationships
Cons of Evidentiary Risk Assessment:
- Only as good as the sources available
- Reactive rather than proactive
- Lack of data does not necessarily mean lack of exposure
Summary
While direct evidence is valuable, the absence of evidence is not the evidence of absence. It is important to have predictive risk filling in the gaps of your knowledge so that you aren’t blindsided when new evidence does surface or you run into compliance issues despite lacking direct evidence. Evidentiary Risk allows you to target particular relationships and even shipments to root out risk in a targeted manner. Predictive Risk ensures you’ve got a holistic view of your risk, even in places where direct evidence is hard to come by. Ultimately, both risk types are integral to ensuring a healthy, uninterrupted supply chain.
