KY3P “Know your third party” in the Time of COVID-19

From shutting down tech unicorns to grounding venerable airlines, COVID-19 is disrupting businesses worldwide. In a recent webinar, a panel of experts hosted by Richard Blore - CEO of KY3P at IHS Markit - explored how businesses deal with this transformational shock and what we can expect from a post-lockdown world.

The worst pandemic since the Spanish flu of 1918, COVID-19 has killed thousands and infected millions. While demand collapses, businesses are reassessing how they operate as consumers who were once fighting over smartphones and fast fashion now scramble to buy facemasks, flour and other goods the market seems unable to produce, ship or distribute.

For decades, businesses have developed complex supply chains built on outsourcing and globalized, just-in-time production. Relying heavily on 3rd Party Vendors ("suppliers"), this business model is being challenged to its core.

Informing how to respond to a crisis

As COVID-19 spread globally, many suppliers were initially overwhelmed by due diligence requests from clients seeking to assess the resilience of their supply chains. Focused on surviving the economic shock triggered by the pandemic, many suppliers issued general statements that fell short of the transparency standards required to keep their clients happy.

Introduced to address the due diligence hurdles faced by firms using numerous suppliers globally, KY3P by IHS Markit - a thriving ecosystem of design partners, consultants, clients and thousands of suppliers - leveraged its Significant Event Notification Tracking ("SENT") system to address the pandemic's challenges. Created to help clients navigate crises, SENT enabled KY3P clients to quickly design a joint, streamlined questionnaire aimed at understanding how the pandemic was impacting their suppliers while helping all stakeholders respond to issues shared across the KY3P community. SENT revealed that suppliers faced major contractual problems as both clients and other supply chain partners sought to renegotiate terms or cancel orders. Suppliers devoted significant efforts to securing access to critical services and goods while stay-at-home requirements and safety concerns forced an increasing number of people to Work-From-Home ("WFH").

Economic stress remains high as suppliers sit on large inventory, but SENT confirmed that technological tools, WFH and multi-locations work solutions have been effective in helping firms remain operational.

What's next for global supply chains?

As lockdowns are gradually lifted, businesses need to adapt. Stella Nunn - a director and operational resilience and business continuity expert with PwC London - noted that in addition to collecting information and managing logistic and staffing challenges, firms must engage in scenario planning to tackle fundamental questions, both now and over longer periods: "How do you maintain your services and supply chains when the world is changing? What is your new normal?" she said, before stating firms must align their recovery with that of their suppliers.

Pointing to the prevalence of WFH, Nunn recommends firms to examine their suppliers' human resources management to assess risk, identify points of failure and reengineer communications to account for the health pressures faced by workers and their families as WFH becomes a new standard. Firms must also think hard about how to support their supply chain partners, their ability to find alternative suppliers if needed, whether some functions should be brought back in-house and even whether buying key suppliers may become necessary. Companies should also evaluate how essential worker regulations may impact them.

Peter Malan - Partner, PwC Australia - highlighted the pandemic's impact on how firms manage information, data and cybersecurity. With many employees working from home or from other alternative locations, firms might have overlooked data security and privacy considerations as information now gets transmitted and stored across less secure devices and networks. "In the rush to keep the lights on, many firms implemented ad hoc solutions that may breach legal requirements in some jurisdictions," said Will Kendal, EMEA Product Manager, KY3P. Cybersecurity is also becoming a critical issue as hackers exploit WFH vulnerabilities to compromise corporate networks.

A brave new world

In addition to its high human cost, COVID-19 is transforming how businesses operate. Impacting just-in-time global supply chains, post-lockdown sanitary requirements may feature trade barriers, travel constraints, supply chain redundancies and new working models based on WFH. More than ever, firms will need to enhance third party resiliency to future-proof their operations in the next global threat.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.