Issue

The resilience of supply chains is built at the firm-level through end-to-end visibility in supply chains, cooperation, agility and flexibility. Most firms have developed advanced risk management strategies based on past risks and shocks. As firms need to balance the economic consequences of disruptions with the costs of mitigating risks, they are best positioned to decide the acceptable level of risk and how to organise production process so as to reduce vulnerability.

Private-sector risk management strategies can adopt a range of approaches, including:

• avoidance (of unacceptable risks)
• postponement (producing or shipping goods once customer orders are received)
• selective risk-taking (producing or shipping goods based on anticipated customer demand)
• hedging (diversifying suppliers and location of production)
• control (through vertical integration of main suppliers)
• transferring or sharing risks (via outsourcing and offshoring)
• security (identifying shipments at risk, facilitated by information technology).

Governments can support firm risk management strategies by reducing exposure to risks and uncertainty, ensuring they are ready to face a severe crisis, and that the impact of the disruptions created on individuals and societies are sufficiently taken into account. By anticipating, preventing, preparing for, and responding to shocks, firms can play a role in minimising disruptions. This would benefit business operations, as well as individuals and society as a whole. Responsible Business Conduct (RBC) principles and standards, for example, provide a framework to reduce the risk of supply chain disruptions and minimize social and environmental impacts as they occur.

Policy action

• Support firm-level efforts to strengthen resilience via a transparent business environment
• Ensure that firm regulations are not obstacles to flexibility and agility
• Support SMEs in their relationships with suppliers and to identify bottlenecks in their value chains
• Strengthen financial regulations and financial support for firms (including cross-border transactions) to create trust and predictability in the value chain
• Promote RBC standards and tools (such as due diligence) to contribute to building resilience.
  • Relevant sector specific OECD guidelines on RBC include:
    • Sectoral Due Diligence Guidance:Responsible Business Conduct for Institutional Investors
    • OECD Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector
    • OECD-FAO Guidance for Responsible Agricultural Supply Chains
    • OECD Due Diligence Guidance for Responsible Supply Chains in the Garment & Footwear Sector
    • OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

Note: More specific guidelines for addressing human rights adverse impacts are listed in OECD (2011), Chapter IV. Source: Adapted from Figure 2, OECD (2018), OECD Due Diligence Guidance for Responsible Business Conduct, OECD Publishing, Paris.

Related tools & publications

• OECD (2020). COVID-19 and Responsible Business Conduct. OECD Policy Responses to Coronavirus..
• OECD Guidelines for Multinational Enterprises