Enterprise and Supply Risk Management

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) introduced the “Enterprise Risk Management (ERM) Framework” in 2004. COSO is an independent private sector initiative that is dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance. Since the publishing of the COSO report in 1992, its recommendations have become a guideline for the evaluation of internal control systems. During the past decade several companies such as Worldcom, Enron, and Parmalat have experienced significant financial breakdowns. In response, COSO codified the close relationship between monitoring and risk management and further developed the COSO report with the ERM framework. The reliability of reporting was therefore expanded from merely financial reporting to all internal and external company reports in order to improve monitoring. “Business reporting” thus replaces “financial reporting” to better supply shareholders and stakeholders with the information they need. This strategic orientation has been added to the framework as a target category (first dimension of the ERM model, please see Fig. 11.1). Furthermore, the framework now includes the necessary components for risk management (second dimension of the ERM model). As a result, the ERM model brings together the topics of both monitoring and risk management systems.

The purpose of this chapter is to introduce and describe the development of an ERM-compliant Supply Risk Management approach and how the respective processes can help companies better manage supply (chain) risks. This is also intended to help answer the question if ERM is a good point to start the further development of an integrated and process-oriented Supply Risk Management approach.