A combination of political tension, climate change and technological dependency is putting global supply chains under more strain than ever before.
A new report published today by Airmic at its ERM Forum, in collaboration with AIR Worldwide, Gallagher, HDI, Lloyd’s and Sedgwick, highlights that a desire for low cost networks has led some businesses to turn a blind eye to the concentration of risk that may be building up in their supply chain.
One Airmic member organisation quoted in the report explained: “A consolidated supply chain gives us greater efficiencies, but it means the sensitivity to disruption is ever greater. We may have fewer locations, but we have bigger aggregation of risk.”
The risk managementt association is warning that this supply chain exposure could mean catastrophic events bring operations grinding to a halt and inflict significant reputational damage on businesses across the globe.
Furthermore, with supply chains becoming increasingly complex and opaque, many companies are struggling to fully map their exposure, with over half of businesses failing to monitor risks beyond tier one suppliers.
“Most businesses have a good understanding of their suppliers, but how many track their suppliers’ suppliers? The web of relationships in a typical modern supply chain is incredibly complex to unpick,” comments Richard Cutcher, research and development manager at Airmic.
“Supply chain is a big-data problem. Mapping and digitising supply chain networks is the first step in understanding an organisation’s supply chain risk,” adds Dr. Kamban Parasuraman, AIR Worldwide
According to the report, the three biggest trends putting greater pressure on supply chains include:
- The rise of nationalism - increasingly protectionist policies and Britain’s departure from the European Union are threatening to roll back free trade, global supply networks and cross-border relationships.
- A volatile and more extreme climate – this is exposing the high volume of stock and supply routes in areas exposed to natural disasters.
- Increasing reliance on technology - connected devices and automated production lines have transformed the risk profiles of supply chains, leaving businesses vulnerable to an IT outage, cloud disruption or cyber attack either on their own business or on one of their suppliers.
The report, Complex supply chains in a complex world calls on businesses to implement robust processes for addressing risk in the supply chain. It also includes advice on how to understand and manage supply chain risk, and how to ensure effective risk-financing is in place where necessary.
Risk managers can also find out about lessons learned from the impact of the global carbon dioxide shortage in 2017, and advice for preparing for Brexit.
Key lessons for risk managers included in the report include:
- · Collaborate across functions to gain full transparency of the organisation’s supply chain
- · Build a robust governance structure providing oversight of the full supply chain
- · Identify suppliers and understand their risk profile
- · Create agility by avoiding single-source suppliers and have preapproved back-up ready to step in where necessary
- · Educate brokers and insurance partners on the total supply chain risk exposure
- · Review insurance contracts to identify coverage and overlap.
- · Continuously scan the horizon to ensure emerging supply chain risks are identified and embraced as part of the organisation’s overall system for managing risk
- · Integrate supply chain management as part of the organisation’s framework for business continuity and crisis management