AI-analytics to boost supply chain risk solutions

AI-powered supply chain risk management analytics tools should pave the way for more innovative insurance solutions, while also informing risk management decisions and aiding ESG and regulatory compliance, according to Marsh.

Marsh launched Sentrisk, its new AI-powered supply chain risk mapping tool, at the Rims conference in May. The platform, which has been trialled by some of Marsh’s UK clients, takes basic information on an organisation’s top tier suppliers and uses Big Data, AI and satellite imagery to quickly map suppliers by location. It can then analyse supply chain exposure against key threats – such as natural catastrophe perils, geopolitical risks, financial stability and reliance on critical infrastructure.

James Crask, managing director and head of Strategic Risk Consulting at Marsh in the UK, told Commercial Risk Europe that data-driven risk insights like Sentrisk are the future. “We have the tools and the data. I think we will now see a massive increase in companies using this type of approach to solve a broad range of issues. We have started with supply chain but there are a whole bunch of other areas we can point this capability to,” he said.

Such tools enable companies to map their supply chain exposures in just hours, a task that would in the past take a dedicated team several years to carry out manually, said Crask. This ‘good news’ AI story could enable organisations to reallocate these resources to actively manage supply chain risk, explained Crask, who is participating in a supply chain risk workshop at this year’s Airmic conference in Edinburgh.

Risk managers and insurance buyers will be among many important stakeholders using this data, including sustainability, procurement, supply chain and operational managers.

AI-powered analytics tools enable companies to carry out more forensic supply chain analysis than was previously possible, providing data to make more informed decisions, such as setting stock levels, selecting supplier or changing production processes, according to Crask. From an insurance perspective, more comprehensive and detailed data on suppliers could help improve the quality of business interruption (BI) cover, he said.

BI coverage and limits for suppliers under property damage and BI insurance policies are generally limited, in part due to the lack of transparency over suppliers, especially those below the top tier. This lack of data beyond Tier 1 suppliers has been a major hurdle to innovation in this space, explained Crask.

He said that knowing who your suppliers are, and who their suppliers are, and what would happen if they are disrupted, should lead to more “robust discussions” with insurers.

“Historically, because insurers, clients and brokers have not had access to the kind of data we are talking about, our ability to innovate with new products, new coverage and new policy wordings has been generally limited. It’s one of the reasons we built Sentrist and why our CEO has got behind it. He sees it as an opportunity to influence how clients access this insurance cover in the future,” he said.

“At a simplistic level, it gives organisations an easy way to improve and expand upon the list of suppliers in their BI policy schedule. So there would be an opportunity to improve coverage. Over time, with access to that level of forensic data, it should be possible to expand coverage and open up a broader conversation on supply chain risk with insurers,” added Crask.

“If we’ve learned one thing running this with clients over the last two years, it’s that once you have this data, there is an awful lot you can do with it. Some of those ideas we probably haven’t had yet. There are lots of opportunities to innovate,” he added.

Supply chain risk analysis tools can also help identify regulatory and compliance risks, according to Crask. For example, the EU’s Corporate Sustainability Due Diligence Directive, the German Supply Chain Act and EU Deforestation regulation all require companies to carry out due diligence on supply chains.

Marsh clients have been using Sentrisk to flag up risks associated with trade sanctions, such as companies that may have ties to sanctioned individuals or organisations in Iran or Russia. Analytics can also help companies identify possible breaches of human rights, such as products using slave or child labour.

Sentrisk has been used to flag suppliers that have potential links to human rights abuses against the Uighur ethnic group in China. In another example, a packaging company used Sentrisk to help identify potential risks of deforestation within its supply chain.

“We have a growing number of clients that are beginning with the sanction list, and then starting to think about broader human rights issues that might be hidden deeper in their supply chain. There is a growing amount of regulation coming down the pipeline that will force organisations to think really hard about these issues,” said Crask.

Sentrisk’s pilot phase also revealed insights into supply chain risks. Some firms found significant concentrations of supply chain risk in certain regions that they were not previously aware of. Analysis of automotive supply chains, for example, have identified concentrations of suppliers in Vietnam all on the same flood plain. Smaller Tier 3 and 4 suppliers will often cluster around larger Tier 1 suppliers, so a natural catastrophe or geopolitical event could take out a whole chunk of the supply chain, explained Crask.

The post-pandemic surge in supply chain disruption may have eased, but the problem has not gone away, according to Crask. However, companies have learnt lessons from recent years and built resilience, he said.

“A lot of effort by companies and risk managers has paid dividends and put many organisations on a more resilient footing. But the part that hasn’t been solved yet – that tools like Sentrisk are starting to answer – is how to manage your exposure to risks that are invisible to you on a day-to-day basis. And how you manage some of the big macro scenarios that could knock out parts of your supply chain, like a geopolitical challenge in the South China Sea or climate change impacts,” said Crask.

“Those longer-term systemic issues have been less of a focus. We have been largely reactive to events, like the blocking of the Suez Canal, problems in the Red Sea, and conflicts in Ukraine and Israel. We are getting used to dealing with crisis after crisis, but the danger is we do not pause and consider if there is a more resilient way to do this, that prepares us for a broader set of scenarios,” he concluded.