Asian risk managers urged to focus on supply chain mapping

Marsh says that risk and insurance managers in the Asian region need to build an enterprise-wide risk management approach through holistic supply-value chain mapping to rise to the challenge of fast-rising regional and global supply chain changes and strains.

The broker recently published a note pointing out that with supply chains and overseas operations facing unforeseen disruptions and regulatory changes arising from geopolitical uncertainties, businesses are increasingly taking the approach of diversifying their supply chains.

Marsh points out, for example, that four out of five Japanese manufacturing companies have diversified their operations since 2020 with new facilities across Southeast Asia.

But the broker reminds risk managers that these shifts should not be taken lightly.

When expanding their procurement networks and setting up facilities in new geographies, it is imperative for businesses to first establish an in-depth understanding of local risk dynamics, including regulatory compliance and people risk, to identify emerging threats, advises the broker.

“Businesses should adapt their operating and talent strategies to mitigate these risks and optimise supply chain diversification outcomes,” says Marsh.

“As part of a comprehensive supply chain diversification strategy and prior to setting up operations in a new geography, businesses should conduct supply-value chain mapping to uncover and understand the potential weak points that may be vulnerable to disruption,” it adds.

The broker says that a “robust” mapping exercise should account for potential infrastructure challenges such as reliability of electricity, clean water supply and transportation networks.

It should also account for the complex regulatory requirements in these new locations such as minimum wage and labour policies that can evolve and pose significant risks if left unaddressed, suggests Marsh.

“Importantly, supply-value chain mapping can help businesses anticipate and address upstream delays, which can result in reduced quantities and higher prices for inputs — especially commodity inputs such as energy and raw materials. Downstream, businesses can experience fulfilment and delivery delays, increased logistics expenses, and fluctuations or reduction in demand,” says the broker.

Marsh advises that when formulating risk management actions, businesses should avoid over-prioritising higher value inputs such as microprocessors versus lower value inputs such as rubber gaskets. “Any disruption to the latter can also result in significant financial and operational impacts,” warns the broker.

Beyond supply-value chain mapping, businesses should also assess their political risk to identify geopolitical scenarios that might result in business interruption, adds Marsh.

When investing in new locations, it is also vital to calibrate the right talent strategy across the three areas of pay equity, skills availability, and talent mobility, advises Marsh.

“With greater emphasis on equity across developing economies in Asia, wage levels are subject to greater scrutiny by both authorities and non-governmental organisations (NGOs). Pay disparities may be subject to new or revised wage or foreign labour legislation. Hence, businesses must tailor their workforce strategy to ensure pay equity and monitor wage trends to contain cost,” advises Marsh.

Skills gaps can also arise as the local workforce may lack the education or experience required to assume operational roles. Businesses diversifying their supply chains must account for the cost of bridging these “skills gaps” with training, says Marsh.

“To address potential skills availability issues in certain locations, businesses must find solutions to gain access to local talent pools and manage costs to avoid issues such as delays in production or quality issues,” says the broker.

And when diversifying the supply chain, businesses typically need to relocate existing talent to ensure continuity of operations in the new location and to train new workers.

“With concerns such as climate and extreme weather, geopolitical conflict and unrest, and healthcare availability and accessibility, businesses must calibrate the right incentives and reassurances to convince skilled talent to relocate and ensure they (and their dependents) are able to settle in the new environment,” advises Marsh.