A new report by Airmic warns that supply chains are under growing strain, with businesses struggling to manage the new exposures. Published at Airmic’s fourth ERM Forum in London this week, it provides risk managers with practical guidance on how to inject resilience into entire supply networks.
The Complex Supply Chains in a Complex World report says that “a potent” combination of geopolitical tensions, climate volatility and technological dependencies is putting global supply chains under more strain than ever before.
It warns that a desire for low-cost networks has led some businesses to turn a blind eye to, or miss, the concentration of risk that may be building in their supply chain. This could result in a catastrophic event that brings operations grinding to a halt and inflict significant reputational damage, the report adds.
It says that with supply chains becoming increasingly complex and opaque, many companies are struggling to fully map their exposure, with more than half of businesses failing to have visibility beyond their tier one, direct suppliers.
The report – produced with AIR Worldwide, Gallagher, HDI, Lloyd’s and Sedgwick – flags recent trends putting greater pressure on supply chains, including 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, the report states.
Another trend is the volatile and more extreme climate, which is exposing the high volume of stock and supply routes that reside in areas exposed to natural disasters, it adds.
A third problem for supply chains is an increasing reliance on technology, the report notes. Connected devices and automated production lines have transformed supply chain risk profiles in recent year, the report says. This is leaving businesses vulnerable to an IT outage, cloud disruption or cyberattack, either on their own business or on one of their suppliers, it adds.
The report lists key takeaways for risk managers to help them better manage their supply chains:
- 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 backups 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 overlaps
- 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.
We will take a more in-depth look at the report in the next Commercial Risk Europe newspaper.
It was released alongside a new quantitative modelling framework from AIR Worldwide and Lloyd’s designed to help risk managers and insurers better get to grips with supply chain risk.
Commercial Risk is holding a one-day Supply Chain Risk Management conference in London on 25 November 2019. Find out more about the programme or book your space here.