Chance for risk managers as companies forced to rethink supply chains and approach to risk

Europe’s risk managers need to help their companies prepare for a major rethink in how they source goods and materials and organise their supply chains, because the current Covid-19 crisis has revealed just how vulnerable they are, according to a group of experts gathered for a webinar by Ferma and Italian risk management association Anra. Three experts from McKinsey led the discussion and also agreed that the crisis has underlined how diverse the European corporate risk and insurance management community is, as shown by very different roles played by individual risk and insurance managers within their companies depending upon each company’s structure and approach. Alessandro De Felice, president of Anra and chief risk officer at Milan-based multinational cables group Prysmian, said that while the virus obviously presents huge challenges for risk managers across Europe, it also offers an historic opportunity for them to show their real value and worth to their organisations and give the profession a real boost. “It’s a historical moment for the community of risk managers. This is an exceptionally hard period for the community of risk managers. There will be a time before coronavirus and a time after coronavirus. I think our community has to really take this opportunity for reflecting and rethinking the role and strategic importance of our function and role in companies. We will discuss how we can take advantage of this situation in the interests of our community,” he said in his opening comments. Thomas Poppensieker, a senior partner based in the Munich office of McKinsey, said that no one should underestimate the impact of the virus on the European and world economy, particularly for an economy such as Germany's that is so dependent upon exports and thus the global supply chain as it is currently structured. He said companies all over Europe will have to seriously look at how their value chains are structured as they prepare for a more sustainable and resilient future. “The question is whether global value chains are actually sustainable going forward. Sectors such as medication, pharmaceuticals and others are at risk going forward because of the supply chain we rely on. My perception is that if companies want to manage their risk, this is at the heart of what needs to be done. Apart from short-term topics such as health, companies are now working on three-, six- and nine-month perspectives,” he said. There is a general perception that it is companies in Europe and North America that have the biggest supply chain questions to tackle, because they have become so reliant on Asian sources and China in particular in recent times. However, Vito Giudici, a senior partner at McKinsey in Hong Kong, pointed out that Chinese companies and the Chinese government are as concerned about the vulnerability of their supply chains. This is a global problem that needs tackling, he said. “There are quite a lot of thoughts inside China and outside China: can we think differently about supply chains? To have a plan B or even new plan A for supply chains at national level and for the rest of the world, it is more around... do we need to depend so much on China and can we actually have more resilience rather than efficiency in our supply chain?” he said. François Beaume, VP, risks and insurance at France-based global electronics group Sonepar, and the man in charge of the Covid-19 taskforce at French risk management association Amrae, noted that he had seen no mention of the role of risk managers in the reaction to the crisis and asked how the consultants see the role of the community in the crisis and beyond. The consultants said that, based on their experience with customers, the role of the risk manager is so varied and different from company to company that is difficult to generalise. But they also agreed with Mr De Felice that risk managers have an opportunity to stake their claim for a bigger role in light of the crisis, and risk management should be taken more seriously at board and executive level and dealt with in a more enterprise-wide manner. “The reason why we have not been very explicit on the risk function is, based on our experience with clients, the span of responsibilities of risk officers within companies is very different. Some domains will be particularly important going forward, such as how you are going to adjust your corporate insurance strategy to this new environment – this will be one of the most important topics. Another will be how the risk managers are going to cope with the expected increase in credit risk,” said Alfonso Natale, a partner at McKinsey in Milan. “We are expecting increasing relevance of the traditional risks that are part of the risk officer’s responsibility. Then it is more about how to ensure that risk can play a critical role even beyond the traditional boundaries of the risk responsibility. I think that what we are observing today in terms of supply chain resilience will also become much more part of the risk management response. The experience we are building in these days shows that it’s not going to be, by definition, only a risk management effort but very often a cross-functional response. It’ll be important that all the risk components – CFO-led, risk-led etc – should be part of the equation,” he added. Mr Poppensieker agreed. “There is a question as to where the risk management function is in each company today and if it can drive these very fundamental discussions, of which we are seeing only parts here. I can talk about my clients in automotive, airlines, telecommunications and find that there are varying degrees of involvement [of risk management]. In some instances they are part of these taskforces; in some instances there are still specialised teams more in the first line that look into supply chain risk, that look into production and how to stop it, how to run it up again,” he said. “We have had the discussion: is this crisis not now the call to action for risk to be more comprehensively looked at, at board or executive level? But except for a few industries, I would say there is still a bit of a distance to go,” added Mr Poppensieker.

Chance for risk managers as companies forced to rethink supply chains and approach to risk

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