Risk managers must use full armoury to support supply chain risk owners

Supply chain risk management should fall on the shoulders of procurement and other risk owners, allowing risk managers to support such functions with all the tools at their disposal, said UK participants in this year’s European Risk Frontiers survey. While capacity and decent insurance are available for supply chain risk, the cost of protection and amount of information insurers need to underwrite cover are real problems, they added. The sheer size and growing complexity of supply chain risk in today’s business environment demands a true partnership or ERM approach, with risk managers playing a crucial role. But like any other problem, supply chains must be managed by the risk owners. “Risk managers shouldn’t manage risk. Everyone else manages risk and risk managers provide the education, training, resources, knowhow and support to help them do that. So, procurement and supply chain management should actually manage this issue. Risk managers should make sure that we make our full breadth of knowledge and resource available to those teams,” said Lynda Lucas, director of international risk management and global corporate finance at Fujitsu. George Ong, chief risk officer and head of corporate governance at Northern Ireland Water, explained that the procurement team and contract owners are key supply chain risk owners in his firm. His job is to help them through the process and ensure they are working within the company’s risk appetite and towards corporate objectives. “My role as CRO is mainly to work alongside our procurement team and contract owners in relation to risk governance, to ensure that threats and opportunities are consistent with corporate objectives. I work with others to ensure that our risk registers – corporate, directorate, integrated groups and projects – are ‘live’ and ‘active’ to escalate current and future threats and consider opportunities for further improvement to our business,” Mr Ong said. He stressed the importance of ensuring legal documents are correct when managing supply chains, but said mitigating this risk is also about managing relationships. Tracey Skinner, director of insurance and risk financing at BT Group, agreed with her fellow European Risk Frontiers participants in the UK that supply chain risk management requires partnership between various functions involved, and is not the sole responsibility of the risk team. She said risk managers should report on supply chain risk, keep things up to date and assist the rest of the business. But ownership really lies with procurement and those customer-facing entities building supply chains, she added. Of course, a real challenge is getting procurement to factor in risks and other metrics when it is traditionally price-driven. Ms Skinner said this is a challenge but can be solved. She is encouraged by a change in attitude from procurement teams. “You need to sit down with procurement at the beginning and get the weighting of priorities right. If risk is given a high score in combination with a lower score for price, then the system can only follow the path you have chosen,” Ms Skinner advised. “I am encouraged that people are taking note of supply chain failures and the impact they can have, looking at risk drivers such as accumulation. In any walk of life, the cheapest tends not to be the best and this is something that procurement is grasping,” she added. Building on comments from fellow risk professionals, Julia Graham, technical director at Airmic, said risk managers have an important role to play in supply chain risk management by collaborating with other teams in an organisation. Risk managers are extremely well placed to contribute to the risk-mapping exercise, because they often know better than others “where things are” within the business, she said. “If you are really practicing ERM, connected risk demands connected answers. Therefore, the risk management team leading ERM is in the perfect position to connect the dots and offer some responses in terms of understanding the risk and risk financing options,” said Ms Graham. But she stressed that it is getting harder and harder to understand and manage supply chains. “As risk becomes more connected, more complex and the pace of change increases, it becomes harder to accurately map your supply chains. I do know that some organisations are doing some incredibly sophisticated work in this space and people are mapping huge supply chains, but it is not easy,” Ms Graham said. Ms Skinner also flagged the sheer complexity of supply chains. Gathering data demanded by insurers to cover the risk is a difficult task for many risk and insurance managers, she said. “You can get supplier extensions. These are useful but you face a minefield doing the risk identification and routing to get the data insurers need. It then quickly goes out of date. So, keeping the data fresh is an issue and a constant battle requiring all-year-round work, every year,” she said. Several other risk and insurance managers agreed that information requirements from insurers to transfer supply chain risk are extremely onerous. They said that while some high-quality supply chain insurance is available, buyers need help gathering the information demanded by insurers. In addition, they explained that cover is expensive. “You can only insure what you can generally measure. So that is where work needs to be done by our members, with help from insurers and brokers,” said Airmic’s Ms Graham. Paul Goulding, director of insurance at Heathrow Airport and outgoing Airmic chair, said there is capacity for supply chain risk but its cost can be a problem. Compared with traditional property damage insurance, for example, rates on line for supply chain cover are much higher because of the smaller pool of buyers, he explained. “So, you can get big limits and excellent supply chain coverage but it tends to be bespoke, negotiated and, as a result, quite expensive. If more people bought it then it would become cheaper. It comes back to commoditisation, which drives down the price and increases capacity,” he said. He agreed with others that huge data requirements can make supply chain cover unappealing but does not think insurers are asking for too much information. “They want to understand the risk. This requires sophisticated mapping. If you don’t know your tier three or four suppliers, it is perhaps unfair to ask someone to insure them,” he reasonably pointed out. Commercial Risk Europe will hold its Supply Chain Risk Management 2018 – Collaboration in a Connected World conference over two days in London on 10 and 11 December. This follows the hugely successful inaugural event last year and will tackle the key supply chain risk and insurance management issues. Supported by the Business Continuity Institute and UK risk management association Airmic, the conference will bring together business leaders, supply chain experts, procurement, business continuity and risk professionals to discuss the threats of connected risk and the need for coordinated resilience programmes. The event is free for risk professionals, and an early bird delegate rate of £300 (+VAT where applicable) applies for all other delegates. For further information please go to: www.commercialriskonline.com/event/scrm18

Risk managers must use full armoury to support supply chain risk owners

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