Supply chain focus needed as threat from reliance on technology rises

Senior managers must wake up to the risk of contagion within the supply chain as their companies become increasingly reliant upon technology and need a rapid response when incidents occur. But while the technology and data-based global economy may lead to more vulnerable supply chains, those companies that manage these risks more effectively using rich data and information available, will gain a significant competitive advantage. Improvements in managing supply chain risk will, however, not be achieved if the risk management function sits within a silo and does not work closely with other key areas such as information technology (IT), business continuity and health and safety. These were some of the key findings of a roundtable hosted by London insurer CNA Hardy in which John Ludlow, CEO of AIRMIC, and Jonathan Blackhurst, group head of risk management at Capita, took part in the buildup to the British Insurance Brokers’ Association (BIBA) conference in Manchester this week. Mr Blackhurst, a keynote speaker at Commercial Risk Europe’s annual supply chain risk management and insurance event, to be held this year in London on 25 November, is worried about the contagion risk that technology can create within supply chains. “I see a big shift as we try to change as an organization; the supply chain has become easier to get real-time performance measured and monitored, but what we don’t see is the recognition that this reliance on technology increases the speed of contagion,” he said. Mr Blackhurst added that risk managers and senior management need to recognise that “speed is of the essence” when dealing with this potentially catastrophic risk. “You cannot sit back and wait to see how a potential problem develops. Instead, as soon as indications show something is not quite right, you need to investigate immediately or it could be too late. Executives are waking up to supply chain risks, but we need to drive home to them that speed is of the essence,” he added. Mr Ludlow recognises the potential severity of contagion risk. But he also pointed out that new technology that ‘carries’ the risk can contribute to supply chain risk management by enhancing insight and enabling more rapid risk mitigation. “Information is key,” pointed out Mr Ludlow. “In a totally connected supply chain, technology can help you to see the goods, their condition, and alert the risk radar as soon as something is wrong. If you have your risk indicators in place and you are sharing information properly across your supply chain, you can mitigate a lot of risk,” added Airmic’s CEO. Rhonda Buege, VP international specialty at CNA Hardy, pointed out the significance of intangible supply chain risks within the modern, technology-driven global economy. “I think organisations are quite good at managing physical goods across international borders, despite political challenges. The question now is: how they manage the intangible supply chain risks – such as information and data? How do we regulate for new technology risk, which has no defined borders?” she said. Ailsa King, chief client officer at Marsh UK, pointed out that risk managers, brokers and insurers need to be aware that in today’s economy, supply chain risk is actually a combination of traditional physical risk and newer intangible risk. “When you think about how goods move around the world, we are still reliant on large container ships. When these ships dock in harbours, the majority of unloading is now automated and tech-driven. If something goes wrong with the technology, this can create supply chain risk as goods won’t reach their specified destination in the expected timeframe. So, there are still traditional marine and cargo risks, but the tech liability and supply chain risks are new,” she explained. Dave Brosnan, CEO at CNA Hardy, stressed the need to build true resilience into the supply chain. “I think a really resilient supply chain is one that takes into account the tangible and intangible risks. In my experience, and what comes up time and again in our research, is that everyone tends to focus on the tangible problem in front of them and lose focus on the more hidden intangible risks that emerge when a tech-enabled supply chain has failed,” he said. The effective management of this complex and ever-changing risk will only be properly carried out on an enterprise-wide basis, agreed the panellists. “All too often, risk managers are siloed and risk management plans are fragmented, not cohesive or aligned. The risk community… needs to come together so that the insurance manager, the business continuity manager, the security manager, the health and safety manager [form] a coordinated active community. Together, they have a more joined-up view of the business and this is particularly important in this increasingly complex, dynamic risk environment,” said Airmic’s Mr Ludlow. “This is a challenge for the risk profession. Enterprise risk management (ERM) is a great concept but if it is implemented by an organisation with a silo mindset, then it will just be another silo,” added Mr Blackhurst. “ERM offers the opportunity to pull things together. However, an organisation can easily segment when the board wants one conversation, the operational manager another – and they do not meet until they have a quarterly meeting, which breaks the interconnectivity of the plan. That is not enterprise risk management – it is risk management of the enterprise. The right words but not in the right order!” he continued. Commercial Risk Europewill be holding its third annual Supply Chain Risk Management conference in London on 25 November. This is the premier supply chain risk event, which brings together risk and insurance professionals, supply chain and procurement professionals, and executives from the risk transfer markets. For details about attending, speaking or sponsoring please contact Stewart Brown via: sbrown@commercialriskonline.com

Supply chain focus needed as threat from reliance on technology rises

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