Supply chain issues high on agenda of Chinese risk managers: Parima conference

Risk managers in China have become increasingly aware of the growing risks in their supply chains, thanks to a number of high profile incidents in the region in recent years – from the Tianjin explosion in 2015 to the Melamine-tainted milk scandal in 2008.

The subject was raised at the recent Shanghai conference of the Pan-Asia Risk and Insurance Management Association, as risk managers and insurers debated the challenge of managing so many third-party risks.

Supply chains have grown rapidly in China and while this has benefited entrepreneurs, infrastructure has failed to keep pace, exposing companies to possible disruption. Furthermore, when supply chains are disrupted, it is the ultimate brand owner at the end of that chain rather than the culpable supplier that bears the negative impact of any fallout.

For fast food company Yum Brands China and its risk director Tim Mathieson, supply chains are critical. The company underwent an extensive audit of its supply chain with the help of its broker Lockton, to identify its various exposures and explore how best to transfer these risks.

Insurers are aware that they are not the first port of call when it comes to managing supply chain risk, however they still need as much information as possible from risk managers regarding their exposures in order to come up with loss estimates and premiums, as well as assessing any accumulation risk – a hugely important factor in managing supply chain risk, according to Stanley Cochrane, head of property, Asia-Pacific, for Swiss Re Corporate Solutions.

Consequently, these audits are hugely important for insurers. But undergoing such an extensive exercise and disclosing key data to third parties is something that many Chinese suppliers are reluctant to do.

The key, said Peter Jackson, director, multinational clients, Lockton, is to sell the positive benefits of the exercise. “Yum Brands was very strong on this point and making it a positive process. It was also very careful about the recommendations it made, emphasising that any cost involved is a long-term investment. It was also important not to overstay your welcome and to make your points quickly,” he explained.

In China, the growing number of joint ventures between Chinese and international companies is helping to instil a greater standard of supply chain risk management and the use of audits such as the one described above. But, as Sharon Shi, senior manager, Insurance and Risk for German-Chino car manufacturer BMW Brilliance outlined to the conference, they are not without their challenges.

“We have a standard business continuity planning and risk management process that we send to all of our suppliers. Whereas ten years ago most of our suppliers were from Germany, now they are much more international so it is very important that we have an internal procedure that we can export.

“We have different categories of risk for suppliers – from environmental protection to property or transport but not all of the risks, insurable or otherwise, can be foreseen, such as financial stability. We have made progress but there is still a long way to go,” said Ms Shi.

In addition to the need for continuous education of suppliers, there can also be resistance from suppliers if they are pressured to buy insurance, especially for smaller companies, according to Ms Shi. “For us, it is optional whether they buy insurance as long as they meet our standard. Insurance is only one aspect of the programme but we can adapt it. We can help smaller suppliers get bargaining power by engaging in a combined insurance programme or by shouldering some of the cost for our suppliers,” she added.