Reducing risk by improving supply chain resilience

Building prevention and recovery programs for minimising supply chain risk is vital, according to commercial property insurer, FM Global. Here the company offers tips on how to identify and analysis potential risks.

Supply chain concerns are big news when they reach national scale. Earlier this year, shivers were sent through the business community when reports surfaced that Australia only had 23 days of fuel in reserve. It was a startling reminder of just how exposed our economy is to a global oil crisis.

The ongoing crisis in Syria and wider tensions in the Middle East mean this threat is constantly bubbling away under the surface. Experts say the impact would be felt within two weeks, with supply of food and medicines among the biggest fears. Not surprisingly, the Federal Government responded by announcing an immediate review of fuel security.

Although doomsday scenarios like this are at the extreme end of the scale, supply chain risk is an everyday concern for any business that operates in or is serviced by the logistics industry.

Businesses are investing heavily in technology to improve operational efficiency and meet customer demand for faster, more convenient delivery. Increasingly data-driven modern business practices bring greater exposure to cybersecurity threats. Global ransomware events like WannaCry and the more sophisticated GoldenEye strain of Petya have triggered losses running into billions of dollars.

And while cybersecurity has quickly become established as a major concern for every business supply chain, managing physical risk has also become increasingly complex in today’s truly global market. The world’s biggest brands have tens or even hundreds of thousands of suppliers. And each of those suppliers has its own supply chain.

It’s one thing to manage risk within your own business but quite another to handle risk at this level of scale and complexity. There are natural disasters to consider, differing risk qualities, legal and regulatory inconsistences, health and safety conditions and possible trade disputes.

There are always stories in the news with an impact on somebody’s supply chain. US pharmaceutical industry was threatened last year after Hurricane Maria ripped through Puerto Rico and brought production to a standstill. Apple famously saw billions wiped off its share price a few years back after unethical work practices were exposed in its supply chain.

Fast forward to today and increasingly frosty relations between China and the US threaten to impact the supply of rare earth minerals needed by consumer electronics and technology manufacturers. Tomorrow it could be your business caught in the crosshairs.

Building your resilience

It’s impossible to mitigate all of the risks in your supply chain but there are lots of ways to minimise your exposure. Whatever line of business you’re in, you need to focus on building your resilience with targeted investment in prevention and recovery programs.

As one of the world’s largest commercial property insurers, FM Global has about 1,800 practicing engineers. Using this experience, FM Global will help identify and analyse potential risks, offering clients a clear understanding of their specific exposures.

We’ve also developed the FM Global Resilience Index, helping you make more informed business decisions with data and in-depth analysis covering 130 countries and territories. Each country’s score is calculated using a series of economic, risk-quality and supply-chain drivers.

Switzerland, for example, ranks at the top of the index because of its high-quality infrastructure and local suppliers, political stability, low levels of corruption and high economic productivity. Sweden also features prominently for similar reasons including its outstanding supply chain visibility.

At the other end of the index are Haiti, Venezuela and Nepal. Haiti is severely hampered by its limited economic means and exposure to natural disasters, while Venezuela is overly dependent on oil and exposed to corruption.

At a more granular level, you might want to compare the resilience of two or more countries where you have new business opportunities, or weigh up the risks associated with potential suppliers located in different locations.

Building resilience is about minimising vulnerability to loss while strengthening the ability to recover from it. You’ll never completely eradicate supply chain risk but by identifying your most serious exposures and taking action to reduce them, you will reduce the likelihood of serious disruption. That’s good for your customers and good for your business.

Greg Duncan is FM Global’s Operations Vice President, Client Services. He leads a team of account managers, underwriters and technical specialists providing property insurance to some of the largest companies in Australia and New Zealand.