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Push for low cost networks could result in catastrophic supply chain risk: Report

9th October 2019 - Author: Luke Gallin

Some businesses might well be ignoring or failing to see concentrations of risk in their supply chain amid a desire for low cost networks, according to a new report from Airmic, in collaboration with AIR Worldwide, Gallagher, HDI, Lloyd’s of London, and Sedgwick.

value chainThe report, Complex Supply Chains in a Complex World, was launched today at Airmic’s ERM Forum in London, and highlights that businesses are struggling to manage modern day supply chain exposures.

Ultimately, warns Airmic, a push towards low cost networks has resulted in some businesses either turning a blind eye, or missing completely, the concentration of risk that could be growing in their supply chain which has the potential to result in a catastrophic event, which in turn can drive significant reputational damage.

The report finds that as supply chains become increasingly complex, a lot of firms are finding it difficult to fully map their exposure, with over 50% of businesses failing to have visibility of supply chain risks beyond their direct suppliers.

Richard Cutcher, research and development manager at Airmic, said: “Most businesses have a good understanding of their suppliers, but how many track their suppliers’ suppliers? The web of relationships in a typical modern supply chain is incredibly complex to unpick. This report is designed to support businesses inject resilience into their entire supply chain.”

The full report, which has been published alongside new research from the specialist Lloyd’s of London insurance and reinsurance marketplace, offers some practical guidance for businesses on how to “inject resilience” into entire networks of suppliers.

Head of Innovation at Lloyd’s, Trevor Maynard, said: “We welcome Airmic’s timely new report. Supply chains are increasingly complex global networks of trade. Disasters in one corner of the world can impact far away businesses in non-physical ways and Lloyd’s is keen to explore how we can protect our customers from risks to their intangible assets.”

Dr Kamban Parasuraman, principal engineer and manager at catastrophe risk modeller AIR Worldwide, said: “Political risks and the escalating trade disputes have global companies caught in the crossfire. The evolving political risk landscape will continually force companies to move capacity and redraw the geographic footprint of their supply chains. Mitigating these emerging threats is key to sustainability.”

Iain Bell, director, Major Risks Practice, Gallagher, added: “Standalone supply chain policies have been discussed for 10 years, but they remain uncommon and take-up is low. Whilst a full risk assessment of the supply chain is necessary before buying a policy, insurers also need to address the buyer’s principal concern, i.e. that any reduction in supply that leads to a loss of output or gross profit is insurable.”

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