A fresh look at supply chains

More than 30 Airmic members gathered in the Lockton building recently for a seminar on supply chain risk management. It proved to be a lively event, reflecting the importance that members attach to the subject.

Those attending were treated to presentations from a very experienced and knowledgeable panel. Alan Punter, author of the Airmic ‘Supply Chain Failures’ report, commenced proceedings by discussing the findings in his report, and reviewing the lessons for risk managers. He provided considerable insight into the consequences of supply chain failures, including damage to reputation.

Two experienced risk managers then discussed their own view of supply chain risk management. Matthew McEwan from Coca-Cola Enterprises and Chris McGloin from Schneider Electric discussed how supply chain considerations had to focus on risk assessment and risk management. They emphasised the relevance of supply chain to the business model and their main conclusion was that attempts by risk managers to improve supply chain risk management had to focus on increasing profitability and resilience.

Representatives from the insurance world then presented their overview of supply chain risks. Andrew Cornish from the hosts Lockton also discussed how to align insurance with the business model.  He suggested that an important part of improving the robustness of supply chains was for procurement and insurance to work together. He also pointed out that ‘big data’ is relevant as there is a huge amount of data available about supplier and geographical difficulties that should be used by risk managers to anticipate future problems.

Volker Muench from Allianz reinforced previous messages and pointed out that insurance is to support the balance sheet of the organisation. He pointed out the range of disruptions that can occur and how many of these are not associated with traditional insurable perils and gave the example of strike at a port resulting in raw materials during unavailable.  He also mentioned the importance of cyber security and how embedding suppliers within the IT system of the company can increase cyber risks. In summary, Volker said that developments are taking place to make supply chain insurance products more relevant.

Lively discussion then followed, including consideration of the role of procurement and how to finance the risk exposures in complex supply chains. A chief procurement officer who attended our seminar said the issues raised were exactly the same as the ones that he and his colleagues face. This suggests there is room for meaningful conversation between the two departments when discussing supply chain risk.

The role of captive insurance companies in risk financing for supply chain risks was discussed (click here for details). Many delegates stayed after the formal proceedings to continue more informal discussions. One of the overall messages received was that suppliers should be evaluated according to the impact on the business model, rather than the value of the contract.

Report by Paul Hopkin.

Paul Hopkin - Airmic