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Complex supply chains in a complex world

Introduction

Airmic 8th October 2019

The multitude of macro challenges presented to society and commerce are bringing the way trade is conducted around the world under strain. The spread of globalisation throughout the 20th and early 21st centuries has made businesses more international than ever before – from a giant multinational operating a complex web of suppliers and contractors across the globe, to a small regional manufacturer reliant on a multitude of ‘just-in-time’ parts arriving on a weekly basis.

The rise of nationalism and increasingly protectionist policies, however, is threatening to roll back free trade and, with it, global supply networks and cross-border relationships. A volatile and more extreme climate is highlighting the volume of stock and supply routes that reside in areas exposed to natural disasters.

An interruption to a supply chain can cause an array of problems – from loss of revenue and reputational damage, to breach of contract, loss of market share and damage to stock price.

The design and management of supply chains has always demanded a high degree of risk-reward analysis. Organisations want lean, efficient supply chains that bring down costs and provide maximum value. The desire for low-cost networks, however, can lead businesses to turn a blind eye to, or miss, the concentration of risk that may be building up and could result in a catastrophic event that can bring operations grinding to a halt.

The role of the risk and insurance professional should be to work closely with business continuity, procurement and supply chain managers to evaluate and manage the risks inherent in the supply chain. Their skills and knowledge in risk management and financing will be vital to ensure the supply chain remains resilient and the organisation is fully informed of the risks it is taking and the reasons for doing so, as well as the contingencies in place should something go wrong.

This Airmic Guide, produced in collaboration with AIR Worldwide, Gallagher, HDI, Lloyd’s and Sedgwick, is designed to provide the risk professional with the information and guidance on how to understand, manage and identify appropriate risk financing solutions.

A consolidated supply chain gives us greater efficiencies, but it means the sensitivity to disruption is ever greater. We may have fewer locations, but we have bigger aggregation of risk.

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