Supply Chain Risk is number one now and for the future

Roger OakdenGlobal Logistics

Supply Chain risks in your business.

You know that supply chains are complex and they are becoming even more complex. This is due to: more multi-national businesses; increasing interconnections between organisations and a greater reliance on global specialist suppliers.

2015 Business Risk Barometer is a recent international survey by Allianz Insurance. It highlights that complexity in supply chains is increasing business risks for 2015 and into the future. The report highlights the current top three global risks as:

  1. Business interruptions (mainly from cyber attack, political and country risks) and supply chain interruptions
  2. Natural catastrophes and
  3. Fire and explosions

Because natural disasters and fires cause interruptions to supply chains, the total of supply chain risks are likely to be substantially higher than all other risk for any product based business.

The report states that “you can avoid some risks, have to accept some risks and other risks need to be transferred”. To do that, you need a risk management plan.

Develop your Supply Chains Risk Management plan

For insurers, the cumulative supply chain risks of business “…means potentially larger and more complex losses than in the past”. To obtain sufficient insurance cover in the future will most likely require a supply chains risk management plan, developed through collaboration by all groups within a business

The report noted that areas of analysis requiring substantial work by a business when developing their risk plan are:

  • Contingent Business Interruptions – where an event that damages a supplier (like a factory fire or a flood in a region) will also be a cost to your business
  • Interdependencies among suppliers at each tier of supply. Where a disruption in inter-company supply may cause a loss for your business and
  • Business Continuity actions that your business will undertake to keep operating e.g. identifying alternative distribution sites

The number one emerging risk is climate change. Your supply chains will be affected by climate change through rising sea levels, changing rainfall patterns, increasing heatwaves and more severe storms.

The current number two risk, Natural Catastrophes is likely to become two groups; Volcanoes and earthquakes will remain as natural catastrophes . The second group will be identified as human induced climate affected catastrophes. These will be re-classified as supply chain risks.

When reviewing future premiums, insurance companies will take a different underwriting view of natural and climate induced catastrophes. As stated in the report “Companies will have to deal with the impact of climate change as an underlying risk which is not within their direct control”

The current number one risk is supply chain and climate change the number one emerging risk – insurance premiums of the future will reflect this fact. A major task for supply chain professionals will be to identify risks, develop the risk management plan and implement substantial portions of the plan. Are you prepared?

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...