Known, hidden risks in supply chains demand an overall strategy for evaluating and mitigating risk: QBE

PHILADELPHIA – The multitude and variety of risks are becoming more predictable, indicating multinational and domestic companies can benefit from taking a look at how global interdependence affects each link of their supply chain, says Jamie Luce, senior vice president, commercial insurance, property and casualty at QBE North America.

“A proactive response by industry leaders can mitigate many production and distribution risks, and help them prepare for less likely risks that may one day occur,” Luce told Canadian Underwriter in advance of the RIMS 2017 Annual Conference and Exhibition.

“Given the complex way that goods now travel the globe to reach their markets and buyers, not responding to the clearly visible, as well as the more uncommon, risks is not an option,” he emphasized.

Related: Traditional supply chains to undergo radical transformation by 2025: study

For manufacturing, Luce cited site safety, labour conditions, quality control, business reliability and “coopetition,” cyber security, packaging and transportation, and regulatory risk as among the most concerning risks in the supply chain.

“Many factors have amplified supply chain risk, including globalization, just-in-time delivery, climate change/extreme weather events and increased social/environmental activism,” he explained.

Products that have caused property damage, personal injury, bodily injury or death can create huge risk for manufacturers, Luce pointed out, perhaps leading to costly recalls.

“In addition to the lost value of the recalled products and the prospect of business interruption, executing the recalls can involve costs to broadly communicate the recall, ship and dispose the recalled product, and minimize and then repair damage to the manufacturer’s reputation,” he noted.

Cases involving quality and standards can also spur costly delays. “In instances where there is a lack of quality packaging and shipping standards, risk can manifest in delays resulting from products or manufacturing supplies being damaged en route,” he said.

“For example, a badly wrapped shipment of needed manufacturing supplies sat for a week on the tarmac of a small airport that was flooded repeatedly with heavy rains. By the time this shipment arrived, the supplies were useless and the production schedule was subsequently delayed,” Luce (pictured left) reported.

“Since the 1980s, globalization has amplified supply chain risk in both predictable and surprising ways in the manufacturing industry,” he pointed out. “Moving raw materials and finished products long distances – often from one end of the globe to the other – creates an expected increase in risks,” he said, citing the auto industry as an example.

“At one time, the sole manufacturer of a brake component used by virtually all car manufacturers experienced a plant-destroying fire. Since there was no back-up supplier for that part, car production was slowed down for months throughout the auto industry,” Luce noted.

“Considering the complex and evolving risks inherent in today’s supply chain, companies should develop an overall strategy for evaluating and mitigating risk,” he recommended.

Related: Practical drift an invisible, potentially catastrophic threat to supply chain

Large global manufacturers with in-house risk managers often partner with insurance brokers and carriers to conduct business continuity planning for a wide range of scenarios, Luce pointed out.

“The output volume of companies this size often gives them enough perspective or experience to identify weak points and potential hidden risks,” he told CU.

That said, “mid-size and small manufacturers who may not have an in-house team and who have lower output volume have fewer opportunities to identify these risks,” he suggested, recommending that they work with expert brokers and carrier who specialize in serving manufacturers to help identify hidden risks.

“If the supply chain extends internationally,” Luce added, “the manufacturer should also be confident that the insurance carrier has the resources to evaluate the suppliers in the foreign countries.”

Related: Focus on cost savings alone will not help produce a robust supply chain

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