At a glance
- Supply chains are becoming ever more complex – and can break at any point
- Understanding the risks involved right along the supply chain is key to developing a robust strategy
- Zurich offers businesses supply chain risk assessment and related insurance products designed to increase resilience to disruptions
With volatility in the supply chain spiking in recent years and the world becoming increasingly connected, protecting a supply chain can sometimes appear daunting. And as supply chains become ever more complex, companies are becoming exposed to new risks.
Companies today generally carry smaller inventories in a bid to stay lean, and any disruption to supply can make planning more challenging than ever.
How Zurich can help
Zurich offers businesses supply chain risk assessment and related insurance products designed to help protect profits against failure in a supply chain.
This unique combination gives insight to help reduce costs, improve cash flow and solidify value chains. Understanding supply chain risks and taking steps to mitigate them could also prove to be a major strategic advantage.
Thus, developing a strategy to ensure supply chain resilience and protecting against foreseen events – such as adverse weather, a major fire or failure of IT systems – is key to keeping shortages or disruptions to a minimum.
“Unfortunately, there is no one-size-fits-all solution,” says Alan Ross, Senior Strategic Risk Management Consultant, Risk Engineering, at Zurich.
Weighing up the risks
When conducting a supply chain assessment, it is advisable to begin by looking at a company’s biggest area of risk – its most profitable products and the key suppliers who support them.
Alan says: “We assess which disruptions have the biggest potential to cause delays, and what controls or contingency plans are already in place to deal with it – such as an alternative supplier, additional stock, reprioritising scare supply and so on. This allows the customer to judge how well protected they are, and if more needs to be done.
“If they are a stationery company and their main product is photocopier paper, then we take that product as an end point,” said Alan. “We then dig back and see what goes into its production and supply. It might be the raw materials, the packaging, the design or even the transport.”
Depending on the size of a company, it could have thousands of direct – or tier one – suppliers, with each of those serviced by another secondary level of suppliers.
In Zurich’s Supply Chain Resilience 2013 study, 42% of disruptions originated below the tier one supplier, an increase from 2012. This can be a problem for the top company in a supply chain, as many do not have a direct relationship with their tier two suppliers.
“One issue we have often found when looking at a company’s tier two suppliers, is that further back in the supply chain they all rely on the same supplier,” said Alan.
“This means that while you might think you’ve got three alternative suppliers should anything go wrong, in reality they may all rely on the same supplier at some point in the chain. And depending on the supply you need it can take weeks or months getting an alternative supply chain up and running.”
Putting plans in place
Having a supply chain strategy that looks outwards, as well as inwards, can also mitigate risks. So, a company should not solely rely on its own business continuity arrangements, but also have a solid understanding of its key suppliers’ plans as well.
It’s all about knowing your options. If you don’t have access to a key supplier for any reason, you need to know that there is a plan B.”
Alan Ross, Senior Strategic Risk Management Consultant, Risk Engineering, at Zurich
A good business continuity management programme will help an organisation plan for the activation of an effective response to a range of potential business interruptions.
“You shouldn’t just check that a supplier has a business continuity strategy in place,” said Alan. “It’s about knowing where you are in their pecking order and what response you can expect if they have a disruption. If a large supplier supplies you and they suffer a disruption, unless you’re in, say, their top 10 customers, you might not get the level of response you need.
“Unfortunately, few organisations actually look at their key suppliers’ business continuity plans. If you don’t understand what they have in place, then you’re vulnerable.”
Alan added: “It’s all about knowing your options. If you don’t have access to a key supplier for any reason, you need to know there is a plan B.”
For more information on identifying and managing supply chain risks, please speak with your local Zurich contact.