Supply chain resilience – where are we in 2018?

The latest edition of the Business Continuity Institute’s (BCI) Supply Chain Resilience Report was a truly international survey – with more than 400 responses from 65 countries.

Zurich supports the survey each year, and Nick Wildgoose, our Global Supply Chain Product Leader, has been involved in its development since its first edition in 2009. Here, he discusses the report’s key findings and how to approach the issue of supply chain disruption.

Supply Chain Resilience Report 2017 – the key findings

Among the eye-catching statistics from the BCI’s latest survey were the following:

• 65% of respondents have experienced at least one supply chain disruption
• 44% of these disruptions occurred at tier 1
• Loss of productivity (55% of incidents) was the most common consequence of supply chain disruption
• More organisations (74%) are asking their key suppliers about their business continuity arrangements than a year ago (63%)

Nick says: “It’s interesting that so many organisations are reporting supply chain disruption, and it’s also clear that many of these disruptions are non-physical in nature, for example industrial action, or incidents relating to flows of information and data security.”

Improving supply chain visibility

The BCI’s survey found 69% of respondents do not have full visibility of their supply chains.

“That doesn’t surprise me,” says Nick. “In fact, I’m more surprised that so many organisations claim to have full visibility of their supply chains, as it’s almost impossible to know about every single supplier.

“It is more important to properly understand your critical suppliers – those responsible for the biggest proportion of your profits.

“It still shocks me when I speak to procurement teams in some of the world’s largest companies, and they admit they have never checked out the natural catastrophe exposure of their key suppliers. They might be reliant on a single site in South-East Asia for 30% of their production, without ever having checked out the likelihood of a flood or an earthquake occurring there.”

The value of supply chain insurance

More than half of respondents (51%) admitted they do not insure for supply chain losses. Nick believes one reason is a lack of awareness about what covers are available.

Historically, the availability of supply chain insurance has been limited, and coverage has tended to be restricted to physical damage losses at top-tier suppliers. However, this is no longer the case.

Zurich’s supply chain risk and insurance solution has been on the market since 2009, and has won numerous industry awards. One of its key features is that it can provide broad, multi-tier cover, not just for physical damage events but a range of non-physical risks too, such as industrial disputes, transportation and logistics disruption, supplier insolvency and political risk.

“As well as improved coverage, our customers get the value-added benefit of a better understanding of the cost of their risk,” says Nick.

“Imagine, for example, that a business decides it would be cheaper to source a commodity from China rather than the UK. We could help them better quantify the risks they would face, by giving them access to data sets showing them how much more likely they would be to suffer a multi-million pound disruption if they imported these goods from China. This would give them a far more scientific insight into their risk.”

The role of technology in reducing supply chain risk

The BCI’s report found nearly two-thirds (63%) of businesses do not use any technology to monitor their supply chain performance. However, technology can play an important role in helping organisations to prioritise when investing in supply chain resilience.

Zurich Risk Room is a resource available to our customers, which combines multiple sources of data, covering everything from political risks to natural catastrophes, to demonstrate the level of country exposure faced by different suppliers.

“If you are a major global corporate with a thousand suppliers dotted all over the globe, it is difficult to track them all,” says Nick. “But we can help you identify your riskiest suppliers – for example those in high flood risk zones, or in territories that might frequently experience industrial action – so that you can focus your attention on those suppliers.

“As a customer said to me once, ‘what we want is actionable insights’, and this is what we can provide.”

Why supply chain risk is an opportunity for brokers

Nick says: “Building supply chain resilience can give businesses a real competitive advantage, and if I was a broker, that’s the point I would be emphasising to my clients.

“I’m privileged to work with some companies that are really investing in this area, because they understand that they have millions of pounds tied up in their supply chains.

“I worked with one major food group, for example, where we discovered that 80% of their profitability in a particular division was dependent on a single port in the Far East. When we informed the Chief Financial Officer, they took steps to address their dependence on this port.

“We want brokers to feel confident in presenting the case for investing in supply chain resilience and insurance, and we would be happy to support them in that process.”

We will soon be publishing a further article, looking in detail at how supply chain insurance can benefit different industry sectors.

For more information on how to identify and protect against supply chain risk, speak to your local Zurich contact.