Workers working on supply chain insurability

Diving into Supply Chain Insurability

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Insurability in relation to supply chains is currently only possible in rudimentary form, as the insurance industry is also not yet in a position to map complex supply chains transparently. Individual market participants such as Swiss Re are currently working on digital solutions.

GrECo Risk Engineering implements and controls the Business Continuity Management (BCM) of numerous clients. The question of whether BCM can also identify and manage risk potentials within the supply chain arises more and more frequently.

BCM prepares companies to regain their ability to deliver as quickly as possible after a business interruption or shutdown. Acting instead of reacting is the motto here.

Identifying loss events within a company, assessing them and finding effective preventive measures requires a lot of experience and methodical knowledge. But it also ties up considerable internal company resources in order to be best prepared for the worst-case scenario. Risks that affect a company externally, such as the dependence on suppliers or entire supply chains, make the issue far more difficult.

Most manufacturing companies operate extensive systems for supplier selection and evaluation. The focus is often on delivery reliability, quality, price and economic parameters. However, the consideration of suppliers in terms of their exposure to operational risks such as fire or natural hazards is often neglected. In the case of direct suppliers, this is still possible with a corresponding expenditure of resources and can be argued to the supplier as necessary.

Where transparency ends – Supply Chain Insurability

However, when it comes to the supplier suppliers, the limits of what is organisationally, legally and economically feasible are quickly reached. “Deep-diving” into supplier structures thus belongs to an exotic discipline that hardly anyone can afford at present. How can a company now prepare for supply chain disruptions or better protect itself against them?
 
Insurability in relation to supply chains is currently only possible in rudimentary form, as the insurance industry is also not yet in a position to map complex supply chains transparently. Individual market participants such as Swiss Re are currently working on digital solutions to identify locations via extensive databases, which can lead to supply bottlenecks across industries in the automotive sector, for example. In most cases, however, any cumulative losses cannot be sufficiently estimated, and a risk transfer is often not possible. It is therefore essential to actively address this risk within the company.

  • Step one: The first step is to identify the most important suppliers and estimate possible loss potentials. This assessment is necessary in order to be able to set priorities objectively and to compare the necessary effort with the benefit.
  • Step two: The second step for risk managers is to dive into the deeper structures of the supply chain for the top three to five suppliers in order to shed light on the suppliers on which these suppliers are dependent, which, if the worst comes to the worst, will also affect their own company. However, evaluating risk exposure could be difficult. After all, there is no direct business relationship with the suppliers of the suppliers and thus no basis for carrying out a risk analysis directly on site.

One approach that is recommended in this case is to raise awareness among one’s own key suppliers so that they collect appropriate risk information from their suppliers or commission experts to identify possible potential exposures. If neither of these is possible, knowledge of one’s own “white spots” in the supply chain is still a parameter that should flow into the selection of suppliers and lead to the examination of alternatives. This is also part of a practised and practicable business continuity management.

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Johannes Vogl

General Manager GrECo Risk Engineering

T +43 664 883 805 04