Interview: Nick Wildgoose, Zurich, Jay Strano, Crawford and Julia Graham, AIRMIC

3D: Supply chain resilience

Where do we need to see the biggest steps taken to enhance future supply chain resilience?
We ask three industry experts for their views on strengthening the supply chain

Nick Wildgoose, Global supply chain, product leader, Zurich Commercial Insurance

‘Industry 4.0’ refers to the fourth industrial revolution marked by the rise in automation and data exchange, and the emergence of the ‘smart factory.’ We need a similar revolution in supply chain management – a supply chain 4.0, where resilience is built into every aspect of outsourcing and procurement.

We have seen a shift towards this, but many companies are starting from a relatively low base. I still speak to organizations that believe they are managing their suppliers as they have secured financial appraisals and business continuity plans, and have no idea whether their sites are in flood or quake-prone areas. What is of even greater concern is that while the Business Continuity Institute’s Supply Chain Resilience surveys have shown a steady rise in top management commitment to supply chain resilience over the last few years, 2016 saw that commitment level drop from 33 to 27 percent, according to respondents.

Achieving greater top management buy-in is essential to delivering supply chain 4.0. We must be better at making the business case for better risk understanding in the supply chain – illustrating disruption costs, highlighting regulatory requirements and demonstrating the brand exposure supplier failure creates. Top-level commitment will break down silos, ensure alignment of resilience objectives, free-up resources, and reset procurement metrics to encourage greater resilience focus.

We need to expand our supplier resilience remit. Financial appraisals are useful, but are only one part. Legal case history, for example, can provide a useful early warning of potential supplier issues. We also must ensure that not only are we obtaining business continuity plans, but they are being rigorously assessed by qualified staff.

Technology must also play a much more integral part in scaling up supplier-monitoring capabilities. Automatically geo-coding your supplier base, for example, and overlaying flood or quake maps can expose supplier location risks; while creating 3-D supply chain risk simulations can inform supplier-related decisions. Machine learning and cognitive computing also bring significant supply chain resilience potential, and are already enabling us to monitor geo-located social media and newsfeeds as part of early warning systems.

To drive forward the supply chain management revolution, we must capitalize on the full breadth and depth of resilience related capabilities at our disposal.

 

Jay Strano, Managing director, Crawford Forensic Accounting Services / Global Technical Services

The complexity and fluidity of today and tomorrow’s multi-tiered global supply chains mean that such networks are by their very nature vulnerable to risks along their entire length. These can range from more immediate issues such as IT failures, cyber breaches or political unrest, through to exposures that stretch into the longer-term like our over-reliance on transport networks dependent on oil, or increasing fragmentation in the value chain.

Yet when we distill this risk data down to get to the crux of the issue, as is frequently the case, we find that the root cause is a failure to communicate.
Companies are failing to maintain supplier visibility and are not facilitating the flow of information which is essential to the first line in any risk defense – creating a full awareness of the potential vulnerability; revealing those hairline cracks in key links that could break the chain in an instant.

There is no doubting, however, the scale of the challenge involved in establishing and maintaining these communication lines across the length and breadth of the supply chain. This is particularly the case given the silo mentality which infects many organizations, coupled with the instinctive resistance to sharing information that exposes weaknesses or potential failings.

We must therefore strive to build a more partnership-based relationship with our critical suppliers. The technology exists to facilitate this communication and information flow – but we must establish the most effective way to ensure that it is embedded and becomes part of business as usual activities.

We must look to build unified goals that serve to bond organization and supplier. We must clearly establish the financial foundations and mutually-beneficial nature of the relationship. We must create reciprocal data-sharing arrangements which demonstrate a commitment to openness and transparency on both sides of the contract. Where possible, we must look to support suppliers in their efforts to shore up their defenses.

If we are to enhance the resilience of our supply chains today and into the future, then we must take steps to shorten the distance between our own organizations and the suppliers which support us. By bringing them closer, we can stand together against an increasingly volatile and risk-exposed world.

 

Julia Graham, Technical director, AIRMIC

People are a lot more aware of their supply chains now than they were before events such as the 2011 Thai floods and Tohoku earthquake. These events exposed the growing complexity and increasing vulnerability of their supplier networks.

However, there is now some discussion about whether we should be talking about ‘supply chains’ or whether this conversation should evolve into a discussion about the risks inherent in ‘business ecosystems’.

As the World Economic Forum’s Global Risks Report demonstrates so aptly, the majority of business risks facing organizations in today’s connected world are interlinked and part of the same ecosystem. They are not isolated to a single ‘chain’.

There are all sorts of benefits in terms of understanding this ecosystem that come from a greater sophistication in other business disciplines, particularly technology, data management and IT. These have a positive knock-on effect from the perspective of improving insight into the interconnected nature of business risks.

An individual who works in a disaster recovery company told me that one of the biggest benefits organizations get from plotting where their technology dependencies are, for instance, is the significantly greater insight into their supply chain and its multiple tiers. Clearly, if you can’t plot where all the links are in your technology ecosystem, then you can’t plot the supply chain.

So companies are finding that one by-product of carrying out exercises like determining how to recover their systems if there is a network outage, is that they develop a much better understanding of what the overall ecosystem in their business looks like, who owns what, and where the data is.

 

 

April 2017