Reduce Your Supply Chain Vulnerability
This year will go down as the year of the pandemic and also one that has exposed the gaps of so many businesses. With no certain end in sight to the pandemic, some businesses have managed to mitigate the impact but others are still struggling to plug their supply chain vulnerabilities
FM Global’s Jeffrey Toh, APAC Business Risk Consultant, and Michael Beaumont, Group Manager – Account Engineering, Australia Operations, engage us in this session on “Reduce Your Supply Chain Vulnerability”.
Moderated by Steve Tunstall, CEO of Insure.com and General Secretary of PARIMA, the audience posed these questions, and our experts weighed in.
Our experts answered questions from the audience:
1. Other than using the incidents of toilet rolls and food containers running as examples of supply chain vulnerabilities exposed by the pandemic, are there any others that show what curveballs Covid19 has thrown us? Do you think these will be short term or will they affect the long-term and change the way we do business?
Jeffrey Toh (JT):
Covid19 has had such a widespread impact that I do not think many businesses got spared. Most supply chains were disrupted in varying degrees. Some common supply chain disruptions include medical and food supplies. Food security has become a major concern to some of us.
For food supply disruption, the solution is to source for an alternative supplier. Under the current situation, this would be the easiest and quickest way out. In the short term, this approach may be viable, but in the long term, it may not work so well. As such, I believe we will see a shift towards self-sustainability.
For example, we see that in Singapore, the government is trying to accelerate local food production by introducing urban and rooftop farming. This is a long-term strategy to mitigate Singapore’s reliance on imports, while providing additional buffer against another major disruption that could impact our external food supply chain.
2. When we think of supply chain risk we tend to think first of traditional physical risks. The 2011 Thai floods in and around the Bangkok basin triggered by Tropical Storm Nock-Ten were a devastating example of failure for a long list of global supply chain businesses. Do you think authorities in some countries are pushing for higher country scores by doing something just to try to influence their rankings in your annual FM Global Resilience Index?
Michael Beaumont (MB): I think this would be unlikely as it would be very difficult for them to do that, especially because we are collating scores across 12 drivers. Countries need to do a lot in order to influence the scores.
While we hope they are taking notice of our Index, it would also be unlikely that they can do something drastic to improve the scores. Rather, we are hoping they would adopt and actively pursue risk management practices that will have a more durable impact. What we want to see is a movement towards improving things like building codes, for example.
JT: Let’s hope the phrase, “Once bitten, twice shy”, can be applied here. During our session, Mike and I have cited many publicly available resources in FM Global webpage - anyone can use these resources to help them build their resilience. One other key characteristic is to embed a culture of business resilience into the organisation.
3. How do insurers manage black swan events such as the blasts in Beirut? These are ‘unknown unknowns’. How do you factor these in into the work that you do?
MB: We think this goes back to site-level of risk assessment. I won’t say that we are able to project the full impact of this blast in Beirut, but if we went to a facility that is next door to this, our engineers would have made every effort to find out what’s in there and would have reported the presence of this.
When you store large amount of ammonium nitrate, that’s not an ‘unknown’ in terms of the risk assessment. We can assess things like vapour cloud explosion exposure and look at the possibility of sites that can be impacted by neighbouring sites’ materials. So it goes back to building your knowledge of the site, and the only way you can do that is not by relying on maps alone as that doesn’t tell you much, but visiting the site for research and risk assessment.
4. The pandemic shows that there’s weakness in some of the businesses’ access to the availability of their stocks and back-ups. This ties into another question about contingent business interruption cover. How are we going to assess this in the future and how does the future look like?
JT: We are seeing a strong interest among our clients in reviewing their BCM assessment and/ or starting to carry out due diligence on their supply chain.
But ultimately, this goes back to understanding your supply chain vulnerabilities in order to identify and turn the ‘known unknowns’ into ‘known knowns’.
That would give you a better idea of what kind of strategy suits your business. There will not be a one-size-fits-all strategy. A cost-benefit analysis would be very helpful as well.
5. Hong Kong is the most resilient place in Asia, according to your Resilience Index, but how does the recent political upheavals factor in this? Will the ranking be different if you carried out the survey now, compared to doing this months ago?
MB: That is a valid observation and we have to accept that any ranking would be subject to political factors that could change from the time it was done.
The model, as it stands, is based on reliable information and reports from respected sources. Having said that, political risk is also only one of the 12 drivers. Unless it is a major change, enough to impact the other drivers, I don’t think we would see major changes.
Adding a bit more context, the other aspect to think about is also that the drivers also revolve a lot around infrastructure risk quality. With this, you don’t just shift the quality of the buildings you build in the last 50 years because of political turmoil currently going on.
There are a lot of factors built in there that still gives you a good representation of the status.