Best practices—and solutions—to manage supply chain risks

It’s no secret that the past decade-plus has seen many organizations in nearly all business disciplines impacted by supply chain interruptions—leading to recalls and cancellations while costing hundreds of millions of dollars.

Supply chain risk management is more than simply protecting a company or its executives from unknown or unforeseen disruptions. It enables both the enhancement and improvement of the resiliency and efficiency of the supply chain. As global supply chains become more integrated and increasingly complex, robust, effective risk management is paramount.

From an insurance and risk management perspective, there are a variety of supply chain issues pressuring all industries, including:

• The aftermath of COVID-19
• Increasingly volatile weather resulting from climate change
• Potential massive financial losses, regulatory issues and reputational damage associated with cyber attacks
• Glitches in software, notably the recent CrowdStrike issue
• The trade war between the United States and China which is causing manufacturers to rethink their supply chain strategies

Addressing risk factors

The development and implementation of supply chain risk management programs should consider two factors—known risks and unidentified risks.

The first type of risks may include a company’s financial strength, products they make or markets they serve and the thoroughness and robustness of cybersecurity programs. Organizations that are successful in managing these risks employ such tools as scheduled and controlled issues management and scenario training, a crisis handbook and a strong digital platform with a comprehensive view of their risk portfolio.

Some unidentified risks may be difficult to assess even over hundreds of scenario-testing events such as the vendor of a vendor of a vendor realizing a cybersecurity breach, a massive road collapse or train derailment. The best way to manage unidentified risks is through fostering a risk-aware culture throughout the organization—one that empowers its people to perceive and react rapidly to an external issue.

A crucial aspect of any risk-mitigation strategy for managing supply chain risk is having a strong technology foundation in place. The combination of advanced data analytics, machine learning, and artificial intelligence (AI) enables organizations to better anticipate disruptions and take proactive measures.

For instance, open-source intelligence offers information and visibility on the suppliers, vendors, and transportation companies involved throughout the supply chain. Additionally, the internet of things (IoT) provides real-time visibility into the operations along the supply chain, boosting transparency and thus enabling quicker response times.

An investment in solutions, such as those that provide real-time information about critical elements including supplier capacity, transportation-related factors, and levels of inventory is proving invaluable in making the best decisions when confronted with supply chain issues.

Products and solutions

The industry continues to develop outstanding products and solutions to help clients manage their risks concerning supply chain issues.

Among those is political risk insurance, which can help mitigate supply chain risks for companies from a geopolitical standpoint.

Another important solution is cyber insurance, which helps mitigate exposure by providing cover from data breaches, hackers, and other digital threats. As it is no longer a question of “if” but of “when” a cyber incident will occur, insurers should take a tailored approach with their clients, including meeting with company leadership and IT departments to assist in the development and implementation of programs that best protect themselves and the organization against this threat.

Additionally, whether a publicly traded company, a large multinational organization, or a sole proprietor, financial lines products and solutions protect organizations and their leaders from professional and financial risks associated with supply chain disruptions. These would include insurance offerings such as professional liability insurance, directors and officers liability insurance, employment practices liability insurance, errors and omissions insurance and cyber liability insurance, among others.

Other essential products to consider include time element coverage and contingent time element coverage, both of which help protect companies from supply chain issues on a direct damage basis, and terrorism insurance, which covers losses from acts of terrorism, including those that cause supply chain disruptions.

When used in conjunction with comprehensive planning, implementing advanced technology, attracting and investing in top talent, and cultivating and maintaining strong partnerships, these products and solutions can help businesses better safeguard themselves when managing supply chain risks.

About the Author:

Marc Dantuono is director, head of property, for MSIG USA, the U.S.-based subsidiary of MS&AD Insurance Group Holdings, Inc., one of the world’s top P&C carriers.

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