NU Online News Service, May 18, 2:45 p.m. EDT

Organizations facing a growing number of global crises are wary of breaks in their supply chain, stockpiling critical items and commodities, and sometimes resorting to “panic buying,” according to a risk-management expert.

“They’re looking further upstream, past first-tier suppliers,” says Gary S. Lynch, managing director, Marsh Risk Consulting, in an online webinar.

He notes that organizations are looking past their first-tier suppliers and want to know about the recovery and sustainability of the supply base upstream. This can consist of contractors, contracted manufacturers or other suppliers.

Risk managers also are reviewing their insurance coverages “to see if this is in the scope of their coverage and their exposure,” he says, adding that they are “trying to get a handle on how to manage volatility beyond what they are used to managing.”

Risk managers, Lynch adds, are “looking to enhance their supply-chain risk-management programs to go beyond the normal types of disruptions and deal with extended outages in a much more aggressive way.”

Lynch says in a report that organizations in today’s global marketplace are exposed to increasingly complex and interrelated risks.

Lynch lists a few: globalization; pervasive connectivity; an increase in the severity of natural catastrophes; a credit, liquidity and then solvency crisis; a shortage of natural resources and commodities; and the expansion of the have/have not chasm.

He writes that in the past 12 months alone, in addition to the earthquake/tsunami/ nuclear incident in Japan, there has been a devastating earthquake in New Zealand; political and social revolution in the Middle East; massive flooding in Australia; a volcanic eruption in Iceland; pirate hijackings of supertankers off the coast of Africa; and the largest oil spill in the history of the petroleum industry off the Gulf of Mexico.

Because of the growing number and expanding nature of risks that can impact supply chains, he writes that risk managers should take a best practices approach.

They need to:

â–ª Gain visibility upstream and downstream.

â–ª Simplify complexity by looking at resources through a value (market served or product families) lens.

â–ª Establish accountability for risk activities by designating ownership not by asset (these are the custodians), but by profit and loss leader, business manager, and product family owner.

â–ª Understand their suppliers’ supply-chain and risk-management plans; create risk-management plans if needed, including incentives and penalties.

â–ª Create a business case for investment by measuring impact against risk mitigation and financing options. Establish business intelligence and leverage analytics and decision modeling to support the business case.

â–ª Provide holistic insurability beyond physical-damage coverage. Supply-chain interruptions extend to the non-physical world, including labor strikes, pandemics, regulatory change, civil order and financial failure. The scope of coverage should also cover non-physical damage.

â–ª Maintain relevance by ensuring vulnerabilities are relevant to the supply chains of greatest value. Avoid strategies that focus only on threats and make that only make use of qualitative metrics.

“With discipline, analytics, decision modeling,” and the involvement of a broad cross-section of internal and external business, technology and operation leaders, “organizations can gain control of their supply chains and become more resilient in the face of the next disruption,” Lynch says.

Special Reports /

Supply-Chain Resilience Worries Risk Managers, Marsh Says

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