Airmic highlights risks in complex business supply chains

Airmic has warned that businesses are struggling to manage exposures in modern supply chains.

The risks were highlighted in a new report, Complex Supply Chains in a Complex World, released at Airmic’s annual ERM Forum in London last week, in collaboration with AIR Worldwide, Gallagher, HDI, Lloyd’s and Sedgwick.

A volatile and more extreme climate  is exposing the high volume of stock and supply routes that reside in areas exposed to natural disasters, according to the report.

In 2011, the Thai floods had a huge impact on Japanese and American carmakers, with Honda, Toyota, Ford and Isuzu Motors all having to close production plants.

A concentration of suppliers in a place such as Rojana Industrial Park increases the risk and lowers resilience of a manufacturing base.

Prior to the floods, the park was home to 240 manufacturers, with 20% departing following the natural disaster.

Head of innovation at Lloyd’s, Trever Maynard, commented: “Supply chains are increasingly complex global networks of trade. Disasters in one corner of the world can impact far away businesses in non-physical ways and Lloyd’s is keen to explore how we can protect our customers from risks to their intangible assets.”

Brexit is also contributing as the threat to roll back free trade, global supply networks and cross-border relationships lingers.

A no-deal Brexit could affect the supply chain for steel, as the EU could impose tariffs on steel trade within the UK, driving up manufacturing costs across multiple industries.

Dr Kamban Parasuraman, principal engineer and manager at AIR Worldwide, said: “Political risks and the escalating trade disputes have global companies caught in the crossfire. The evolving political risk landscape will continually force companies to move capacity and redraw the geographic footprint of their supply chains. Mitigating these emerging threats is key to sustainability.”

Another trend putting greater pressure on supply chains is the ever-growing reliance on technology, connected devices and automated production lines.

This leaves businesses vulnerable to an IT outage, cloud disruption or cyber attacks either on their own business or on one of their suppliers.

Airmic stressed that a desire for low cost networks has led to some businesses turning a blind eye to, or missing, the concentration of risk that may be building up in their supply chain.

This could result in a catastrophic event that can bring operations grinding to a halt and inflict significant reputational damage.

“Most businesses have a good understanding of their suppliers, but how many track their suppliers’ suppliers? The web of relationships in a typical modern supply chain is incredibly complex to unpick,” commented Richard Cutcher, research and development manager at Airmic.

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