ZURICH: Insurers may play a key role in assesing and managing supply chains disruption risks

IT/Telecom outages are the number one cause of supply chain disruption, has concluded the recent "Supply Chain Resilience Report 2016" released by the Business Continuity Institute following a survey produced in association with Zurich Insurance. Summarizing the responses provided by 526 professionals of 64 countries, one of the most important findings of the report is that insuring supply chain losses is a key factor in building greater resilience of companies.

The report shows that while 70% of the participant companies have experienced at least 1 supply chain disruption, 66% still do not have full visibility of supply chains and 40% do not analyse the source of disruption.

On the economic impact of disruption side, the study found out that 34% of the interviewed companies report cumulative losses of at least €1 million, while 9% report losses of at least €1 million due to a single incident. Still, 43% do not insure supply chain losses at all.

Currently the top causes of disruption identified by the report are: unplanned IT or telecommunications outage (60%), loss of talent or skills (45%) and cyber attack or data breach (39%). Yet, it is worth mentioning that other sources of disruption are becoming more and more relevant:
  • Currency exchange rate volatility (20th to 7th) - back in the top 10 since 2012
  • Act of terrorism (11th to 9th) - first time it has appeared in the top 10 since study began
  • Insolvency in the supply chain (14th to 10th) - back in the top 10 since 2012
While 41% of disruptions occur at Tier 1 of the supply chain, 30% occurred beyond the preliminary supplier of goods (the direct supplier) and almost 30% of disruptions occurred at tier 2 or lower in the supply chain, which makes it extremely difficult to establish exactly where an organisation lies within its suppliers' priorities. Understanding these risks has become increasingly challenging, with some companies having thousands of suppliers. At the same time, efficiently managing the risks should become a key concern of the organizations' management, as with the social media communication means, the reputational damage as a result of supply chain disruption has become a real threat for any brand.

Consequently, "business continuity is a key discipline in building supply chain resilience" concludes the report, explaining that "the presence of business continuity arrangements for supply chains is an indicator of other good practice such as reporting disruptions firm-wide and insuring supply chain losses. These findings challenge business continuity professionals to improve their engagement with their supply chain counterparts and coordinate their efforts in building greater resilience."

For the near future, the report's authors expect that the top three causes of disruption (unplanned IT and telecommunications outage, loss of talent or skills, cyber attack and data breach) remain as the biggest threats in the short- (12 months) and long-term (5 years). Insolvency in the supply chain (8th) emerges as new threat in the short term

(12 months), while acts of terrorism (10th) figure as new threat to look out for in the long term (5 years)

Mr Hassan Karim, Technical Underwriting Manager, Zurich Asia Pacific, said: "Effective supply chain risk management and a comprehensive risk assessment can present significant benefits to businesses. As an increasingly important driver of profit, organisations which have been able to invest in the necessary resources to start to push the boundaries of risk management in the supply chain have found that the benefits have far exceeded the investments they have had to make. Without such investment, the cost of disruptions could be devastating."

The 2016 Business Continuity Institute (BCI) Supply Chain Resilience Report, produced in association with Zurich is available here.

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