Risk Insider: Jonathan Hall

Building Resilience From Top to Bottom  

By: | November 25, 2014

Jonathan W. Hall is chief operating officer at FM Global. He oversees FM Global’s insurance operations and insurance staff functions, as well as the FM Global Resilience Index, a data driven resource that ranks the business resilience of 130 countries and regions. He can be reached at [email protected]

Access to accurate and timely information is essential to crafting a world-class supply chain risk management program, where tightly integrated networks are dependent on a myriad of factors for their smooth operation. And while a supplier’s ability to withstand natural hazards and fire is vital, it is equally important to understand the economic climate in each supplier’s country of origin.

Many supply chains are far-flung enterprises often involving dozens of countries and sometimes hundreds of organizations, each producing different components that come together in a finished product.

If a second-tier supplier is responsible for a significant proportion of a particular manufactured item and is exposed to a country’s looming political upheaval, the risk cannot be ignored. Likewise, when a company’s supply chain is scattered across the world, it may confront other perils including currency fluctuations, inconvertibility and credit availability — to name a few. Vital capital investment and resource allocation decisions may need to be made, including shifting production to a supplier somewhere else in the world.

And while many companies understand the risk factors that can cause disruptions at their top tier suppliers, they may be less cognizant of economic factors within a country that can affect suppliers’ suppliers. As the first tier outsources production to organizations in China, Thailand, India, Hungary, Malaysia, the Philippines, Vietnam and other developing economies, they may unknowingly create risk for themselves and their own customers, unaware of brewing economic threats.

It’s not surprising that many supply chains unravel in the aftermath of economic and political upheaval — somehow a third-tier supplier’s vulnerability was overlooked, causing production to decrease if not come to a halt. Bottom line: True supply chain resilience depends on the risk quality of each supplier in the network, each of them potentially exposed to a hornet’s nest of risk inherent to the countries where they are based.

Unfortunately, many organizations fail to scrutinize through an economic lens how resilient countries are to supply chain disruption. Without the ability to make more informed decisions, these organizations are flying somewhat blindly, their supply chains a network of weak links.

As the first tier outsources production to organizations in China, Thailand, India, Hungary, Malaysia, the Philippines, Vietnam and other developing economies, they may unknowingly create risk for themselves and their own customers, unaware of brewing economic threats.

Smart supply chain risk management considers more than just the possibility of threats like floods and earthquakes or a factory fire. Taking the pulse of risk such as vulnerability to government instability, a whipsawing economy, unexpected regulatory impediments, energy supplies, or the availability of credit requires the monitoring and mapping of such conditions in each supplier’s country of origin. This is not a one and done affair, as the world of business is fast-paced and in constant flux.

How can organizations ferret out key economic information and apply it to their supply chains? The answers lie in microeconomic and macroeconomic data sets which, when properly leveraged, can be considered from the top to the bottom tiers of a supply chain. The result when thoughtfully applied? Resilience. A supply chain strengthened by statistical insights and informed risk management decisions is a dynamic one that is able to adapt and take advantage of a changing world.

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The R&I Editorial Team can be reached at [email protected]