Forewarned is forearmed: how data can help improve supply chain transparency
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Companies around the world are getting back to business as many countries start to emerge from the strict lockdowns caused by Covid-19.
Long-dormant factories are being powered up, passenger planes are being taken out of mothballs and energy companies are upping production to power cars and mass transport systems.
The complex supply chains that facilitate all this activity are also being ramped up after many months of shutdown or severely reduced activity. This renewed activity is boosting business confidence - but it also carries extra risk.
In many cases lockdowns have reduced safety and maintenance checks at production facilities. Furloughed staff may come back to work feeling rusty and out of practice. It all adds up to a greater risk of incidents such as fires, explosions, or the release of toxic substances, leading to significant property, casualty and environmental liability claims.
As a result, the Swiss Re Institute’s latest SONAR report on emerging risks identifies the restarting of suspended operations as one of the major risks facing the global economy over the next three years.
These risks associated with the restart of the global economy follow a period where supply chain resilience has been under greater scrutiny than ever before.
Using data to mitigate risk
One of the key learnings of the pandemic is that many organisations did not have adequate transparency of the risks embedded in the structure of their supply chains. A lack of data was a big contributor to that lack of transparency. So how do we correct that to reduce risk for the future? How do we make sure adequate cover is available and in place should the worst happen?
The first requirement is to address the lack of real-time supply chain data being gathered and analysed by insurance seeking companies. The importance of this data cannot be overstated. It allows for immediate alerts of supply chain disruption and would give insurers the opportunity to create new products and services that are unavailable today.
However, a 2021 report from supplier intelligence platform Tealbook found that:
The report also found manual data entry systems were still in widespread use.
A greater number of data points will facilitate a more accurate costing of risk. They will also prevent unforeseen risks and potentially bad surprises by determining the most critical points within the supply chain. In future we will see risk managers relying heavily on the availability of datasets and greater transparency. These risk managers will use data to make informed decisions about supply chain risks. They will also work with supply chains to look at the holistic risk landscape and create value beyond risk transfer.
In any assessment of supply chain integrity, it’s worth considering:
- Is there a watertight business continuity plan in place?
- Are there multiple sources that can supply the same products?
- And if one of those sources is disrupted, is there an alternative?
The current pressure to de-risk supply chains is driven not just by the pandemic. Climate change, a new focus on sustainability and the need to avoid catastrophic consequences from unpredictable incidents also play a part.
There’s an ongoing move towards restructuring supply chains in order to shore up operations, as outlined in a recent sigma report from the Swiss Re Institute, De-risking global supply chains: rebalancing to strengthen resilience.
That could include the diversification of suppliers or shipping routes to guarantee the timely delivery of critical products. One only has to think of the recent incident in the Suez Canal to see the scale of disruption a relatively minor incident can cause. When the freighter Ever Green ran aground in March 2021, it brought chaos to the global supply chains of multiple major retailers. Many other businesses were also affected as hundreds of other ships backed up on either side of the stranded vessel. Estimates suggested that USD 9.6 billion worth of goods was held up each day.
As well as diversified shipping routes, we also expect to see the development of parallel supply chains and more regional trading as a result of Covid-19. This will result in additional exports and investment value of close to USD 1 trillion and new premium volumes of USD 63 billion over the next five years.
Cost is no longer the primary driver for supply chain decisions. A reliance on single supply routes from far-off regions like China and Vietnam quickly became a problem during the pandemic.
Companies will continue to look at costs, but they also need to find the right balance between cost and resilience, as well as looking at sustainability.
Standing up to scrutiny
Transparency is not only about corporate resilience.
Many investors, consumers and also legislators expect to create full transparency of their supply chain and to support sustainable business goals – from protecting biodiversity to ensuring the safety of vulnerable workers.
Today, companies need to consider the carbon footprint of any product they import. One day soon, consumers will be able to scan items on shelves to see exactly what that footprint is.
This means any organisation that does not take environmental, social and governance (ESG) considerations into account is opening themselves up to legal and reputational risk.
Coming together to create solutions
So, what does all of this mean for the insurance industry? We believe that the way forward is by partnering with our customers to co-create solutions that truly meet their needs. Combining real-time data, state of the art technology, and data modelling that is enriched with data insights from Swiss Re and our trusted partners, enables us to support our customers in deriving actionable recommendations to the resilience challenge. This will not only improve risk management but will also enhance the efficiency with which we can deliver solutions to our clients.
Helping to add transparency to the global supply chain is an important part of that, so that we can see where the problems and vulnerabilities are. Then, we can work with insurance brokers and with customers to change the way we provide solutions for these risks.
It all comes back to how much you really understand your risk. Is it transparent enough? And can you assess the consequences or quantify the impact?
By using the data at our disposal to build a clear picture of emerging risk, we can become much more proactive and responsive to our customer needs, offering a risk advisory service that will ultimately help to optimise insurance planning and future-proof our customers.