A combination of geopolitical tensions, climate volatility and technological dependencies are contributing to a complex web of global supply chain pressures, the costs of which will build if they are not tackled now. This is the stark warning of a joint report from Airmic, AIR Worldwide, Gallagher, HDI, Lloyd’s and Sedgwick.

Published today at the risk association's annual ERM Forum in London, Complex Supply Chains in a Complex World warns that cost-saving within networks has led some businesses to overlook risks, and even to entirely miss potential combinations or concentrations of risk.

The complexity of modern supply chains is such that gaining visibility of exposures beyond tier one is a struggle for some.

“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,” says research and development manager at Airmic, Richard Cutcher. “This report is designed to support businesses inject resilience into their entire supply chain.”

Director of Gallagher's Major Risks Practice, Iain Bell added that while standalone supply chain policies have been discussed for a decade, take-up is low. "Whilst a full risk assessment of the supply chain is necessary before buying a policy, insurers also need to address the buyer’s principal concern, ie. that any reduction in supply that leads to a loss of output or gross profit is insurable," he said.

Supply chain risk: recent trends (Source: Airmic)

Trends include:

· The rise of nationalism, increasingly protectionist policies and Britain’s departure from the European Union, which are challenging the continuity of supply networks and cross-border relationships.

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

· An increasing reliance on technology, connected devices and automated production lines which has transformed the risk profiles of supply chains in recent years, leaving businesses vulnerable to an IT outage, cloud disruption or cyber attack either on their own business or on one of their suppliers.

Complex Supply Chains in a Complex World is a practical call-to-action to risk professionals and businesses to put in place a robust process for addressing risk in the supply chain. It includes advice on how to understand and manage supply chain risk, and how to ensure effective risk-financing is in place where necessary. It also includes lessons learned from the impact of the global carbon dioxide shortage in 2017, and advice for preparing for potential disruption from Britain’s departure from the European Union.

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