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Supply Chain Threats

Today’s increasingly complex business environment makes supply chain disruption a fundamental risk that organisations face across virtually all sectors requiring in-depth mapping of the chain and an understanding of interdependencies across primary, secondary level suppliers and beyond.

Written by Paul Brown on 30th January 2020

Supply Chain Threats

Today’s increasingly complex business environment makes supply chain disruption a fundamental risk that organisations face across virtually all sectors requiring in-depth mapping of the chain and an understanding of interdependencies across primary, secondary level suppliers and beyond.

The latest Supply Chain Resilience Report, from the Business Continuity Institute, notes that whilst businesses are getting better at considering disruptions in their direct tier 1 suppliers, very few organisations have sufficient information that enables them to drill down into level 2 and 3 suppliers or may not have even thought about it to any great extent.

The report notes that whilst the main sources of supply chain disruption in 2019 were IT and telecoms outage and adverse weather, geopolitical concerns such as civil unrest and political change are expected to dominate over the next five years.

The key findings of the report:

1. 52% of organisations experienced a supply chain disruption in 2019, compared to 57% in 2018

2. Unplanned IT and telecommunications outages accounted for 44% of disruptions in 2019

3. 45% of organisations that experienced supply chain disruptions were unable to quantify how much of those losses were insured.

 


4. Less than a quarter (23%) of organisations now report that their organisation does not record, measure or report on supply chain disruptions – the lowest figure since the report has been published

5. Despite cyber-attack and data breach only causing 26% of disruptions in the past year, it is the primary concern for professionals over the next year

6. Incidents involving tier 1 suppliers fell below 50% for the first time since 2016 (49%) although incidents in tiers 2, 3 and beyond saw a small percentage increase

With the increasing complexity of supply chains, it is important that organisations record, measure and report on any disruptions within their supply chains. Only 23% of organisations record, measure and report supply chain disruptions and 51% of organisations are only reporting within certain departments/functions.

Whilst IT and telecoms outages remain the primary causes of supply chain disruption, civil unrest and political change are climbing up the list.

Adverse weather saw a slight fall, however, it still accounted for over a third of supply chain disruptions. With climate change continuing to dominate both the domestic, global and political environments, this remains a key exposure for ever increasing global supply chains.

Whilst cyber-attacks and data breaches are the leading cause of concern for organisations over the next 12 months, world economic events, global trade wars, environmental concerns and the continuing uncertainty over Brexit continue to put even more pressure on supply chains.

Frequency and origin of supply chain disruption

One encouraging finding in the 2019 report is that the number of organisations suffering more than five disruptions fell by a third to 10%.

Also, for the first time since 2016 incidents with immediate suppliers fell below 50%. However, both tier 2 and 3 incidents rose to 25% and 12% respectively suggesting that organisations are more proficient at managing incidents with their immediate suppliers, but that incidents deeper into the supply chain remain a concern.

Another concern is that nearly a third of organisations do not analyse the source of their disruption. Supply chain complexity is increasing and organisations need to look beyond their tier 1 and 2 suppliers, to assess their tier 3 and beyond supplier exposures for those deemed most critical.

Having established your critical exposures, you should consider suitable protection ranging from supplier extensions on your Business Interruption policy to stand alone supply chain insurance. To discuss Supply Chain exposures, speak to your usual Franklands contact on 01332 545720.

 

 

 

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