Building Resilience From Top to Bottom
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.
Webinar – Travel Risk Management: Going Beyond Travel Assistance and Insurance
Business travel has never been more global or more compromised by volatility. The search for new markets, suppliers and energy sources is leading employers and their employees into new geographies and political environments, some of them fraught with risk.
This webinar will look at travel accident insurance and travel assistance programs and how best to marry the two products into a travel risk management program that can give employers and employees better peace of mind.
Expert panelists will discuss the following:
- The concept of “Duty of Care”, its limitations and the exposures it can create.
- The different insurance coverages that converge in the travel risk space, where they converge and where they might leave gaps.
- A history of travel accident insurance.
- Organizational challenges: Melding the roles of human resources and risk management so that they work in concert in managing travel risk.
- Employer/employee: Who bears which responsibilities in insuring safe outcomes.
- Loss scenarios and claims examples: Stories from the road of real losses and real claims.
Webinar attendees will be e-mailed a link to the recording of the webinar and its supporting visual materials.
Space is limited, so register today!
Webinar Date: December 9, 2014 1:00 – 2:00pm EST
3 + 3: Theory of Risk
Anthony Valsamakis doesn’t just practice risk management, he wrote a book about it. And he doesn’t just consult with quants, he is one.
“Risk management has been in my blood for so long that I have to stop myself, otherwise I could go into a two-hour monologue,” said Valsamakis, whose career in the discipline goes back almost 35 years, to his first job with the Standard General Insurance Company.
In 1990, the London-based chairman of the Eikos Group received a doctorate in Business Economics. In 1992, “The Theory & Principles of Risk Management” was published, with Valsamakis the principal author, and is now in its 4th edition.
Valsamakis worked first with a carrier, then as a commodities broker, before taking up an academic post. The company he started in 1999, the Eikos Group, has a risk consulting arm, with clients in most industrial sectors, including the food, mining, forestry, industrial paper and packaging and banking industries. The group also includes a transportation risk brokerage and a Bermuda-based carrier.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game.”
– Anthony Valsamakis, Chairman, Risk Financing Strategy, Eikos Group
For as long as he can remember, Valsamakis sought ways to get better information on the risks he underwrites, brokers or consults on.
“Over many years we’ve tried hard to increase the quality and timeliness of the information that enables us to do just that,” Valsamakis said.
Finally, it looks like Valsamakis has found a risk management information systems platform that enables him to do just that.
For the past year and a half, Valsamakis has been using a system developed by Riskonnect.
“What’s useful for me is that the platform basically resides within the client’s systems,” he said.
The information he needs to prioritize, depends on which client he is working with.
“By definition, depending on where I am working and what I am doing, risk management priorities are very different,” Valsamakis said.
The Riskonnect platform provides the necessary flexibility.
A mine, for example, could be in a location in Africa or South America with a high degree of political risk. A key risk for a furniture maker might be around trade secrets, the possibility that a disgruntled employee would leak a pricing catalogue to competitors. For a packaging manufacturer, their material supply chain is of the utmost importance, and so on.
For each client, Valsamakis can use Riskonnect platform and work with the client to compile the information that is most relevant to that client and its industry and enter that into a secure system.
“All of these are template facts that you can easily put into the Riskonnect system,” Valsamakis said.
The Riskonnect platform is housed within the client’s information technology system, and it is transparent enough, to give Valsamakis and his client access to the same sets of data.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game,” he said.
Whose System Is It?
Valsamakis has been around long enough to know a few things about data and risk transfer. He’s seen a number of risk information management systems put out by brokers, for example, that he thinks are set up more for the broker’s business model than for the sharing of information.
Generally speaking, information about an insured’s risks come from the broker and the insured. The Riskonnect system works, according to Valsamakis, because it is designed to be adapted to the client, not the broker.
“I have seen efforts by brokers, for example, over the years to produce a type of risk information platform that becomes theirs,” Valsamakis said.
“It’s been a perennial problem in the industry, where depending on which broker you end up with, you’ll end up with system A, B or C,” he said.
The Underwriter Needs to Know
Using Riskonnect, Valsamakis encourages clients to be as transparent as possible, in order to give the most complete information to underwriters.
“For me the question is, ‘What is the volatility around the asset and can there be an impact on the balance sheet of our clients?’” he said.
“We need to describe this exposure in various contexts so that the underwriters know what they are covering,” he said.
It’s basic human psychology. If an underwriter doesn’t feel they are getting enough information about a particular risk, they will take a negative view of that risk.
The more accurate the information Valsamakis has about a client’s exposures, the better the pricing he gets from underwriters.
“If you were an underwriter putting your capital and risk and I gave you little information, you would actually be less inclined to look at the risk in favorable terms. There will be a natural inclination to downgrade it,” he said.
Where Valsamakis sees enormous value is in the Riskonnect system ability to tag which can be revisited at a later stage.
“It’s amazing how clients forget, in the passage of time, that there are profiles that have changed for better or worse.”
A Long-Term Investment
The Eikos Group invested significantly in the Riskonnect product and are taking it to a number of clients. The transparency of the system and the advantage it gives the Eikos Group and its clients with underwriters is in itself a business advantage over the competition.
“We made a decision as a small company, relatively speaking, to invest a lot of money in Riskonnect and be very proactive about it,” Valsamakis said.
“When I talk to executives I say we invested in it because it’s going to save our clients money. Better information will lead to a lower cost of risk,” he said.
“If I’m talking to someone at a high level, that’s fairly easily understood.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.