Posts tagged "ROI of resiliency"

General Motors Discusses Insurance Considerations for SCRM

September 2, 2015 Posted by Supply Chain Risk Management 0 thoughts on “General Motors Discusses Insurance Considerations for SCRM”

Author: Wayne Caccamo

Complexities are a reality in any industry and the automotive sector is no exception. The commonality of long lead times in this space will transition into shorter production cycles as shifting consumer expectations and the digital, connectivity era drive new automotive demand. Growth of the light vehicle assembly market and additional factory sites (67 of which will be located in Asia before 20201) are also factors many anticipate will challenge the automotive space. As a result of such changes, the automotive market may be open to new risks in their supply chain.

CBI insurance considerations for SCRM

As various industries and companies are faced with their own unique challenges, it is important to weigh all the considerations when working to understand and address risk. Increasingly considering Contingent Business Interruption (CBI) insurance and additional supply chain risk management (SCRM) strategies are just some of the ways company leaders can focus on risk.

In this blog article, Brian Jenkins, Risk Financing Manager at General Motors, discusses GM’s strategy for CBI insurance to help manage supply chain risk.

What is the value of Contingent Business Interruption (CBI) insurance? And what are some of the dos and don’ts to help manage risk?

Different organizations take different approaches to insurance. We really only want to buy insurance for catastrophic events. We focus most of our efforts on risk control to either avoid losses or mitigate them to the extent that we can through our risk management efforts. Insurance doesn’t do much to help us with that. That said, underwriters’ questions can help your organization focus on certain issues or areas of risk. But compiling an underwriting submission to buy insurance and perfecting insurance claims are activities that can take a lot of time, which just reinforces our approach of buying insurance only for the low-frequency, high-severity events.

But we also realize that we can’t predict and model everything, so we look at insurance as a sort of last resort, as a source of capital when something truly catastrophic happens.

What type of insurance coverage applies?  What type of data is or isn’t needed to buy the coverage? 

Insurance companies offer contingent business interruption insurance, which covers things like extra expense, continuing expense and lost profit following an ordinarily insured event resulting in physical damage that prevents a supplier from supplying goods or services. The insurance can cover you for losses from catastrophic events that happen within your supply chain. The coverage is usually made available as part of your normal property and business interruption insurance (or time element) as a coverage extension.

The coverage that insurers are willing to offer on a given risk may vary, depending on the industry involved and the complexity of risk within that industry’s supply chain. An insurance broker would certainly be able to help anyone understand what coverage a given industry or risk may be able to buy in the insurance marketplace.

To buy the coverage, you’re going to need to help underwriters understand your supply chain, how you manage insurable supply chain risks, and potentially even provide a listing of the location of specific suppliers. Insurers may also want to know what you see as the worst-case scenarios and what you’re doing or can do about them.

How is impact measured by the insurance industry?

They’re going to look at the magnitude of potentially insured loss. In other words, how much they might have to pay you for extra expense, continuing expense and lost profit if something happens.

This is actually one of the big challenges with CBI insurance. How can you measure, with a reasonable degree of accuracy, what impact a given event may cause? With the supply chain, there are so many variables that come into play after an interruption—like recovery time, dual-tooling or alternative suppliers—that it’s really hard to know what the impact will be.

Insurance companies understandably want to model risk to quantify what they may be faced with. But the complexity and fluidity of the supply chain makes that really difficult to do. When trying to measure the potential cost of an interruption, it’s very scenario-specific. I think you have to be careful that you don’t end up overstating the exposure.

How do solutions like Resilinc’s help?

Well, part of the value is just demonstrating that you take the risk seriously enough that you’re willing to go to great lengths to understand and control it. Supply chain risk is obviously a real challenge. It’s really important to help insurers understand what you’re doing to minimize your—and their—exposure. Being able to demonstrate commitment is a starting point.

But beyond that, anything that helps you gain visibility into your supply chain is going to help you respond more quickly and effectively to potential interruptions. And then, again, it’s important to help insurers understand how greater visibility helps. In other words, to be able to show some real examples like, “after such-and-such event occurred, we were able to quickly understand the potential impact on our supply chain and almost immediately start taking steps to mitigate the effects.”

The Japan earthquake in 2011 really showed the value of being able to quickly understand potential impact.

Can you share some lessons learned?

The main thing for me is the collaboration between our insurance-buying activity and our supply-chain organization. We’ve really worked closely together and it’s made a difference. We’ve shared some of the analyses we do, to support the insurance-purchasing decision, with our supply chain group. And through our group, the supply chain organization has talked directly to our insurers, so they’re hearing the message directly from the experts. That means a lot to underwriters.

After Japan in 2011, the market for CBI insurance became really difficult. Insurers maybe hadn’t thought about the risk enough before Japan and then there was this massive pressure to catch up. Being able to share our approach and conclusions has been really helpful in the insurance-buying process.

Any examples of outcomes?

There’s no doubt in my mind, that sharing with insurers the approach and progress of our supply chain group—through our partnership with Resilinc and in other areas—has improved our insurance coverage.  Without getting into specifics, we’ve received universally positive feedback from our insurance partners.

To learn more about SCRM and how risk mitigation tools and practices can help companies better garner ROI, view the videocast, “The Role of Contingent Business Interruption Insurance in Achieving Supply Chain Risk Management ROI.” The videocast features a world-class panel including Gary Lynch, CEO at The Risk Project, Brian Jenkins, Risk Financing Manager at General Motors, Vonnie French, VP, Supply Chain Operations at Palo Alto Networks, Bindiya Vakil, CEO at Resilinc, and Supply Chain Digest's Dan Gilmore.

Resources:

  1. How to Be No. 1: Facing Future Challenges in the Automotive Industry, 2014, PricewaterhouseCoopers International Ltd.: http://www.pwc.com/en_GX/gx/automotive/industry-publications-and-thought-leadership/assets/pwc-how-to-be-no1-facing-future-challenges-in-the-automotive-industry.pdf

Achieving SCRM Program ROI in the Tech Industry

August 15, 2015 Posted by Supply Chain Risk Management 0 thoughts on “Achieving SCRM Program ROI in the Tech Industry”

Author: Wayne Caccamo

 

Tech_videocast_screenshot-1To ensure effective supply chain risk management (SCRM) and best achieve the ROI that comes with such programs, companies must address all elements of their supply chain operations management.

In our most recent videocast, Vonnie French, Vice President of Supply Chain Operations at Palo Alto Networks, discusses the company’s strategy for leveraging Contingent Business Interruption (CBI) insurance to help manage supply chain risk.

Can you give a little background on Palo Alto Network’s SCRM program?

We were initially introduced to Resilinc and the SCRM program through our manufacturing partner around the same time that the earthquake and tsunami hit Japan in March 2011. The ability to quickly assess our supply chain and determine any impact to our business was extremely critical. Supply chain risk and business continuity are extremely important to all companies and even more so to us in 2012 prior to our IPO. The decision to engage directly with a partner like Resilinc to help in our effort to ensure business continuity and in developing a resilient supply chain became a strategic imperative for us.

What does the annual insurance process look like?

The supply chain operations management plays a key role in the contingent business interruption insurance process every year. A well-thought-out supply chain with deep visibility into potential disruptions makes insurance carriers involved much more comfortable with the risk.

Understanding the steps taken to minimize potential catastrophic loss (essentially leading to insurance company payouts) provides comfort to insurance carriers offering higher limits than what might normally be offered to a less desirable risk.

All insurance carriers worry about aggregation of exposures at contract manufacturing facilities. The depth of data we are able to provide—regarding options, quantification of exposure, the strong relationship we have with our contract manufacturer and the SCRM program we have in place—makes us stand out among other companies who may be vying for the insurance companies’ attention and capacity.

The benefit of the program that we have put in place is that it allowed our insurance broker to help the insurer better quantify the true exposures we face and, by extension, gives the carrier greater comfort in providing adequate limits at a competitive premium.

Give us the holistic program perspective. Where to begin, who are the key stakeholders?

The overall holistic view at the supply chain level with the focus on the continuity of the supply encompasses the visibility into the supply chain beyond the first and second tier of suppliers, which would be both manufacturers and directly controlled suppliers.

It is vital to collect the manufacturing location, information about that specific location (i.e., geographical location, government influence, and the ability and timeline for that location to be back at full operations post-disruption).

The other item that we need to consider is the financial stability of the suppliers within our supply chain and their dependencies on their own supply chain.

All this information assists us to manage and proactively mitigate risks that could impact the top line of our business.

The key stakeholders in these initiatives are made up from the various functions within Operations, which includes Supply Chain Resiliency, Supply Base Management, and Engineering. Hardware Engineering is part of the core team for product development.

How do you collectively quantify exposure? 

From a risk perspective, we quantify exposure with potential lost billings along with costs for recovery, for example, pre-paid inventory, freight costs, etc.

What is your organization’s expectation with regard to Contingent Business Interruption insurance? 

The amount of investment the business will make to mitigate risk is based on its exposure threshold, so, how much exposure is really acceptable. Insurance is in place to close the gap for a potential loss of revenue outside of the mitigated exposure.

How does a solution such as Resilinc’s provide value?  

Resilinc and other similar tools we use are outsourced services that identify the supply chain risks down to the part number or manufacturing site. The data collected is the basis for mitigation planning and execution. This information also is used for disaster recovery planning and business impact analysis. They provide proactive notification of risk issues to resolve before they impact the business.

What results or benefits can you share? 

Proactively assessing product risk during development has significantly reduced the number of parts that could impact product prior to release or potential production line down situations.

If you had to add one item to your wish list, what would it be?

Collecting data beyond the tier 1 or 2 suppliers to help us identify risk further down the supply chain.

To learn more about SCRM and how risk mitigation tools and practices can help companies better garner ROI, view the videocast, “The Role of Contingent Business Interruption Insurance in Achieving Supply Chain Risk Management ROI.” The videocast features a world-class panel including Gary Lynch, CEO at The Risk Project, Brian Jenkins, Risk Financing Manager at General Motors, Vonnie French, VP, Supply Chain Operations at Palo Alto Networks, Bindiya Vakil, CEO at Resilinc, and Supply Chain Digest's Dan Gilmore.

 

The ROI for Resiliency: Turning Commodity Managers Into Risk Managers

June 24, 2014 Posted by Supply Chain Resiliency, Supply Chain Risk Management, Supply Chain Risk Mitigation 0 thoughts on “The ROI for Resiliency: Turning Commodity Managers Into Risk Managers”

Author: Jon Bovit

 

Resiliency is about protecting your supply chain from disruptive events and recovering quickly when a damaging risk turns your operations upside down. But, it’s much more than that. Resiliency is also about shielding your bottom line from long-term negative impact.

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Interestingly, though, the return on investment (ROI) that comes with implementing supply chain risk mitigation strategies and resiliency solutions is sometimes overshadowed. Because companies often approach resiliency in a knee-jerk, reactive way and put business continuity plans in place only after a disaster strikes, there’s less time spent assessing the immediate and future financial benefits generated by a comprehensive risk management initiative.

As a result, companies are leaving a considerable amount of money on the table, as our research and work with clients show. The potential ROI from resiliency-building programs affects various business aspects, ranging from productivity improvements, to significant insurance cost reductions or to faster uptime post-disaster.

The Next Phase of Commodity Management

One important area that could produce substantial “soft” benefits very quickly when the ROI for resiliency is more thoughtfully considered comes from aligning commodity management practices to the risk mitigation strategy.

Traditionally, as supply chain organizations have evolved, commodity managers and purchasers have become the default go-to experts for anything related to the supplier base. Their intimate knowledge about the approved vendor list, parts pricing and supplier reliability have made them valuable information resources to other teams and C-level executives.

The downside to this expertise has translated to a productivity issue. The commodity management team is one of the most frequently tapped organizations within a company due to their deep knowledge of supply chain workings. Since they are often bombarded with questions requiring quick responses or time-consuming spreadsheet reviews, commodity managers do not have the bandwidth to take on the higher-value tasks of carefully managing the entire supply base or tracking potentially disruptive events that could hurt supply chain operations.

The issue is exacerbated by another factor. For a number of reasons, many companies rely on spend-based decision-making processes largely aimed at getting price reductions from the top 20 percent of suppliers representing 80 percent of company’s spend. If only 20 percent of the supply base is being watched on any consistent basis and commodity managers are busy negotiating lower prices, logic follows that a long tail of supplier activity falls off the radar screen. This opens the company up to greater risk across multiple tiers of suppliers.

If these scenarios were turned around and companies saw commodity managers as gatekeepers for risk mitigation, imagine how much time, effort and savings could be recouped and how much more strategic their role could be in lowering a company’s risk exposure.

By shifting perspectives and workload, commodity managers could be vital support channels in making the supply chain AND company’s bottom line resilient.


There’s more at stake than what lies on the surface. Supply chain resiliency and risk management initiatives have the potential to deliver great value to companies willing to uncover them. To learn more about the ROI for resiliency, take a look at our latest whitepaper.


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