Risk assessment in the supply chain Supply Chain

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Risk assessment in the supply chain Supply Chain Risk Leadership Council Developments in Insurance

Risk assessment in the supply chain Supply Chain Risk Leadership Council Developments in Insurance January 30 2008 Confidential – Do Not Forward Outside SCRLC Confidential 1

Survey (What capability we shall focus on) § Top 3 risks (supply chain complexity,

Survey (What capability we shall focus on) § Top 3 risks (supply chain complexity, supplier capability, recovery capability) have high-linkage to 7 key capabilities, but no one has full capability score on “Supplier Business Interruption Risk Insurance” Why might that be? Confidential 2

Outline ~ 30 minutes § Objectives of session § Review traditional versus new perspective

Outline ~ 30 minutes § Objectives of session § Review traditional versus new perspective § New challenges – illustration from Katrina § Risk assessment process § Loss database § Cross-matching opportunities Confidential 3

Objectives of session § To share current thinking on SCR assessment in context of

Objectives of session § To share current thinking on SCR assessment in context of developing a new risk transfer tool (SCBI) § To consider lessons from the SCRLC Supplier Reliability track Confidential 4

From the traditional to a new world § Historical focus on protecting physical assets

From the traditional to a new world § Historical focus on protecting physical assets § BI becomes more important – Katrina ratio of BI: PD claims (70: 30) § The journey from - traditional Business Interruption (BI) insurance to Contingent BI to Supply Chain BI § Global risks and the ‘Over-Optimised Supply Chain’ (WEF 2008) Confidential 5

The concept of supply chain networks* E. G LEVEL 0 People Employees LEVEL 1

The concept of supply chain networks* E. G LEVEL 0 People Employees LEVEL 1 Process Value creation (production) LEVEL 2 Infrastructure Physical flow (logistics) LEVEL 3 Organisation networks Strategic (partnerships) LEVEL 4 External environment Regulatory, Exchange rates, Country, region issues * Derived from Cranfield University – Supply Chain Risk study Confidential 6

SCBI Risk Assessment Process 1 Basic data input Form (Exposures) Risk factor assessment Workshop

SCBI Risk Assessment Process 1 Basic data input Form (Exposures) Risk factor assessment Workshop 1 (Controls). 6 2 Pricing Tool + input from - benchmarking - BI Surveys - BCM assessments EML and Profit Impact Analysis Workshop 2. Data/Info to define supply & customer risk 3 Accumulation db 4 EMLs and limits 5 Risk modifiers that either increase or decrease rate % rate to be applied to limits Capacity Agreed Loss Calculation 7 Confidential SCBI Insurance premium pricing 7

Supply chain risk factors Exposures Controls 1. Commodity Shortages / Price Fluctuations 2. Supplier

Supply chain risk factors Exposures Controls 1. Commodity Shortages / Price Fluctuations 2. Supplier Reliability 3. General Availability, Cost, Quality Of Labour 4. Internal Supply 5. Accidents / Errors 6. Malicious Intervention 7. Supply Chain Infrastructure 8. Customer Demand 9. Obsolescence Of Product / Inventory / Technology 10. Product Quality 11. Incidents / Natural Disasters 12. Regulatory Concerns 13. War, Terrorism, Other Geopolitical 14. Other External Influences (Cross-match with SCRLC Supplier Reliability factors) Confidential 8

Supply chain risk framework Commodity Shortages / Price Fluctuations Exposures Controls? Supplier Reliability General

Supply chain risk framework Commodity Shortages / Price Fluctuations Exposures Controls? Supplier Reliability General Availability, Cost, Quality Of Labour Internal Supply Accidents / Errors Malicious Intervention Supply Chain Infrastructure Customer Demand Obsolescence Of Product / Inventory / Technology Product Quality Incidents / Natural Disasters Regulatory Concerns War, Terrorism, Other Geopolitical Other External Influences L ICA YS PH OC ESS PR L NA O I UT TIT INS Risk Assessment Control Activities 1 s XTie Yo t-T r Do Pr ur ier wn im co ar mp yc an str us ea y tom m er cu sto Cross-match with SCRLC Supplier Reliability factors Confidential 9 me r

Supplier reliability - Controls Supplier business continuity plan Internal material contingency plan Industry analysis

Supplier reliability - Controls Supplier business continuity plan Internal material contingency plan Industry analysis Sustainability / Regulatory Capacity analysis Inventory target setting Strategic material planning / RCCP / Materials at Risk Material change management process Initiative management process Lane risk assessment Supply network visibility Suppler capability assessments Internal capability assessments Supplier BI risk insurance Supplier relationship / partnership Crisis management / response Risk analysis (data modelling, measurement, etc) Confidential 10

Visualising revenue dependencies Confidential 11

Visualising revenue dependencies Confidential 11

Risk grading Confidential 12

Risk grading Confidential 12

Opportunities § Building a rich source of data § Benchmarking § Best practice §

Opportunities § Building a rich source of data § Benchmarking § Best practice § Loss evaluations and risk quantification Confidential 13

Questions? Confidential 14

Questions? Confidential 14