How Reshoring Can Help Risk Managers Better Build Supply Chain Resilience | Insurance business America
The “increasing pressure” will require some creative solutions
Risk management news
By Kenneth Araullo
Geopolitical tensions and market disruptions are causing a shift in global supply chain management. Reshoring, where companies move production and supply chain operations closer to home, is becoming increasingly important as companies look to mitigate risks and take advantage of emerging opportunities.
Chris Bhatt (pictured above), Chief Commercial Officer, Global Marine at Aon, highlighted the increasing trend of shifting production from China to markets such as Mexico and Canada.
Car manufacturers, particularly in sectors such as electric vehicles and battery technology, are at the forefront of this change. In 2022, 364,000 jobs were relocated to the US, a 53% increase from 2021.
“As geopolitical and market risks increase, I am seeing more and more companies realign their resources and production,” Bhatt said. “It’s about improving supply chain resilience.”
The planned elections in almost half of the world in 2024 and a trend towards protectionism are increasing pressure on existing supply chains. Conflicts in the Red Sea and the Middle East add unpredictability.
While manufacturing in China has traditionally offered economic benefits, rising production costs and geopolitical risks are causing companies to reevaluate their options. Asia’s vulnerability to weather and climate risks further increases the complexity of supply chain decision-making.
Supplier bankruptcies, particularly among smaller suppliers, and less robust legal frameworks in certain regions can expose companies to risks such as intellectual property infringement. Additionally, companies are under increasing pressure to demonstrate their environmental, social and governance (ESG) commitments, leading to green supply chain initiatives.
Bhatt pointed out that risk managers need to develop strategies for their companies as protectionism increases in countries.
“Pressure on existing supply chains is increasing, highlighting the need for increased and strategic approaches,” he said.
Managing risks, building resilience in supply chains
The focus on reliability and quality rather than costs makes reshoring more attractive. Reshoring increases the resilience and security of supply chains and ensures the quality, reliability and cost-effectiveness of products. It also shortens transit times and promotes better collaboration between stakeholders.
Tom O’Donnell, Aon’s global logistics practice leader, also emphasized that reshoring does not guarantee a risk-free environment.
“These changes require careful planning and implementation over time,” he said.
Building your own production facilities involves significant risks, including project delays, system disruptions, compliance and integrity risks, launch delays, change management challenges, local planning issues and construction-related risks.
“Supply chain risk management should truly be enterprise-wide, connecting risk and insurance professionals with senior directors across supply chain, procurement, treasury, strategy and operations based on a common data set and decision-making,” O’Donnell said.
Challenges of reshoring
Other concerns arise when relocating facilities from Asia to the U.S., including technology, availability of talent and skills, and labor costs.
“Access to the necessary skills and technology is particularly important as it is not always easy to easily hire experienced talent at the site you want to build,” Bhatt said. “Therefore, a talent assessment strategy is becoming increasingly important.”
Despite proactive measures, supply chain or distribution failures continue to impact businesses. According to Aon’s Global Risk Management Survey, 43% of respondents suffered losses due to such outages, even though 63% had response plans in place. This highlights the importance of continued preparation and vigilance in mitigating the risks associated with reshoring initiatives.
The transportation and logistics industry must take a proactive and dynamic risk management approach.
“Risk managers must identify, quantify and manage their risk across their global supply chain,” said Bhatt. “Using data analytics and investing in new technologies and ways of working will help companies manage volatility and build resilient operations and workforces.”
Data-driven insights create supply chain transparency and help mitigate risk. The supply chain should be treated as a business risk, taking into account physical damage, ESG events, cyber threats and supplier insolvencies.
Predicting the future landscape of supply chains is critical. Assessing supplier risks helps understand how changes to key suppliers can impact the overall risk landscape.
Conducting a risk tolerance assessment determines the parameters at which the organization is willing to take risks in the supply chain. This includes mapping and quantifying the risks associated with new supply chain configurations as well as understanding potential financial impacts such as lost sales, loss of attractiveness and increased operating costs.
By optimizing inventory levels, risks in the supply chain can be reduced. Seeking advice on investment decisions to manage supply chain risks, including purchasing insurance, can effectively mitigate identified risks.
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2024-06-17 18:41:38
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