Managing Supply Chain Risks with Jon Handen

Jon Handen, Vice President of Credit Specialties here at Atradius was featured in Business Insurance Magazine amongst other industry professionals discussing identifying and managing Supply Chain risks.

Read the full article here. Supply Chain Finance (SCF) is the use of financing and risk mitigation practices and techniques to optimize the management of the working capital and liquidity invested in supply chain processes and transactions. SCF is typically applied to open account trade and is triggered by supply chain events.

Q: What is considered part of the supply chain?

A:  The organizations involved in the sourcing, production and delivery of products and services as well as the accompanying processes. The network also considers the flow of information and financial requirements to achieve efficiency and maximum economic benefit. The parties engaged in the supply chain include; supplier(s), sub supplier(s), buyer, end customer, financial institutions/lenders, insurance providers, logistics and technology/IT companies.

Q: What exposures are faced along the supply chain?

A: There are a multitude of factors to consider when assessing exposure to risk along the supply chain. I would highlight the financial aspect, which focuses on the management of working capital for both supplier and buyer. Additional exposures which may present as risks to be mitigated include, but are not limited to; performance, planning, legal and regulatory, geographic, environmental, and reputational risk.

Q: What can be insured?

A:  In simple terms a company faces risk from the moment an order is placed, continuing through the stages of production, delivery and sale of products until such time as full repayment is made. Each party encounters different risk exposure throughout this cycle and dependent upon their role; buyer, seller, or lender, the needs may vary. Credit Insurance provides protection to companies for the non-payment of obligations arising from the sale of goods and services as well as to lenders providing the financing. Protection is also available during the pre-delivery/manufacturing phase. Insurance may be tailored to meet specific needs covering loses arising from commercial and political risk events across a range of tenors. Non-payment insurance has been available for over a century and continues to develop beyond the traditional seller-buyer relationship with broad acceptance as a tool to support trade finance activities.

Q: Are some industries more exposed to supply chain risks than others?

A: Auto, IT, Machinery/Equipment and Chemicals are several industries which may be more exposed to supply chain disruption as was evident during the COVID 19 Pandemic. The length of the supply chain compounded by limited access to materials, volatile pricing of inputs and transportation as well as labor shortfalls are factors which continue to pose challenges across the global supply chain.

Q: Should supply chain be a separate discipline?

A: . Effective supply chain management is critical to the success of any organization and should be prioritized. Given the complexity of managing the various aspects of the supply chain including developments in globalization and technology, supply chain management should be an integral part of corporate culture supported by dedicated resources within the management hierarchy.

Q: Other than risk transfer, what other steps should be taken toward supply chain resiliency?

A:  A common sense approach to building resiliency into an organization’s supply chain would entail adequate analysis, planning and execution of the strategic priorities. It is important to identify potential threats to the supply chain which may arise from internal or external factors enabling the party to develop a comprehensive plan. The plan would proactively address areas of concern while also maintaining an adaptable response to new challenges. Many valuable lessons were learned following the disruptions affecting the global supply chain in recent years highlighting the importance of building redundancy considering the growing dependence on limited partners and markets. Embracing developments in technology, demanding transparency from partners and strong due diligence are additional steps to enhance resiliency in the supply chain. It is important for an organization to monitor the efficacy of its plan following implementation and remain vigilant.