Risk assessment in the supply chain

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

2. 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?

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

4. 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

5. 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)

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

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

8. Supply chain risk factors Exposures Controls • Commodity Shortages / Price Fluctuations • 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 (Cross-match with SCRLC Supplier Reliability factors)

9. INSTITUTIONAL PHYSICAL PROCESS • Customer Demand • Obsolescence Of Product / Inventory / Technology Risk Assessment • Product Quality • Regulatory Concerns Control Activities • War, Terrorism, Other Geopolitical Downstream customer Primary customer 1st-Tier Your company X-Tier 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 • Incidents / Natural Disasters • Other External Influences Cross-match with SCRLC Supplier Reliability factors

10. 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)

11. Visualising revenue dependencies

12. Risk grading

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

14. Questions?