Category Archives: Supply Chain

Switzerland, Norway Rank Highest in Supply Chain Resilience

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Plummeting oil prices, natural catastrophes and political disruption in a borderless business environment are some of the threats to the resilience of countries that can impact supply chains, according to the 2016 FM Global Resilience Index, which aggregates data to help companies identify their key supply chain risks. The Index ranked the resilience of 130 countries to supply chain disruption based on drivers in three categories: economic, risk quality and supply chain factors.

This year’s top-rated country, Switzerland, traded places with Norway—a reflection of Norway’s drop in oil revenue at a time of falling crude oil prices. Rounding out the top 10 in the Index, in descending order, are Ireland, Germany, Luxembourg, the Netherlands, the central United States, Canada, Australia and Denmark.

The lowest-ranked country in 2016 is Venezuela (ranked 130) for the second year in a row. It is followed in ascending order by the Dominican Republic, Kyrgyz Republic, Nicaragua, Mauritania, Ukraine, Egypt, Algeria, Jamaica and Honduras.

For the second consecutive year, Ukraine (ranked 125, down from 107) was among the countries with the biggest drop, reflecting the high degree of tension the remains within the country as well as with Russia (ranked 75).

FM Global also noted:

Venezuela’s position at the bottom reflects its exposure to the natural hazards of wind and earthquake, perceptions of its lack of control of corruption and poor infrastructure and its ill-perceived local supplier quality.

France (ranked 19) and the United Kingdom (ranked 20) retained their positions from last year, while Germany (ranked 4) rose by two places.

The United States is segmented into three regions to reflect disparate natural hazards exposure:

• Region 1, encompassing much of the East Coast, is ranked 11 in the Index.

• Region 2, primarily the Western United States, is ranked 21.

• Region 3, which includes most of the central portion of the country, is ranked 7 in the Index.
FM Global-infographic

How the Internet of Things Benefits Risk Management

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IoT cities
An increasingly digital world is resulting in companies across all industries reassessing how they approach risk management. Thanks to the connectedness of devices brought about by the Internet of Things (IoT), executives have much more information at their disposal for assessing risk than before.

IoT is a network of devices that collect and exchange data—think back to the classic example of your fridge ordering fresh milk before it runs out. This is quickly becoming a fact for businesses that rely more and more on being connected to remote devices for competitive advantage.

For risk managers, IoT boils down to introducing a layer of technology on top of the business. Operations do not have to be reinvented. This provides organizations that are reliant on managing risks with an indispensable tool.

Increased, relevant real-time data

In the insurance industry, this promises much more than just monitoring the location of a vehicle, the temperature of its load, and the performance of a driver. By equipping a company with more sensors and devices linked to the internet, organizations are able to gather significantly more real-time data to drive business value. This also has a big impact on managing risks.

For example, when a contractor’s portable toilets get dropped off, there is often no physical address to use. This creates complications when another driver or team has to locate the units a few days later for cleaning and maintenance. Using internet-linked sensors, however, the provider can easily find the toilets and quickly improve operational efficiencies. Another example is using IoT to assist in tagging assets with Radio Frequency Identification (RFID) tags. This assists with monitoring everything from the service intervals on equipment like cranes to ensuring that generators have the correct fuel levels.

The growth of IoT is also seeing a massive uptake in interest from startups to look at exploiting demand with innovative solutions.

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Wearable devices for e-health monitoring, for example, presents an opportunity for consumers to take more control towards preventative care and gives healthcare professionals richer, real-time insight on patient behavior during treatments.

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IoT gives decision-makers the ability to spot trends, adapt to changing market conditions and improve their strategies. What’s more, an IoT-led approach can be applied to any business—whether a retailer, medical practice, startup, or even a construction company.

Managing IoT risks

Despite the advantages, companies need to be mindful of how to protect against IoT risks, such as gaining access to information being fed from devices back to the head office. Security, as with any new piece of technology, has to be an integral part of utilizing IoT in the company.

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Scanning for vulnerabilities now extends beyond the network and devices such as smartphones, tablets, and laptops. IT departments need to ensure the security of machine-to-machine units, RFID tags, and so on. Fortunately, none of this is insurmountable. Taking due diligence and evaluating the cyber security strategy on an on-going basis should be a matter of course in a digital world. Again, IoT is providing the impetus to do so.

Relying on IoT as an enabling technology means risk managers are committing to the digital age. The payoff is that technology can give organizations greater flexibility in their approaches to efficiency, cost reduction and risk mitigation than in previous years.

Japan Earthquake Causes Parts Shortage, Closing 4 GM Plants

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The earthquake in Japan earlier this month has impacted the supply chain of General Motors, causing four plants in North America to close temporarily because of a shortage of parts from Japan, the company reported.

GM said in a statement that its manufacturing operations are expected to be down for two weeks beginning April 25 in Spring Hill, Tennessee; Lordstown, Ohio; Fairfax, Kansas andGM logo the Oshawa Flex Assembly in Canada.

The temporary adjustment is not expected to have “any material impact on GM’s full-year production plans in North America,” GM said. In addition, the company “does not expect a material impact to its second quarter or full-year financial results for GM North America.”

Japan’s Kyushu Island was rocked by a 7.0 temblor on April 16, killing 58 people and injuring about 900, according to AIR Worldwide. The quake was the strongest to strike Japan since 2011, when a massive 9.0-magnitude offshore earthquake unleashed a tsunami that killed 18,000 people in the country’s northeast and triggered meltdowns at a nuclear power plant in Fukushima, the New York Times reported.

AIR said the earthquake is expected to result in insured losses between $1.7 billion and $2.9 billion. Those losses only reflect insured physical damage to onshore property (residential, commercial/industrial, mutual), both structures and their contents, from ground shaking, fire-following and liquefaction, AIR said.

The Japan Fire and Disaster Management Agency (FDMA) estimates that more than 3,900 residences and 120 non-residential buildings were damaged or destroyed, a number of mudslides resulted, and 14 fires were attributed to the temblors.

On the same day, April 16, a 7.

8 earthquake struck the central coast of Ecuador, killing 570 people and injuring more than 4,700. AIR estimates losses from that quake between $325 million and $850 million. More than 1,100 buildings are reported to have been destroyed and more than 800 damaged.

Even though they happened just hours apart, the two quakes are not related. The Times reported:

Are the two somehow related?

No. The two quakes occurred about 9,000 miles apart. That’s far too distant for there to be any connection between them.

Large earthquakes can, and usually do, lead to more quakes — but only in the same region, along or near the same fault. These are called aftershocks. Sometimes a large quake can be linked to a smaller quake that occurred earlier, called a foreshock. In the case of the Japanese quake, seismologists believe that several magnitude-6 quakes in the same region on the previous day were foreshocks to the Saturday event.

Mexico’s Pemex Illustrates Trade Credit Risks in Latin America

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With all the focus on the Middle East and Europe, it is easy to lose track of Latin America as a region with major risk issues. Companies investing and selling to Latin America have become accustomed to viewing its largest economies—Mexico and Brazil—as relatively low-risk countries with promising growth prospects. That perception has recently changed, however, largely because of a common ingredient: large state-owned oil companies on which the government depends.

With a $1.26 trillion economy and population of 122 million, Mexico is a key market for the United States and Canada, particularly since the advent of the North American Free Trade Agreement. Some $535 billion in trade occurred between the U.S. and Mexico in 2014. From 2000 through 2012, U.S. foreign direct investment into Mexico totaled $291.7 billion.

With a monopoly (until recently) on oil production and fuel distribution, Petróleos Mexicanos (Pemex) is a colossus—the largest company in the country, representing about one-third of all government tax revenues and approximately 5% of Mexican exports. From its origin in 1938, Pemex has also been a political entity, as it was nationalized at a time when foreign companies dominated the oil sector. Since then, it has become enmeshed in Mexican politics and patronage, suffering from frequent allegations of corruption.

However, in the early 2000s, Mexico’s political leadership recognized a problem: oil production was falling and Pemex lacked the resources to invest in new fields to reverse the trend. Clearly, foreign investment was going to be needed to keep Mexico competitive in world oil markets. So, in August 2014, Mexico passed the laws necessary to open up the oil, gas, and power sectors to private companies, including foreign ones.

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Unfortunately, with oil prices taking a serious downturn, the timing of the opening was awful. Pemex was losing its monopoly at the same time its revenue was dropping and home currency was depreciating against the U.

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S. dollar, after it had accumulated enormous foreign currency debt.

Not surprisingly, in November 2015, Moody’s downgraded Pemex’s credit rating from A3 to Baa1, with a negative outlook. Without the sovereign support, the rating was put at a lowly Ba3. And Pemex’s problems have directly drained the central government: this month, the Mexican government announced over $4 billion in aid for the company.

Pemex has serious cash-flow problems and is not able to pay its suppliers on time. In late 2015, citing low oil prices, it announced that it would unilaterally extend payment terms on all contracts to 180 days from the previous 60-90. For suppliers dependent on short payment terms who were already under cash-flow stress from general industry conditions, these payment delays could cause serious financial problems, including bankruptcies. Accordingly, the trade credit insurance industry—which covers buyers’ failure to pay contractual trade obligations on the due date—is already seeing claims related to Pemex and its suppliers.

Except for people who remember the early 1980s, when Mexico defaulted following the high oil prices and debt run-up of the 1970s, Pemex’s problems were unthinkable just a few years ago. This is an example of the difficulty of predicting how commodity markets, politics and financial management can mix for any given country. However, while Pemex’s problems are serious for its suppliers and represent a drag on the economy, Mexico is still forecasted to grow 2.

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6% in 2016 and no wide political crisis is currently underway. Many other countries dependent on oil are not so lucky. Next month we will look at one with much more serious problems and risks to investors and suppliers: Brazil.