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Navigating the Supply Chain Crisis

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Two and a half years since COVID-19 emerged and set off a sea change in how we work and live worldwide, business leaders continue to grapple with the challenges it has created for the global supply chain. Extraordinary congestion at critical global ports, decreased availability of key raw materials and component parts, rising freight bills and an increasingly tight job market have all contributed to the need for companies to create an effective logistics risk management program. Such a program must focus on the detailed assessment of key risks to the supply chain and the creation of mitigation strategies that limit their impact on a company’s ability to satisfy its customers.

How Did We Get Here?

To better prepare an organization for the future, it is important to reflect on events in the past. Some of the critical issues that have contributed to the unparalleled supply chain pressure within the logistics world include:

  • Increasing reliance on foreign suppliers for key inputs, adding to the time it takes to secure goods and also leading to a diverse range of exposures that could impact customers
  • Greater dependence on ever more sophisticated components
  • Labor shortages impacting the transportation and port industries
  • Crumbling infrastructure, especially domestically, contributing to increased time and expense to move freight
  • The continued movement to just-in-time procurement, leading to challenges matching supply to demand as supply chains are strained
  • An increasingly sophisticated electronic network to plan, monitor and maintain the logistics chains, leading to increased vulnerability to cyberattacks

While these issues may have been the fuel, it is certainly the COVID-19 pandemic that was the spark for the current challenges facing the supply chain, as the pandemic affected the global supply chain in many ways. For example, reductions in production capacity overseas due to government quarantines left many components in shorter supply.

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Overseas port capacity was restricted because of quarantines and worker shortages due to illness. Already operating at its maximum after years of limited investment, United States port capacity became overtaxed and less efficient at moving product to final destinations. Additionally, increased consumer demand for foreign produced goods, such as home office equipment, clothing and furniture, further stressed global supply lines.

According to maritime research and consulting firm Drewry, these issues resulted in freight rates increasing by more than 100% year over year, transportation time increasing by almost 50%, and logistics professionals facing greater difficulty guaranteeing the ability to meet their company’s needs. Companies with logistics professionals who developed and implemented supply chain risk management strategies have likely experienced a limited impact in comparison to those without such processes in place.

It’s Not Over Yet

While the majority of the world is now emerging from the most dramatic parts of the unprecedented global shutdown and hope is on the horizon, significant threats remain that require vigilance and focus. This is best illustrated by the impact of the early 2022 lockdowns implemented in parts of China as part of the country’s zero-COVID strategy. With an export volume of more than trillion, what happens in China quickly ripples around the world and impacts every sector.
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From semi-conductors to resins, active pharmaceutical ingredients to petroleum products, China is a critical node in the supply chain of almost every consumer product. With major production and transportation hubs like Guangzhou and Shanghai implementing sweeping lockdowns, companies are once again feeling the pinch in reduced ability to source product and significantly expanded time lines for delivery.

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What Can Be Done?

Business leaders should consider several best practices to minimize disruption to their organization’s supply chain:

  1. Develop risk assessments on primary and secondary suppliers, determining the impact they could have on the company’s ability to produce product.
  2. Create a detailed mapping of critical suppliers that includes manufacturers and service providers, such as freight forwarders, in order to assess catastrophic risk potential.
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    Have multiple suppliers, preferably in multiple geographic areas, as sources of critical raw materials and components. This reduces reliance on any single supplier or oversized exposure to geographical catastrophe risk. For identified critical areas, create a business continuity plan that outlines the process to shift to another resource in a separate geographic area.
  3. Maintain increased inventory on hand versus reliance on “just-in-time” methods, increasing the ability to quickly match supply to customer demand.
  4. Invest in supply chain intelligence data and telematics to increase visibility on goods in transit, which will help business leaders identify a quick and effective response to catastrophes as they occur.
  5. Manage customer expectations in respect to delivery schedules. The old adage “Patience is a virtue” may never have been more apt.

Looking Ahead

Corporate executives now have a heightened understanding of the supply chain’s importance to a company’s bottom line, leaving logistics professionals uniquely positioned to gain investment in resources to help address emerging logistics and supply risks. By conducting regular risk assessments and developing risk mitigation strategies to address the exposure, business leaders can better position their company to limit the impact of supply chain challenges and create a stronger, more operationally resilient enterprise.

After COVID, Cyberrisks Top Agenda for Risk Professionals in India, Marsh and RIMS Report

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For risk professionals in India, the COVID-19 pandemic has underscored the critical need to build business resilience and develop mature yet flexible business continuity plans to address both short- and long-term threats. In the new Marsh and RIMS report Excellence in Risk Management India 2020, Spotlight on Resilience: Risk Management During COVID-19, 63% of risk professionals in India said a new pandemic or continued fallout from COVID-19 was a top risk facing their organization, followed by cyberattacks (56%), data fraud or theft (36%), failure of critical infrastructure (33%), fiscal crises (31%), and extreme weather events (25%).

This mix of top risks illustrates the critical task before risk professionals heading into 2021: ensuring capability and procedures to respond to fast-emerging disasters, while not losing sight of the critical work to boost baseline resilience against foreseeable risks across the enterprise.

“Organizations need to balance their focus between longstanding and emerging risks,” said Sanjay Kedia, country head and CEO of Marsh India. “While there has long been an awareness of weather-related risks, low-frequency risks generally receive less attention. The pandemic has underlined the need for risk managers to keep all perils on their radar.”

Indeed, Marsh and RIMS found risk assessment and modeling are critical gaps for India-based risk professionals to focus on to mature their risk management programs. “As businesses recover from COVID-19, many senior leaders are shifting attention to questions of resilience.

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But, as our survey shows, the use of advanced risk management techniques in India remains limited—for example, more than one-fifth of respondents do not assess or model emerging risks,” the report noted.

This is particularly the case with emerging cyberrisks. Cyberattacks and data loss or theft ranked among the top three threats, and the pandemic escalated the already rising number of cyberthreats to companies in India with the shift to remote work, online business, and ransomware attacks. Indeed, the report noted that the pandemic led to a surge in cyberattacks against Indian companies, with New Delhi among the top 10 most often attacked cities with regard to ransomware in 2020, and more than a third of Indian respondents to a June survey by Microsoft reporting they had fallen prey to a pandemic-related phishing email. Yet only a third of respondents to the Marsh/RIMS report said they model potential cyber loss scenarios, and only 26% plan to do so in the next year. Key cyberrisk management measures and the rate of implementation among Indian companies include:

Whether it is phishing attacks on employees or internet outages interrupting operations in the supply chain, the report notes that the next major event for Indian companies could well be a cyberattack. Focusing on building cyber resilience was one of the report’s four key recommendations, noting “organizations should shift their focus from solely trying to prevent an attack to accepting the inevitability of a cyber event and taking action to mitigate its effect.”

The report’s other top recommendations for risk professionals in India were:

  • Regularly review existing business continuity plans – “Companies should carefully review and refine their business continuity plans. They should ensure their plans enable them to respond effectively to threats that bring short-term pain and long-term and widespread challenges, as is the case with COVID-19.”
  • Embrace the changing working environment – “Lockdowns intended to stem the spread of COVID-19 required many companies to quickly move to remote working, change their business models, and implement new safety measures upon return to the workplace. Other perils, like a natural disaster, could necessitate and precipitate such shifts, even if shorter in duration. Businesses should invest in structures that allow employees to work remotely effectively, efficiently, and safely and should educate employees on new ways of working under changing circumstances.”
  • Remap and remodel your supply chain – “The COVID-19 pandemic emphasizes the need to re-examine supply chains regularly, with special focus on understanding the resilience and reliance of vendors. Companies would benefit from understanding their vendors’ ecosystems; both to provide a clearer view of how they could be affected by different risks and to review contracts to better understand liabilities.
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    ”

Moving forward, there is considerable room for risk professionals to be more involved in scenario analysis and strategy

In December, RIMS introduced additional resources specifically for risk professionals in India looking to elevate their risk practice. The report was released around the recent RIMS Virtual Risk Forum India 2020, which brought together hundreds of risk and insurance professionals from across India and around the world. Soon thereafter, the risk management society also announced the official formation of a RIMS India Chapter.

“The exchange of knowledge and experience drives the risk management profession, allowing practitioners to more effectively enhance corporate decision-making, strengthen resiliency and leverage new and exciting opportunities for their organizations,” said Roop Kumar, chief of risk at SBI Life and inaugural president of the India chapter’s board of directors. “RIMS India Chapter will quickly become an exceptional resource for all business leaders. We look forward to delivering cutting-edge risk management insight to support our members as they advance their programs and their careers.”

Other members of the inaugural board of the India chapter include: Keerthana Mainkar, head ERM at Infosys; Amol Padhye, head of market risk at HDFC Bank; Amber Gupta, head legal and corporate secretary at Birla Sunlife Insurance; Anand Shirur, CEO of Digitangle Consulting PVT, Ltd; Steward Doss, associate professor at National Insurance Academy; Monika Mittal, professor at BIMTECH; Shibyanshu Sharma, vice president of risk management at SBI Life; and Yogesh Ghorpade, head of ERM and insurance lead at Thermax Industries.

“RIMS India’s Board of Directors truly represent a cross-section of the country’s risk management community,” said Gopal Krishnan K S, head of RIMS India Operations. “The Society looks forward to learning from their unique experiences and welcoming others to contribute so that, together, we can develop the highest standard of risk management education to address corporate India’s biggest concerns.

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RIMS Virtual Advocacy Week: A Q&A with Florida Insurance Commissioner David Altmaier

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Today, RIMS is taking its annual Legislative Summit online, kicking off the first RIMS Virtual Advocacy Week. Featuring a full slate of networking, a panel on pandemic insurance, updates on the 2020 U.S. elections, and hands-on advocacy with members of Congress, RIMS Virtual Advocacy Week is still open for last-minute registrations, if you want to join in on the action.

On Wednesday, September 16, the agenda includes a fireside chat with Florida Insurance Commissioner David Altmaier, who is also president-elect of the National Association of Insurance Commissioners (NAIC). Commissioner Altmaier has held the position for four years and has been with the Florida Office of Insurance Regulation office for nearly 12.

Altmaier recently appeared on RIMScast to discuss the issues he will address in Wednesday’s session, most notably the impact COVID-19 has had on the landscape of business interruption coverage. Check out the highlights below, and download the episode for Commissioner Altmaier’s full interview and a deeper dive into other topics such as ORSA reports, the Terrorism Risk Insurance Act (TRIA) and the National Flood Insurance Program (NFIP).

What playbook did you use to prepare and react to COVID-19?

David Altmaier:  Our response initially looked a lot like what we would do for an inbound hurricane: We assembled what we call our “incident management team,” and started to look at the types of needs of consumers from an insurance standpoint. We put into place mechanisms that we thought would be helpful as the pandemic began to take hold in Florida and around the United States. And we saw insurance commissioners around the country doing the same thing, obviously, as the pandemic unfolded and we started to see other risks and concerns emerge.

COVID-19 has been at the forefront of all of our regulatory discussions going back to March of this year. and that will continue to be at the forefront of our discussions even after the pandemic has concluded.

Business interruption insurance is closely tied to it and has emerged as one of the more pressing insurance issues as a result of the pandemic. We have seen issues like telemedicine and catastrophe response in a virtual setting, for example, also come up as a result. [That has] impacted how we go to work every day and how we interact with our stakeholders, and I think those will be some worthy discussion topics as well.

How can the risk management community drive meaningful change in regulations, policies and legislation?

DA: As discussions take place about an event that we haven’t seen in a really long time, like a pandemic, there will be a lot of ideas that come up in terms of how to react to the current pandemic, as well as how to prepare for future pandemics. And I think that, as we have those conversations, there’s going to be a multitude of stakeholders whose viewpoints are important.

Risk managers are certainly going to be at the top of that list because they are going to understand the risks that the insurance industry faces. We see ideas of what level of responsibility the insurance industry [should have] in terms of covering things like business interruption insurance. Their expertise will be invaluable as we begin to work with state and federal leaders in crafting policies that can assist with the current pandemic, as well as future pandemics.

Own Risk and Solvency Assessment, or ORSA, is a framework heralded by the NAIC. Why should risk and insurance professionals look to ORSA reports for guidance?

DA: ORSA reflects how our insurance market, along with other majors of our economy, evolves over time and responds to new and emerging risks. It’s a constantly changing environment that regulators are trying to evolve along with, and our teams here in the insurance departments are trying to make sure that we stay ahead of the curve in terms of identifying those emerging risks.

The ORSA report is a glimpse into the thought process for our larger companies and groups into the boardroom and into the C-suites. [It features] theories on their own risk and how their unique position in the marketplace might expose them […] and require them to take steps to mitigate those risks. It’s a really critical piece of information for regulators to have as we build our own supervisory plans, going forward. Obviously, the pandemic that has occurred—like with any catastrophe—potentially highlights things that may have previously not been considered.

Let’s talk about force majeure. The pandemic has inspired new legislation to be drafted that affects the language of insurance policies in an effort to cover interruption. Where does the NAIC stand on that?

DA: NAIC sent feedback to Congress early on, in early to mid-March, with our thoughts that requiring carriers to cover losses that weren’t previously contemplated under the policy forms could do a lot more long-term harm than short-term good.

We have seen some state houses file state legislation that would be similar, in that it would require carriers to cover business interruption losses even if the policy forms didn’t contemplate that. We’ve sort of left it to individual insurance commissioners in those states to work with their legislatures on what’s best for their market.

OSHA Revises Stance on COVID-19 Record-Keeping and Enforcement

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The Occupational Safety and Health Administration (OSHA) recently issued two enforcement memos regarding COVID-19. The first of these memos revised OSHA’s requirements for employers as they determine whether individual cases of COVID-19 are work-related. The second revised OSHA’s policy for handling COVID-19-related complaints, referrals, and severe illness reports. The changes in these revisions include:

Record-Keeping and Reporting

OSHA’s position for months has been that cases of COVID-19 are subject to record-keeping and reporting requirements if they are work-related. On May 26, 2020, OSHA’s new memorandum superseded the previous April 10, 2020 memorandum on the subject of work-relatedness.

The April 10 memorandum essentially provided most employers latitude to assume that cases of COVID-19 were not work-related, absent evidence to the contrary. The May 19 memorandum revises OSHA’s position, requiring employers to investigate COVID-19 cases more heavily before concluding whether they are work-related.

The primary thrust of the agency’s revised position is that OSHA enforcement officers should consider three primary factors when evaluating whether an employer’s determination of work-relatedness was reasonable:

  • The reasonableness of the employer’s investigation into work-relatedness;
  • The evidence available to the employer; and
  • The evidence that a COVID-19 illness was contracted at work.

Regarding the first, OSHA stated that it is sufficient in most circumstances for an employer, when it learns of an employee’s COVID-19 illness, to (1) ask the employee how he or she believes they contracted COVID-19; (2) while respecting employee privacy, discuss with the employee his or her work and out-of-work activities that may have led to the COVID-19 illness, and (3) review the employee’s work environment for potential COVID-19 exposure.

Employee privacy rights are a potential trap for unwary employers when inquiring about exposure outside of the workplace. Such discussions could implicate a variety of employment laws, including state-specific laws.

Regarding the second factor, OSHA directed employers to consider the evidence “reasonably available” at the time they makes their work-relatedness determination. If employers later learn more information related to an employee’s COVID-19 illness, then employers shall also consider that information.

OSHA elaborated on the third factor by listing certain types of evidence that weigh in favor of or against work-relatedness. For example, OSHA stated that COVID-19 illnesses are likely work-related when several cases develop among employees who work closely together and there is no alternative explanation. OSHA also stated that an employee’s COVID-19 illness is likely work-related if it was contracted shortly after lengthy, close exposure to a particular customer or coworker who has a confirmed case of COVID-19 and there is no alternative explanation.

OSHA justified its revised position on work-relatedness by stating that the nature of COVID-19 and the ubiquity of community spread frequently make it difficult to accurately determine whether a COVID-19 illness is work-related, especially when employees have experienced potential exposure both in and out of the workplace. OSHA might also have been motivated by some organizations calling for it to take a more aggressive response to COVID-19.

Complaints, Referrals and Illness Reports

The second memo, also issued on May 19, 2020, was related to complaints, referrals, and severe illness reports. Specifically, in geographic areas where community spread of COVID-19 has significantly decreased, OSHA will return to its normal pre-COVID-19 methods for prioritizing reported events for inspections. 

OSHA will continue to prioritize cases of COVID-19 to some degree, but will increasingly conduct these efforts by phone or other remote methods. In geographic areas experiencing either sustained elevated community transmission or a resurgence in community transmission, OSHA will continue to heavily prioritize COVID-19, including conducting on-site inspections, especially in high-risk workplaces.

Action Items and Final Takeaways

OSHA’s enforcement approaches regarding the COVID-19 pandemic continue to evolve. The agency will likely continue to closely monitor employers’ compliance with COVID-19-related requirements even after states and localities lift stay-at-home orders.

Professionals with questions on how OSHA’s recent enforcement policies affect a business or organization should consider consulting with legal counsel. Also, OSHA distributes by email an informative twice-monthly newsletter called “QuickTakes,” open for subscription. OSHA’s regulations on injury and illness recordkeeping and reporting, found at 29 C.F.R. Part 1904, also include helpful questions and answers about these topics.

Finally, employers should bear in mind that the negative consequences of choosing not to comply with OSHA’s record-keeping and reporting requirements often outweigh the potential negative consequences of bringing injuries and illnesses to OSHA’s attention.