Supply chains

Due to the complex nature of construction, supply chain management is one of the most critical risk factors to be considered by risk managers when looking at large scale construction projects. Failure to examine, understand and nullify any associated risks within the supply chain has proven time and again to have catastrophic outcomes at all stage of the construction lifestyle.

In the Business Continuity Institute Supply Chain Resilience Report 2018 noted some worrying figures. Of the 589 responding firms, more organisations in 2018 supply chain disruptions among their Tier 1 suppliers (up from 44% to 52%). In addition, more respondents admitted that they do not analyse the full extent of their supply chain in case of disruption (up from 22% to 30%) compared to the previous twelve months (Figure 4). It is worth noting that this last figure improves for those organisations adopting technology, as only 18% of them do not fully analyse disruptions to their suppliers. The three main types of software that practitioners use to track incidents are excel spreadsheets, BCM software and financial solvency models.

It is vital that clients, insurers and brokers engage with each other regularly to ensure that each party understands the current issues within the supply chain of any given project. Not only does this ensure insurers are able to write a better level of coverage for clients, but it also means risk managers may be able to foresee issues in the supply chain before they arise.

Given the information which is available in modern construction projects via technology, value driven from this information should not be underestimated nor dismissed. At a time when supply chains are becoming more complex, data is the key to improving the overall risk profile of a project and is something risk managers need to actively seek out when tackling large scale construction to ensure commercial success of the project.

Beware of modern slavery risk in your supply chains
According to the Walk Free Foundation Global Slavery Survey 2017, in excess of 40 million people globally are subject to some form of modern slavery and collectively around $150bn per year is generated in the global private economy from forced labour alone. In the Asia-Pacific Region, 30,435,300 people are believed to be ‘enslaved’ (66.4% of all people enslaved); and 4,300 people in Australia are enslaved.

“There is a spectrum of exploitation, and modern slavery sits on a continuum of exploitation,” argues Dr Martijn Boersma, University of Technology, Sydney and author of Addressing Modern Slavery. “Usually, that means if you have other labour issues and forms of exploitation in your supply chain, such as people being denied freedom of association or their labour rights being otherwise curbed, that usually is a red flag there may be other issues. Risk managers should look for lesser labour abuse as an indicator of an issue, such as underpayments or excessive overtime. If you’ve got those things happening, there might be worse conditions in your supply chain that you’re not necessarily aware of.”

“Companies doing their risk assessments should look at which particular countries they source from. A number of countries and regions around the world have a particularly poor reputation when it comes to appalling labour standards and enforcing labour rights. For example, if you are a manufacturer of footballs and you are sourcing stitched goods from Southeast Asia, then that is a red flag because it’s a problematic region, but it also is an industry which has a very low barrier of entry where a lot of unskilled people perform work,” says Boersma, adding: “Oftentimes, people are migrant labourers in those contexts as well and those factors are all risks factors when taken together, creating a hotbed for modern slavery, which I think deserves a company’s attention.”

Published 2019

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