Relying on links across 150 countries to produce a very specific, high-quality product, Swedish engineering firm Sandvik’s supply chain is more high risk than most. Sara Benwell reports on how the company set out to uncover exactly how it would respond to disruption.
A smooth-running supply chain is critical to a business’s success.
When issues occur unexpectedly and disrupt one or more parts of a network, it is essential that companies have appropriate provisions in place to minimise loss.
As events such as COVID-19 and the Ever Given blockage of the Suez Canal have shown, the alternative is operations grinding to a halt, reputational damage and even loss of market share.
Sandvik, a Swedish multinational engineering company. wanted to know where the value in its supply chain lay, to better understand the risks the organisation faced.
In particular, it wanted to see what the impact would be if crucial suppliers were to experience disruption.
UNDERSTANDING THE CHALLENGE
The manufacturer specialises in products and services for manufacturing tools, rock processing and metal cutting.
However, the company has a complex supply chain operating across 150 countries where a key element is the provision of metal powder – essential in the manufacture of high-quality metal cutting products.
“There is a relatively high level of risk to the supply chain as we prioritise quality over quantity.”
Fredrik Finnman, vice president, group risk management and Peter Lehnbom, group enterprise risk management manager, at Sandvik Group, explain: “There was exposure along the supply chain, both in the over-reliance on a supplier, and exposure ‘downstream,’ which had the potential to impact that supply.
“The complexities are linked to the product itself. At Sandvik, we require a very high-quality product, not readily available or easily replicated. This means there is a relatively high level of risk to the supply chain as we prioritise quality over quantity.”
LEADING WITH DATA
One of the main concerns was the shortage of alternative makeup and difficulties locating alternative suppliers.
Sandvik worked with FM Global, using its Business Impact Analysis (BIA) services, to understand the value of the whole supply chain – end to end – rather than focusing on one facility.
Finnman and Lehnbom say: “The process of the BIA took around six months. We began in late 2020, so part of the process was undertaken during the COVID-19 pandemic and restrictions – which brought its own challenges.
“The FM Global team looked at what would happen should our main supplier experience an issue that impacted that supply. How would this affect business areas, production units, and our ability to manufacture and sell our products?”
“Quantifying exposure is hard, but by using a unique combination of financial and engineering data the process can be simplified.”
Kerry Balenthiran, operations vice president, group manager, business risk consulting (EMEA), at FM Global, says: “There is a great deal of complexity to navigate when working out the value of the entire supply chain, alongside considering the specific risks and how to mitigate them. Where do you start when calculating the value that each element carries for a business and how do you put a financial figure on exposure?
“Quantifying exposure is hard, but by using a unique combination of financial and engineering data the process can be simplified. Tools like FM Global’s Business Impact Analysis can help organisations view their risk exposure across even the most complex aspects of their supply chain. In turn, the financial value of the exposure can be calculated and therefore enable the business to recognise the scale of the challenges faced.”
A ROUNDED VIEW ON RISKS
The BIA tool provided Finnman and his team with a 360-degree view of the problem and its effects on the business as a whole, including the impact on production units, manufacturing and the process of selling products.
By defining the financial exposure of the supply chain, Sandvik’s risk managers could determine the appropriate level of insurance protection and communicate the business case for spending on risk mitigation strategies.
“It made the risk management team more confident in clearly painting the risk picture to the rest of the business.”
Finnman and Lehnbom say: “By investigating and validating the risks in a quantifiable way, the BIA provided by FM Global enabled us to speak the language of the wider business.
“It made the risk management team more confident in clearly painting the risk picture to the rest of the business. [We were] then able to provide a cost of inaction as well as a return on investment of any mitigation strategies.”
Balenthiran adds: “With the BIA, Sandvik’s risk managers were able to demonstrate the need to improve resilience of a particularly valuable facility with the installation of a sprinkler system – a major investment that could be made with confidence.
“The FM Global BIA and similar tools can support this by giving risk managers the intelligence they need to advocate for proportional investments in risk mitigation efforts within their organisation’s supply chains.”
MAKING THE CASE TO SPEND MONEY
The business cases for expenditure are under increasing scrutiny and and risk managers’ spend must provide a suitable return. The risk team at Sandvik say that carrying out this supply chain analysis allowed them to meet this challenge.
“Being able to have these conversations has really enhanced the relationship between the business and risk management.”
Finnman and Lehnbom conclude: “What makes the difference in those conversations is being able to give a quantification of the risk confidently and accurately – this gives us the traction we need to build resilience across the supply chain.
“Being able to have these conversations has really enhanced the relationship between the business and risk management.”
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