Supply Chain Risk

According to a recent survey done by Zurich that included 550 companies in 60 countries, in 2011 85% of the companies in the study experienced at least 1 supply chain interruption. Furthermore, 40% of those interruptions were below the tier one level, and 50% of the companies that experienced an interruption saw a decrease in revenues.

In general CFOs normally include supply chain interruptions as a top 5 risk exposure for his or her company. Also with more and more pressure on companies to cut costs, companies are forced to keep lower inventory levels. In return, this creates more vulnerability. In addition, companies are sometimes forced to partner with lower cost suppliers, and if these suppliers are located in catastrophe prone and/or uneasy political areas the risk to the supply chain increases even more. Fewer Suppliers = More Risk and Risk vs. Cost?

Risk Management Tips:

- Analyze bottlenecks in-house
- Create a "critical agreement" with your main suppliers. In this agreement your company and supplier will acknowledge the "critical partnership", and a contingency plan will be put into place if either of you experiences an interruption in business.
- Request a contingency plan from your main suppliers if a "critical agreement" is not in place
- Conduct in-house scenarios. What ifs? Mitigation strategy?
- Risk and Financial Assessment with your broker and insurance carrier.
- Obtain Supply Chain Insurance

Supply Chain Insurance is an "all risks" business interruption coverage which is not restricted to property damage. It allows you to risk transfer your supply chain risks for named supplies and suppliers.

Source: Zurich Insurance Company