Supply Chain Risk Management
August 20, 2015
While lean production has become a cornerstone of successful supply chain management and a way for businesses to stay flexible and responsive to changing tastes in their markets, the dependence on and relationship with suppliers resulting from outsourcing and minimising stock creates a host of exposures. Successfully navigating and managing the risks presented by a complicated supply chain that spans across regional, national and especially international territory is a complicated endeavour considering the countless precarious factors that can cause disruptions or liability issues across the entire supply chain.
Risk Factors Abound
A key supplier or buyer can be debilitated for a number of reasons: natural (floods, pandemics, earthquakes, severe storms), human (terrorism, civil disorder, electronic security breaches) or technical (power failure, hardware or software viruses). These events can have dramatic effects on supply chain partners both upstream and downstream.
A single disruptive event in Asia, for example, could initiate a customer service nightmare in the United Kingdom. And disruptions are more common than one might imagine – a survey of corporate risk managers and supply chain risk managers by insurer Zurich revealed that 74 per cent of respondents had experienced a supply chain disruption within a 12 month period, not only affecting top and bottom lines but also damaging their brands and relinquishing market share. Potential effects of supply chain disruptions could include the following:
Considering Your Liability
Even worse, companies can be held liable for their supply chain partners’ mistakes. A defective or inherently dangerous product or part can cause liability issues for its designer, manufacturer, shipper, wholesale distributor, retail seller and installer, who are collaboratively and jointly responsible. In fact, even though a seller has exercised all possible care in the preparation and sale of the product, it can still be held responsible. Wholesalers or finished product manufacturers can be sued by an injured third party individually or together with any or all other parties involved in bringing the product to market and selling it to the consumer.
Reducing Your Exposure
What can a risk manager do to effectively mitigate risk in such an environment? Fortunately, there is a growing body of best practices for risk management across the supply chain. One of the most important
things is to stay abreast of every development in your environment. Consider the following steps you can take to mitigate your business’s risk:
Carefully read your policy and ensure that it includes cover of loss of supplier, stoppage of supply and interruption of service.
Engaging supply chain partners and insurers in your effort to minimise supply chain risk and regularly reassessing exposures can help you to successfully manage your business’s risk from beginning to end of the supply chain. CLA Insurance can help you every step of the way. Contact us today to get started.