Streetsmart insurance Blog
A vital part of supply chain management is managing the risk that your access to the critical goods and services that your business needs to function could be broken by events beyond your control.
Statistically, the number one cause of business interruption is IT and telecommunications failure. Other potential causes of supply chain interruption include:
Three out of four organizations suffer at least one supply chain disruption each year, and about 14% of those organizations face losses of $1 million or more as a result.
Damages can arise from productivity losses, customer complaints and damage to brand reputation and image, direct loss of revenue and increased business costs of fulfillment.
Principles of supply chain risk management
Start with an effective business continuity plan. Supply chain management is a critical item in business continuity in case of a crisis. But only 30% of small businesses surveyed reported having a business continuity plan in place, according to the "2017 Travelers Risk Index."
Buy contingent business interruption insurance (CBI). This specialized coverage can reimburse you for losses incurred due to covered perils resulting in the disruption of your supply chain at distant points.
Warning: Ordinary business interruption insurance does not pay benefits for events that occur to distant businesses and customers. It only pays benefits in the event of the damage, destruction or disruption of your own locations, worksites, workers and plants.
On the other side of the coin, CBI does not pay benefits for damages arising from damage or disruption occurring with your own facilities and personnel. Only for perils that occur offsite.
A complete business interruption contingency plan will account for offsite as well as onsite disruptors.
Maintain multiple sources. Yes, you may get a volume discount when you order everything through the same distributor. But if their widget factory is shut down for any reason, you may have trouble lining up a replacement vendor or source.
Don't rely too much on any one supplier. Have backups, and place enough orders with them so you know they'll come through for you in a crisis.
Keep adequate reserves. Keep some reserve cash in the bank and inventory on hand or stored where you can control and access it. Both cash and reserve inventory can buy you valuable time while you work on resolving a potential disruption in your supply chain.
Know your suppliers. Ideally, your suppliers should be mitigating their own supply chain risks and potential bottlenecks of their own. This helps protect your business as well as theirs.