Risk management & insurance improves business resilience to supply chain disruption

Research from Zurich shows that four out of five businesses with a turnover of between £5m and £300m say their supply chain is either very important or critical to their operations.

However, only 17% of these businesses have business continuity plans in place to protect them from disruptions to their supply chain, or have processes in place to check that their suppliers have made similar arrangements.

Should a business suffer supply chain disruptions it may be unable to deliver to its clients. As a result, the company reputation could take a major hit as a consequence, making it challenging for a business to grow in the future, or even to maintain current business volumes if customers go elsewhere.

Finding short-term solutions to supply chain issues also comes at a cost which will have a negative impact on operating margins, as well as eating into management time and taking attention away from core activities.

In an attempt to get the supplies they need at the price they want, many businesses do not fully consider the risk aspect of the decisions they are making. They may squeeze supplier’s margins to such an extent that they have no incentive to help their customer should there then be a disruption.

Other businesses may hold very small levels of raw materials in a bid to cut costs (called Just in Time manufacturing). This however leaves them very vulnerable to any disruption in supplies.

If businesses want to improve their resilience to supply chain disruption, they need to develop strong information and analysis frameworks and ensure they have the correct insurance cover in place.

When working with an insurance broker and insurer, a comprehensive supply chain risk assessment will highlight where potential problems exist. An assessment will look at every critical supplier and customer, and examine each of the processes involved from sourcing raw materials, manufacturing components, assembly, finishing, and finally being able to deliver to the customer on time.

Some insurance policies may already contain extensions in cover for these risks, but a smaller limit for unspecified customers or suppliers will usually apply. For a business with a larger proportion of its turnover relating to a single supplier or customer, insurance cover should be arranged on a specified basis to protect the business adequately. Cover can even be arranged for overseas suppliers or customers, as long as full details are provided to insurers.

Your broker can make sure that management time and money are spent wisely, giving guidance on which suppliers or customers should be given more priority in the analysis. They can also give businesses guidance on how to reduce the risks that are identified in the analysis process in order to keep everything running more efficiently.

If you want to discuss Supply Chain Risk Management or want further information please complete a website enquiry form, email insurance@blythinandbrown.co.uk, or telephone 01509 622 220.