Supply Chain Risk Management Tips
While lean manufacturing 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 minimizing stock creates a host of exposures. Successfully navigating and managing supply chain risk management issues can be precarious.
Supply Chain Risk Management Factors
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 Canada. And disruptions are more common than one might imagine – a 2011 survey of over 500 companies from 62 countries across 14 different industry sectors conducted by the U.K. Business Continuity Institute and Zurich Financial Services Group revealed that 85 percent of respondents had experienced a supply chain disruption in the last 12 months, 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 (or worse):
- Reduced market share
- Loss of customers
- Damage to image, reputation or brand
- Higher cost of capital
- Potential breach of contract
- Failure to meet legal or regulatory requirements
- Decrease in sales and increase in costs, from which many companies never recover
Managing Potential Liability Through Supply Chain Risk Management
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, off-shore 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.
Mitigating Risk Through Supply Chain Risk Management
How can a risk manager use supply chain risk management to effectively mitigate risk in such an environment? Fortunately, there is a growing body of best practices for supply chain risk management. One of the most important things is to stay abreast of every development in your environment. Consider the following supply chain risk management steps you can take to mitigate your business’s risk:
- Choose suppliers carefully, and conduct regular audits and inspections if possible to ensure that their commitment to business interruption prevention matches yours.
- Check the financial stability of potential suppliers through Dun & Bradstreet, Moody’s or S&P rating etc.
- Verify suppliers’ insurance coverage. Remember, a certificate of insurance is evidence of insurance only when the certificate is written, and should be secured annually.
- Clearly define contract scopes and draft contracts carefully with the assistance of specialized legal counsel. Consider indemnification, hold harmless and defence agreements.
- Work with ALIGNED Insurance to understand the extent of your exposure, and create a business interruption worksheet to quantify as accurately as possible the effect these exposures could have on revenue and profit.
- Focus not only on the inherent risk of a broken link in the supply chain, but the inter-dependencies between links throughout the chain to improve supply chain risk management.
- When there is a global event, examine your supply chain risk management to see if it would respond appropriately if the loss happened in your chain.
- Be aware of developing risks, e.g., cyber warfare, climate change, nanotechnology, synthetic biology etc..
- After identifying risks, put a supply chain risk management plan into place. While it is easy to prioritize speed over follow-through, identifying risks is of little use if steps are not taken to mitigate these risks. Plans might include these components or others:
- As part of your supply chain risk management plan execution take advantage of cloud technology and or geographical diversification of servers.
- Your supply chain risk management plan should include plans to relocate business to an alternate location if needed.
Take Collaborative Approach To Supply Chain Risk Management Planning
Engaging experienced supply chain risk management partners, advisors and insurers in your effort to minimize 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. ALIGNED Insurance can help you get started and assist along every step of the way.
To Learn More About Supply Chain Risk Management Connect With An ALIGNED Insurance Advocate Today at www.alignedinsuranceinc.com
