Strategies for mitigating business loss from supply chain delays

To mitigate supply chain risk, commercial brokers and risk managers can advise their insureds to expand their vendor networks, manage and revisit their contracts regularly, work with local suppliers, and remove links in the chain, industry experts said in a panel discussion at the RIMS Canada Conference in Halifax.  

Although companies are well aware of how the supply chain works, some may not realize how many links are involved in the chain. By reducing links and go-betweens, customers may be able to circumvent disruptions, said risk management execs. 

“Some of the things we typically look at, or should be looking at, is our vendor and contract management,” said Gordon Payne, director of risk management at Fortis Inc. “I think it’s important to expand your vendor network so you’re not relying on one particular vendor for crucial parts or service. The same could be said for reliance on a particular geographic region.” 

In the same vein, panellists advised companies to work with local suppliers who are less likely to be impacted by disruptions further down the line. 

“Being mindful of how many parties are actually involved in your supply chain process [is important],” says Payne. “Oftentimes, it extends beyond the vendor or counterparty, and includes a third, fourth or fifth party as you move down the chain.  

“Limiting the number of links should reduce the likelihood of hitting a disruption along that process.” 

Business interruption (including supply chain disruption) ranks first among Canadian businesses’ top risks, and second globally, according to Allianz Risk Barometer, released earlier this year.  

Contract management is also crucial for reducing supply chain vulnerabilities.   

“It’s important to ensure there are provisions in place for dealing with disruptions,” says Payne. “That could include clauses specifying minimum service levels, or alternative suppliers that can be used in the event of an outage.” 

A holistic understanding of your supply chain risk is among the first steps a business should take.  

“Talk to your finance department; make sure you understand your business interruption exposure,” says Katherine Dawal, vice president of risk management at NFP Canada. “If you purchase delay-in-startup [coverage] on a construction [insurance] policy, make sure that you have an adequate limit…

“For risk managers, insurance is a great solution, but it’s not always the best solution. So don’t necessarily go out and buy an insurance policy just to cover that.” 

Contingency planning is also key, says Dawal. “Do you understand who your suppliers are? Who are the alternatives? What are your contingency plans? Can you go and find something that will help you get back to production sooner than later?” 

 

Feature image by iStock.com/adventtr