Spanning the globe from Japan to New Zealand to Thailand to Iceland to the United States, a series of natural disasters in the past two years caused significant supply chain disruptions. These disasters have shown that supply chain exposures are an ongoing risk for many businesses, and that this risk can cause serious financial and reputational consequences. Along with earthquakes and adverse weather activity, other major causes of supply chain disruptions are unplanned outage of IT or telecommunication systems, transport network disruption, insolvency, civil unrest/conflict, and cyber attack.
According to a survey of corporate risk managers and financial executives conducted by Dempsey Partners in February 2012, 61% said they had experienced a supply chain disruption in the last five years that led to a loss of earnings. Companies are increasingly relying on their supply chains to produce their products and deliver to their customers. With the rise of online communication and worldwide delivery, both large and small businesses are subject to supply chain risks. The exposure does not end at a company’s direct supplier but extends to suppliers of their suppliers as well.
In addition to not receiving the product for which the company has contracted, the disruption can come from discovering that a product is not to the anticipated standards, which have resulted in massive recalls in recent cases.
So how does your company address the supply chain exposure? Is the exposure addressed in your commercial insurance policies or in an alternative risk transfer mechanism? Have you experienced any supply chain disruption in the past 5 years?