Guarding Against Supply Chain Disruption

May 14, 2021 | What A Ride Jack Carra, Senior Vice President, LMC Insurance & Risk Management, an AssuredPartners agency,

The disruption caused by the COVID-19 pandemic and the recent traffic jam in the Suez Canal have spotlighted the importance of business continuity planning and guarding against supply chain disruption. No matter the size of your business, if you rely on materials and inputs from outside companies, you need a plan. To begin, identify the risks within your supply chain and document them in your business continuity plan. External risks can be categorized into four main types:

• Flow interruptions, which are interruptions causing problems to the movement of products, such as raw materials or parts.

• Environmental risks, such as social, political, terrorism, or weather-related factors. This includes the COVID-19 pandemic.

• Business risks, including factors like the purchase or sale of a supplier company or a supplier's poor financial or general stability.

• Physical plant risks, such as problems at a supplier's facility. The best way to manage a supply chain disruption is to be prepared. Form a team of key personnel to model how the disruption might impact sourcing and inventory. For the four risks listed above, consider how would your operation be affected and build contingencies:

• Assess how you would respond to all the "what if" scenarios that could affect your operations.

• Identify at which point you would need to execute risk-mitigating measures, such as sourcing from other vendors or using new distribution channels.

• Assemble a contingency management team to bridge the divide between departments.

• Make sure your supply chain is flexible enough to deal with risks by addressing current supply chain bottlenecks and investigating alternative transportation network configurations or production systems. Mitigation strategies can help prevent or minimize potential disruptions and should be your first line of defense. However, insurance is also an essential component that should be carefully examined to ensure adequate protection. Contingent business interruption and supply chain insurance are among the specialty insurance policies that can limit your exposure to loss. Recovery from a supply chain disruption can take two years or more. An experienced insurance professional is a valuable resource – working with you to conduct a risk assessment, prepare a business continuity plan, and secure the appropriate insurance coverage.