Business disruptions can put undue financial strain on companies, particularly when orders or deadlines cannot be fulfilled on time. They may incur expenses related to back-up suppliers and transport expenses; which will only compound their woes further.
1. Inventory Management
Modern supply chains are intricate networks with many vendors and customers involved, which means any disruption at one point could have far-reaching repercussions for other parts of the chain.
Businesses will need to try to reduce risk through adequate stock, taking advantage of alternative supply contracts and having diversified raw material sources. And insurers can provide contingent business interruption (CBI) coverage for businesses as well.
CBI and supply chain coverages are commercial property & casualty policies that cover businesses lost income due to covered events, unlike business interruption policies which tend to stipulate physical damage as a primary claim.
Numerous events can cause business disruptions, including natural disasters, terrorist attacks, geopolitical tensions, riots and civil unrest, port closures, infectious disease outbreaks, economic downturns and data breaches. Some events may be covered under standard property & casualty insurance policies while many more will not.
2. Contingency Planning
Today’s supply chains are so strong and successful precisely because they are nimble and inexpensive, and this same trait leaves them vulnerable to disruption. They are best saved by contingency planning, where you will develop contingency plans in case an unplanned situation such as natural calamity or road issues strikes the business.
At the outset of any planning process, the first step should be drafting a contingency plan policy statement which grants authority for creating specific plans. Following that step, a business impact analysis must be performed to identify and prioritize information systems vital to fulfilling a company’s mission or function.
Finalizing these steps with business interruption insurance entails purchasing coverage against income loss and additional expenses caused by an insured event. Since policy specifics vary widely, independent logistics expertise should be consulted on available coverage options – Descartes’ parametric non-damage business interruption coverage provides great protection from earthquake events that disrupt critical inputs like semiconductors that cause financial losses.
3. Supplier Relationship Management
Successful businesses rely on resilient supply chains. Globalization has opened the door to incredible economic opportunity, but has also created risks and vulnerabilities that are difficult to mitigate on a global scale.
Implementing an SRM strategy effectively offers greater transparency and real-time visibility across your multienterprise supply chain, allowing for improved risk evaluation and mitigation, as well as strengthening relationships with key suppliers for your operations.
Closer relationships also promote improved responsiveness, enabling you to respond faster to disruptions. Furthermore, they help you anticipate issues more accurately so you can work with suppliers on resolution before they escalate into business interruption losses.
Insurance policies offering supply chain disruption coverage provide invaluable protection from the costs associated with significant losses, such as paying premium rates to locate alternate suppliers or expediting deliveries in order to meet delivery deadlines. Taft’s experienced recovery attorneys can assist in filing claims under these policies and maximizing coverage through mediation or litigation as needed.
4. Insurance
As more companies look for ways to minimize supply chain disruption losses, insurance can provide a financial safety net. Businesses should begin by assessing their unique risks and consulting with knowledgeable insurance professionals; these professionals can be invaluable in helping navigate through the often complex process of identifying an organization’s insurance requirements and suggesting crucial coverages.
Insurance is an essential component of any comprehensive business interruption management plan; however, standard commercial property & casualty policies may not provide enough coverage to address supply chain disruption losses.
To trigger business interruption coverage, your policy typically must cover direct physical damage to the property. Therefore, it’s essential that you read over its terms and conditions carefully in order to be covered by it. Additional comprehensive protection may be offered through contingent business interruption (CBI) or supply chain insurance policies which cover manufacturers for revenue losses due to disruptions at supplier or customer locations caused by events like riots, political unrest, natural disasters and even cyber attacks.
