When a freighter stuck in the Suez Canal holds up your raw materials, how does your manufacturing company fill orders? What opportunities are lost to your bicycle shop when a pandemic halts production of bikes and bike parts from your Chinese suppliers? What happens when your custom car business relies on a specific paint colour — and the one Japanese factory that produces it has been hit by a tsunami?
Outsourcing, offshoring, and lean manufacturing are practices that can help streamline production processes, increase flexibility, and minimise costs. And today these capabilities are available to companies of every size and scope. But with reliance on an external supply chain comes less control over your organisation’s ability to respond when your suppliers are unable to fulfill their orders on time — especially if you work with vendors and suppliers around the globe.
Your supply chain can be disrupted by various factors, such as:
Many companies tend to focus on internal risks, but dependence on external vendors and suppliers is also a significant source of exposure. Supply chain delays and disruptions can seriously threaten your ability to conduct business by impacting production and distribution. The time it takes to find and onboard new suppliers can precipitously increase costs, while late orders and disappointed customers can reduce revenue and decrease market share. It can take years to recover from a supply chain failure.
So, how do you help ensure the resiliency of your supply chain?
To help protect your organisation, you must first understand what makes it vulnerable. All organisations should have a formal, written business continuity plan (BCP) – a procedural document that lays out courses of action should a disaster strike, in order to minimise operational downtime and loss.
If your business relies on external vendors, be sure to identify potential supply chain risks as part of your BCP. This includes:
Each vendor or supplier will have its own sets of vulnerabilities, depending on many factors. For example, supplier facility construction type and emergency preparedness are important if it’s located in an area that’s prone to flooding or bushfires.
Based on known vulnerabilities, identify the types of events or hazards that are most likely to disrupt the supplier. Use tools such as a vendor/supplier questionnaire or checklist, as well as an on-site assessment of the company’s operations.
Reliance on third parties requires diligent vetting, consistent management, and frequent review of your vendors.
During a supply chain failure, according to the Harvard Business Review, “companies that are better prepared to act quickly have a competitive advantage.” To mitigate exposures from disruptions before they happen:
This content is brought to you by Chubb Insurance Australia Limited (“Chubb”) as a convenience to readers and is not intended to constitute advice (professional or otherwise) or recommendations upon which a reader may rely. Any references to insurance cover are general in nature only and may not suit your particular circumstances. Chubb does not take into account your personal objectives, financial situation or needs and any insurance cover referred to is subject to the terms, conditions and exclusions set out in the relevant policy wording. Please obtain and read carefully the relevant insurance policy before deciding to acquire any insurance product. A policy wording can be obtained at www.chubb.com/au, through your broker or by contacting any of the Chubb offices. Chubb makes no warranty or guarantee about the accuracy, completeness, or adequacy of the content. Readers relying on any content do so at their own risk. It is the responsibility of the reader to evaluate the quality and accuracy of the content. ©2021 Chubb Insurance Australia Limited ABN: 23 001 642 020 AFSL: 239687. Chubb®, its logos, and Chubb.Insured.SM are protected trademarks of Chubb.
We keep you informed – and your business protected – with these helpful articles.