Despite a number of wake-up calls from last year’s catastrophic events, many organizations still lack complete visibility into their supply chains and remain vulnerable to the next disaster, according to a new whitepaper published today by Marsh.Many risk managers are also still not adequately familiar with the tools that are available to help them mitigate their supply chain risk and improve resiliency, including insurance options, Marsh said in the report, Supply Chain Resiliency: How Prepared Is Your Organization?
Last year’s devastating earthquake, tsunami, and nuclear event in Japan and devastating floods in Thailand resulted in significant business interruption losses due to the impact these events had on key suppliers. Companies in the electronics, semiconductor, automotive, and many other sectors were affected with many not yet completely recovered from these and other events.
“Even after repeated warnings about the fragility of supply chains, too many organizations continue to focus on efficiency at the expense of resiliency in the end-to-end design of their supply chains,” said Gary Lynch, Global Leader of Marsh Risk Consulting’s Supply Chain Risk and Resiliency Solutions Practice, and one of the authors of the report. “Many organizations also continue to suffer from a lack of collaboration between business leaders and risk managers, adding unnecessary complexity and sophistication to supply chains.”
To build more resilient supply chains, Marsh recommends an approach that includes an organization’s total exposure, including non-physical perils, aligned to the value it derives from key products or other sources of revenue. This approach, which relies heavily on the use of analytics, can help an organization identify single points of failure in its supply chain along with risk mitigation and financing options.
Risk managers are also encouraged to become more familiar with emerging supply chain insurance products, which are considerably broader than traditional contingent business interruption (CBI) and contingent extra expense (CEE) products on which risk managers have previously relied.
“The CBI and CEE products that risk managers have historically looked to do not cover the increasingly frequent disruptions that many organizations face, which are not related to physical damage,” said Ben Tucker, a senior vice president in Marsh’s Property Practice and an author of the report. “For example, the eruptions in 2010 and 2011 of the Eyjafjallajökull volcano in Iceland caused little physical damage to insured property, but still led to significant disruptions and delays in the transport of goods and services into and out of Europe.”
In addition to indemnifying for business interruption and extra expenses resulting from physical damage to suppliers, supply chain insurance products also offer insureds protection against non-physical interruptions to their supply chains. These can include strikes, riots, ingress/egress, service interruption, and pandemics.