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Risk Management for the Supply Chain

You’re probably tired of hearing about issues with the supply chain since the pandemic. While lean production helps companies stay efficient, it also amplifies the possibility of disruption when there’s no stock on hand to cover a hiccup from farther up the chain.

The results of these widespread issues with the supply chain go far beyond the inconvenience of having to wait for a vehicle to be built, for one example.  A company that can’t provide its products in a timely manner can lose customers and market share, face breach of contract litigation, or fail to meet regulatory or legal requirements. Any one of those could create a situation from which it might not recover.

Worse still, a supplier’s problems can create big liability problems for its client companies. All the issues up and down the chain have left many manufacturers and suppliers seeking new partners, potentially impacting product quality and safety. Even if you, as a seller or wholesaler, exercise all possible care in preparing a given product, you can still be held responsible and sued by an injured third party, individually or together with the others responsible for bringing the product to market.

There are ways to mitigate this risk, however. Here are some best practices:

  • Choose your suppliers carefully and audit them regularly, conducting inspections if possible. Check their Moody’s or S&P rating and verify their insurance coverage on an ongoing basis (an insurance certificate proves only that insurance was in effect when the certificate was written).
  • In conjunction with specialized legal counsel, draft contracts and clearly define the scope of those contracts. Consider including indemnification, hold harmless and defense agreements.
  • Work with your insurance broker to develop a complete understanding of your exposures, and create a business interruption worksheet to quantify the effect those exposures might have on revenues and profits. Revisit this worksheet regularly as market conditions change.
  • Have a Plan B for each element in the supply chain if possible. Our interconnected economy is such that disruption anywhere in the world can have a very real impact stateside. Know what your fallback position will be in the event of an issue with each and every supplier. Seek out suppliers with multiple locations, who will be better able to withstand a disruption in a given part of the world.
  • With your broker, craft a plan to transfer risk by acquiring appropriate coverages, which might include Business Interruption, Marine and Cargo coverage or other specialized endorsements specific to your needs.

Wholesalers and manufacturers are by definition dependent on a supply chain that has been increasingly unreliable. Time taken now to insulate your business from potential damage to your reputation and profits will be well spent.

Questions about coverage for your wholesale or manufacturing business? Contact Consolidated Insurance.

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