Supply Chain Trends and Business Interruption Risks

While lean manufacturing has become a cornerstone of successful supply chain management and a way for businesses to stay flexible and responsive to changing tastes in their markets, the dependence on suppliers resulting from outsourcing and minimizing stock creates a host of exposures for businesses taking advantage of supply chains.

A key supplier or buyer can be debilitated for a number of reasons: natural (floods, pandemics, earthquakes, severe storms), human (terrorism, civil disorder, electronic security breaches) or technical (power failure, hardware or software viruses). These disruptions are more common than one might imagine.

A survey of corporate risk managers and supply chain risk managers by insurer Zurich Services Corporation revealed that 74 percent of respondents had experienced a supply chain disruption in the last 12 months, and that these interruptions caused approximately 10 percent in lower sales and 11 percent in higher costs. Beyond these direct losses, it is important to consider the lasting damage to your brand and possible loss of market share you could suffer after an interruption in your supply chain or energy supply. Consider the following steps you can take to mitigate your business’s risk:

• Choose suppliers carefully, and conduct regular audits and inspections if possible to ensure that their commitment to business interruption prevention matches yours.


• Work with your broker to understand the extent of your exposure, and create a business interruption worksheet to quantify as accurately as possible the effect these exposures could have on revenue and profit. Re-evaluate it on a regular basis to account for changes in the market or your business model.


• Transfer your risk by purchasing appropriate coverage, which could include business income disruption and other special endorsements specific to your exposures.