Managing the Strategic Supply Chain
/By Russ Banham
In this era of globalization, few strategic initiatives are more global than a company’s supply chain. Many are so geographically far-flung, astoundingly complex and rife with risks, the word “chain” no longer does the concept justice. Given the myriad, crucial links between manufacturers, tiers of suppliers, distribution outlets, logistics and transportation providers and customers, a more apt description would be supply net, albeit one encompassing the globe...
These risks are a multi-headed Hydra, ranging from natural and man-made disasters, transportation boondoggles and regulatory changes to political strife, labor strikes and technology failures...
Hennes, Fahrenthold and many other risk managers have a systematic approach to managing supply chain risk. First, identify and assess various threats and quantify them for potential severity and frequency. Then establish mitigation strategies such as alternative suppliers or financial programs that could include insurance to shed remaining risk to third parties... Such mitigation strategies include contracting a backup supplier in the event a primary supplier cannot meet its obligations; more due diligence given the financial strength and security of suppliers; and evaluating the ability of manufacturing facilities to withstand fire and other natural disasters...
Massowd from Liberty Mutual agrees the concept has merit but comes with risk. “Satisfying market demands before fickle consumer tastes change makes tremendous sense, but what if the company’s global vendors aren’t able to deliver supplies because of transportation delays, customs issues, political and economic stability, or some other reason?” he says. “The company now confronts the possibility of not fulfilling its obligations to its own customers — not through its own fault, but the fault of others.”
In recent years, the property and casualty insurance industry has enhanced the coverage to absorb losses beyond those caused exclusively by property damage. Such contingent business interruption policies also now cover losses caused by suppliers that are unable to meet their contracted obligations for both property and non-property related reasons, such as health pandemics, regulatory changes or labor strikes.