Don’t be caught off-guard by supply chain disruptions

30 October 2018: As supply chain disruptions become more prevalent and complex, threatening the survival and reputation of organizations, businesses should be adequately insured as part of their broader risk mitigation strategies.

Malesela Maupa, Head of Insurer Relationships at FNB Insurance Brokers says supply chain disasters are a global challenge affecting all regions throughout the world, ranging from severe drought to heavy rain, cyclones and earthquakes amongst other potential risks. They have been getting worse over the past few years.

He says the key concern in today’s global marketplace is that more and more businesses rely on overseas suppliers. For example, if your company’s operations depend on the timely delivery of raw materials, parts or finished products from distant locations, the business could lose income/revenue when these goods are delayed.

A significant downturn in supply often results in increased costs for acquisition of the materials needed to continue operating. It can also result in partial or complete shutdown of the operation as it can’t manufacture or supply.

“There are various steps that can be taken to limit the impact of supply chain disruptions, such as warehousing inventory and using multiple suppliers when possible. Furthermore, purchasing the extensions under your Business Interruption policy can limit the loss. This type of insurance reimburses your business for lost profits and related costs caused by disruptions in your supply chain even if your company itself has not suffered any damage,” says Maupa.

It is also important to consider that it can take approximately two years or more for a company to recover from a supply chain failure. Significant supply chain disruptions can reduce revenue, cut into market share, threaten production and distribution, inflate costs and ultimately affect a company’s bottom line. Whether you run a global corporation or a small business, you need the proper insurance coverage to protect against supply chain failure.

Supplier’s extension can also help cover losses caused by disruptions at your suppliers’ locations or in line customers. This type of insurance is limited because it only provides coverage if the businesses you depend on are disrupted by physical property damage. For instance, if a supplier’s factory is damaged by fire or a flood and ceases to operate.

Your insurer may require your business to identify specific supplier and customer locations to be covered by the insurance policy. If you change suppliers, fail to update your insurance policy and then a disruption occurs, you may not have cover.

“In these tough economic times when businesses face a range of unprecedented risks, putting measures in place to safeguard the business against unpredictable supply chain disruptions cannot be overemphasized. Without adequate insurance cover in place your business could be left defenseless,” concludes Maupa.