The Knowledge – client action needed on supply chains as risk grows

Some 42% of the brokers polled for this month’s survey had clients who had experienced a supply chain interruption in the past year. The reasons for these disruptions include physical damage (such as fire), natural disaster, bankruptcy and cyber intrusion.

Despite growing awareness of supply chain risk, the results indicate little progress is being made in managing and mitigating the exposure. Three-quarters of broker respondents said mid-market clients were more exposed to supply chain risk today than five years ago, as a result of increased outsourcing, lean manufacturing, globalisation and economic factors among others. But only 45% thought this segment was being more proactive.

Lack of resources is one factor. “Some do manage their risk,” said one broker. “Others are not large enough as customers to sufficiently influence the supply chain.” This is made even more difficult by ever-tighter margins in many supply chains.

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 While companies might be aware of the risk, “there is still a very large cost influence on decision-making”, one Lloyd’s broker said. “Manufacturers of larger margin products (such as cars) can take a more pragmatic approach, but even here there probably needs to be greater stocking of smaller (but still critical) components in case of supply disruption,”  he added.

The complexity of today’s supply chains and prohibitive cost of implementing risk management recommendations prevents many small and mid-sized firms from building greater resilience into their sourcing of goods, services and components. Brokers say they are talking to clients about continuity planning, multi-sourcing, buffer stocking and supply chain mapping to identify areas of concern.  

While 41% of brokers are helping their clients to transfer supply chain risk to the insurance market, most said this was in the form of relatively unsophisticated and limited suppliers extensions to traditional business interruption policies.