At a glance
- From food manufacturers to construction giants – almost every type and size of organisation can face potential supply chain disruption
- Supply chain risk is progressively seen as a key strategic risk, requiring board-level attention
- We explore six case studies that show how supply chain risk management and transfer can generate wide-ranging benefits for businesses
Supply chain disruption can occur in any industry sector, threatening profitability, reputation and financial stability. As supply chain is progressively recognised as a key strategic risk by businesses, there are now a range of helpful risk management and risk transfer solutions on offer.
Here, Nick Wildgoose, Zurich’s Global Supply Chain Product Leader, explains how we were able to develop a tailored solution to six real-life supply chain challenges facing our customers.
Case study 1: Pharmaceutical sector
Challenge: A pharmaceutical company which outsourced all its manufacturing needed help to better assess and manage its supply chain risks – where 100% of its profits were tied up.
Solution: Zurich was asked to conduct a supply chain risk assessment. We carried out checks on a number of the company’s key suppliers, and identified a reliance on one particular supplier whose products could not be sourced elsewhere.
The biggest benefit for the customer was our proven methodology, which enabled us to carry out a risk assessment more quickly and cost effectively than if the customer had conducted it in-house. This customer is also now considering risk transfer through our supply chain insurance coverage.
Case study 2: Construction
Challenge: A renewable energy firm wanted to reduce some of the risk involved in importing wind turbine components from across Europe, in order to protect its cash flow and the viability of its project.
Solution: The customer decided to transfer some of its risk to Zurich, and benefitted from our expertise and experience in insuring renewable energy projects. De-risking the project in this way also had a significant added benefit – it enabled the customer to obtain more favourable interest rates when borrowing money for the project. There have been many similar examples where our involvement has helped to facilitate investment. By de-risking certain elements of project financing, for example, we have been able to reduce the risk threshold to a level investors are prepared to accept.
Case study 3: Food
Challenge: A major food manufacturer needed help to better understand its critical suppliers.
Solution: We were commissioned to carry out a risk assessment, and discovered that many of this firm’s critical suppliers were dependent on a single port in Thailand. Armed with this knowledge, the company was able to take action to avoid increasing its reliance on this port. We were also able to suggest other possible risk mitigation measures the customer could take, such as increasing the inventory it held, shipping stock out earlier, or considering alternative ports.
Case study 4: Technology
Challenge: This tech firm relied on a number of suppliers across the globe, and wanted a quick risk transfer solution.
Solution: We first helped the customer to better understand who its critical suppliers were. It originally thought it had around 30 suppliers that it needed to assess and monitor, but we identified that only six of these were critical suppliers, where no alternatives could easily be found for the goods or services they provided. We then provided the requested insurance coverage which named five of these six suppliers on the policy.
This firm has been renewing its cover for several years, and has been able to significantly increase its capacity without paying a higher premium, because we have built up a close working relationship to improve the supply chain resilience.
Case study 5: Aerospace
Challenge: This company needed support to identify where the value lay in its supply chain, and also wanted to improve its business continuity management.
Solution: We were able to improve the risk segmentation of this customer’s suppliers, in order to identify where the true value lay. This cost-effective approach allowed the company to focus on suppliers where risk of disruption was greatest, and where disruption would have the greatest impact. We also introduced the customer to a third party which now provides its supplier business continuity planning support.
Case study 6: Real estate
Challenge: Our customer, a landlord, had reached an impasse in negotiations with a prospective tenant over their proposed move into a large office space. The tenant had asked for a multimillion pound compensation pay-out in the event they should have to vacate the premises due to a failure of services/utilities, which the landlord was reluctant to agree to.
Solution: We worked with the landlord to develop a tailored risk transfer solution, in which we agreed we would compensate the tenant should the premises suffer a services failure or failures lasting a defined minimum period of time over the course of a year, with the landlord responsible for disruptions up to that point. The tenant was happy to go ahead on this basis, and the landlord secured significant rental income.
Most organisations still not protected
The 2017 edition of the Business Continuity Institute’s (BCI) Supply Chain Resilience Report – supported by Zurich – revealed that 51% of organisations do not insure against potential supply chain losses.
Of those that do, most will only have cover for physical damage at tier one suppliers. Only a very small fraction will have a more comprehensive cover, of the kind that Zurich can offer. Our award-winning supply chain risk and insurance solution can include broad, multi-tier cover, for physical damage as well as a range of non-physical risks.
For more information on how to identify and protect against supply chain risk, speak to your local Zurich contact.