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Building resilience in the supply chain for manufacturers

At a glance

  • Manufacturing supply chains can be complex webs that are often exposed to multiple risks
  • Around 75% of organisations reported significant disruptions to their supply chain in 2013, according to the BCI
  • Zurich also offers supply chain risk assessments and related insurance products to help minimise the number and consequences of disruptions

Supply chains are the linchpin of today’s global economy, especially for manufacturers. These complex webs, through which businesses source the most critical components that make their products, stretch around the world and are often threatened by a wide range of risks.

Natural disasters, like Japan’s 2011 earthquake and subsequent tsunami, forced the closure of some the world’s biggest parts plants overnight. Recent political instability in Russia and the Middle East also highlights the vulnerabilities facing these vital trade arteries. Yet manufacturing customers may still be hesitant when it comes to investing in risk management around their supply chains.

“Supply chains are more complicated than ever, and supply chain disruptions are an on-going and major issue for UK manufacturers,” says Nick Wildgoose, Global Supply Chain Product Leader at Zurich.

A threat to growthUnknown

According to the Business Continuity Institute’s (BCI) fifth annual Supply Chain Resilience Survey, 75% of organisations reported significant disruptions to their supply chain last year, citing IT glitches, adverse weather, product quality and transport disruption as just some of the offenders. And in its recent publication Materials for Manufacturing, EEF, the manufacturers’ organisation, warned its members that security of supply is a “threat to growth.”

Encouragingly, big manufacturers have grasped the importance of protecting their supply chains with a number now building in-house teams to manage this risk, says Nick.

However smaller, mid-tier manufacturers often can’t afford in-house expertise and increasingly depend on brokers and insurance providers to understand the issue and offer solutions best suited to their business.

Risk management is increasingly vital as more mid-market manufacturers now outsource to reduce costs and access specialist knowledge and skills. These businesses have honed lean supply chains to create economies of scale, but have also raised the spectre of what Nick calls “a single point of failure.”

Although new trends, such as companies moving their sources of supply closer to home, can reduce risk, many can’t be fixed. “Britain will always depend on importing of certain key commodities, and due to this face a number of interconnected risks,” Nick says to illustrate the point.

Understanding where disruptions might come from

Traditional insurance coverage for manufacturers has been limited to mostly protecting against disruptions affecting tier one suppliers and physical damage events in the supply chain, such as a fire or flood. But Zurich is providing broader coverage, where no damage is involved to cover disruptions, which can encompass data failure and suppliers further down the chain.

It’s important the supply chain risk assessment process is comprehensive, we look at 23 different risk areas but to make a substantial improvement often does not require large investment

Nick Wildgoose, Global Supply Chain Product Leader at Zurich

As according to the BCI report, 42% of disruptions originated below the tier one supplier in 2013, an increase from 2012.

If necessary, Zurich can provide supply chain risk assessments and help businesses assess where their risk lies and what its impact might be. “It’s important the supply chain risk assessment process is comprehensive, we look at 23 different risk areas, but to make a substantial improvement often does not require large investment,” says Nick.

Companies increasingly need to provide more detailed information to their insurers about their supply chain exposures and their contingency plans because brokers and insurers need to understand this to provide the relevant coverage limits, says Nick.

Supply chain is woven into all aspects of the wider insurance offerings, including marine, property, product recall and liability insurance. Supply chain risk management is a complex and interconnected risk topic, which needs to be led and supported by top management within the manufacturer.

“Brokers and insurers need to ensure that their supply chain risk assessment and insurance propositions continue to evolve, such as Zurich’s non-damage coverage where our manufacturing customers need us to be,” says Nick.

For more information on helping your customers identify and manager their supply chain risks, please speak with your local Zurich contact.

Image © Getty

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