Are you putting too much trust in your suppliers?

What's that saying about having all your eggs in one basket? 

Well, it carries a certain amount of truth when it comes to supplier arrangements – if you're heavily reliant on a single supplier you may be exposing your business to unnecessary risk. 

That said, there can certainly big advantages to keeping your supply arrangements simple.

So, no matter how diverse your supply chain, it's always important to take steps to protect your business against supply risks that are beyond your control.

Just ask BMW, who were forced to halt production at their plants in Germany, China and South Africa in 2017 due to supplier issues with steering gears. The shutdowns, which lasted less than a week, reportedly cost the automaking giant 10 million euros a day.

External supply chain risks

Identifying the supply chain risks that your business faces is an important first step. To get you started, here's a handy checklist – care of Business Queensland – of supply chain risks that are outside of your control:

  • Demand risks - caused by unpredictable or misunderstood customer demand.
  • Supply risks - caused by any interruptions to the flow of product, whether raw material or parts.
  • Environmental risks - usually related to economic, social, governmental, and climate factors, including the threat of terrorism.
  • Business risks - caused by factors such as a supplier's financial or management stability, or purchase and sale of supplier companies.
  • Physical plant risks - caused by the condition of a supplier's physical facility and regulatory compliance.

The handbrake that a poor supply chain can have upon business as usual, and/or your business’ growth can often be far more damaging than many owners anticipate. That’s why it is so vital to find the right insurance for your business.

“No matter how diverse your supply chain, it's always important to take steps to protect your business against supply risks that are beyond your control”

Flow on effects

In just a few short months, Australia has witnessed 120 wildfires raging simultaneously in Queensland, a spike in Chinese hacking and even needles in strawberries

Each of these events have not only been devastating for the businesses directly affected, but have potentially triggered flow on effects for those within their supply chains. 

So what exactly could a supply chain incident mean for your business? 

  • Reduced revenue – if you are unable to sell particular products or services.
  • Decreased market share – your customers are forced to shop elsewhere while your service is disrupted and they decide not to return. 
  • Inflated costs – if you have to switch to another supplier at short notice. It can also be very costly to meet your contractual obligations with third parties whom you supply the products or services.
  • Reputational damage – supply chain disruptions can leave your business with bad reviews, bad press, and reduced consumer confidence.

Of course, if you have a diverse range of suppliers, you face a wider range of potential supply chain risks, but you're likely to be less vulnerable to them. 

Being too heavily reliant on a single supplier can leave your entire business exposed to losses.

Of course, despite your best intentions and planning, sometimes the shoe might be on the other foot and you could be the supplier letting your customers down. If this is potentially a result of management issues, Management Liability Insurance may ensure you are adequately covered.

Mitigating the risk

While a supply chain incident may well be out of your control, something that is within your control is the ability to mitigate your risk with insurance. 

Business interruption insurance may cover the loss of any sales you would have made while your business is out of action due to a supply chain incident. It may also cover any extra costs that you incur to stay open – issues like ongoing operating expenses such as electricity and rent, relocation costs, and damage to a supplier’s premises.

If a particular product, or component within your supply chain is impacted, Product Liability Insurance may step in.

It may help cover the cost of investigating and defending your business against a product related claim. It may also cover the cost of any damages awarded to a customer if your business is found to be at fault.

To identify any supply chain risks your business faces and to mitigate the risk– speak to your insurance broker. 

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The views expressed are those of the author only and do not necessarily reflect those of Steadfast.

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