As an entrepreneur, you depend on suppliers who can be affected by risks such as natural disasters, unpaid bills, transport disruptions or political unrest. There are plenty of examples: the Russian import ban on Belgian pears resulted in a loss of income for farmers and exporters, the Icelandic ash cloud disrupted air traffic across Europe, adversely impacting the whole economy, and the earthquake in Japan brought production lines to a standstill at car manufacturers throughout the world.
Traditional insurance programmes rarely contain comprehensive cover and therefore it would be advisable to choose a specific solution for your supplier risks through Supply Chain Risk Management.
You can reduce these risks by preventing them. An extensively branched transport network, a stable political system, strict safety standards and limited risk of natural disasters are important factors when choosing a suitable location for production and storage.
You should then look to reduce the supplier risks that remain. A supplier’s fire risk, for example, can be reduced by requiring the installation of a sprinkler system or establishing risk management standards in a Service Level Agreement.
If your supplier nevertheless has a delivery failure, you can still limit the damaging effects by having a Business Continuity Plan in which you have listed all possible contingencies in advance.
The most common damaging incidents can be covered either in whole or in part by insurance, for example by taking out the ‘supplier extension’ in your loss of profits insurance. A number of new risks are not, however, covered by traditional insurance products.
For this reason, the insurance sector has developed specific policies that provide comprehensive cover for the most important dependency risks, such as:
- natural disasters;
- computer network or hardware breakdown;
- energy supply interruption;
- transport disruptions;
- suppliers becoming unable to pay their bills;
- political risks.