After 89 years, the Peerless Potato Chip Company bagged its last crisp. The Gary, In.-based family owned business closed its doors when its largest customer, Central Grocers, Inc., filed for bankruptcy. No longer able to afford the chips on their shelves, Central Grocers, Inc. caused Peerless to dissolve.
In a 12-month period, as many as 70 percent of businesses will experience some type of supply chain disruption. It could be a critical materials supplier that can no longer source the material needed to make your product. Or, the anchor tenant that your retail store relies upon, moves. Or, maybe your existing mode of transportation for moving product to market is no longer an option.
As businesses globalize, issues of contingent business - or supply chain - interruption have become more prevalent. Similarly, as businesses migrate from being exclusively vertically integrated to outsourcing more, contingent business interruption (CBI) risk is becoming more accepted. The losses can be detrimental.
Is your business prepared? How likely is your business to experience a supply chain disruption in the next 12 months? Should you experience one, how likely is your business to dissolve because of it?
Develop supply chain resiliency
Today’s businesses have a lot to focus on. But, the number one concern, as it relates to business interruption, is supply chain risk. Businesses can no longer afford to overlook CBI. Here’s a list of best practices to get you thinking about supply chain resiliency ahead of a major disruption.
- Visualize your supply chain. As many as 66 percent of organizations don’t have full visibility of their supply chain. Buck the trend and map your supply chain. Who is your direct Tier I supplier? Where does your Tier I get their supplies (your Tier II)? Where does your Tier II get their supplies (your Tier III)? Go as far back as possible.
- Conduct a supply chain assessment. An average of 41 percent of disruptions occur at the Tier I level. Most losses are still physical in nature, including fire, natural disaster, like a seasonal hurricane. Consider the geographic risks at play in each Tier, including weather, transportation and economic and political instability.
- Create a financial model of potential scenarios and costs. Identify the costs associated with each scenario, including loss of revenue and extra expenses as they relate to the disruption. If you have a critical supplier loss, how long will your in-house inventory last before the BI begins? How long will it take to identify a new supplier, and will there be new costs associated with the new supplier? As in the Peerless Potato Chip Co., what if your customer is so disrupted they can no longer sell your product? How will you get it to market? Will you have to discount the product? What’s the potential loss of time between the two? Quantify the costs and include them in the financial model.
- Look to transfer the burden. Transferring the burden of supply chain risk begins with sourcing the right CBI coverage. Complimenting your existing BI coverage, CBI coverage will pay for financial losses directly related to a disruption in your business supply chain. This could include a customer that can no longer pay you for goods you’ve supplied them (i.e., the Peerless Potato Chip Co.), or when physical damage to your property, or that of your vendor, hinders your ability to produce or sell your product.
Start today in preventing supply chain losses
Don’t be one of the 70 percent of businesses that falls victim to a supply chain loss this year. Ask your HUB broker to conduct a full supply chain assessment on your business, and determine your best options for long-term CBI coverage to safeguard your company from supply chain risks.