Marsh: Economic Downturn Increases Supply Chain Risk
he economic slowdown will increase companies’ supply chain exposures, warns Marsh, a provider of insurance and risk management services. In the UK, for example, financial instability and deteriorating economic conditions are prompting companies to improve efficiency and drive down operating costs in their supply chains, said Marsh.
But it warns the moves will also increase their risk exposures. Marsh is advising companies to assess their supply chains and identify ways to mitigate risk. Options include reviewing their business interruption strategies, supplier network and financial exposures and taking advantage of new insurance solutions that address risks previously regarded as uninsurable.
For example, as companies seek to get best value from their suppliers in these tough economic times they are faced with increased risk of being let down. Firms tend to monitor their biggest suppliers closely, yet it is often their smaller suppliers, more susceptible to a disruption, which can pose the greatest threats. The impact of a breakdown in a small but critical part of the supply chain can halt a company’s production process or order fulfilment. Another example is volatility in fuel pricing, which has had a major impact on the production and delivery of goods.
While the economic benefits of more globalized supply networks are clear, the financial risks from supply chain interruptions have become far more acute. Insurance products are being developed that approach this kind of business interruption more broadly than previously available. As companies seek to reduce costs, they also need to manage their risks more proactively.
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For more insights on the issue of risk management and how it impacts business continuity, including the issues noted by Marsh, read: A Risk Management Approach to Business Continuity: Aligning Business Continuity with Corporate Governance.
Tags: Business Continuity, business interruption strategies, enterprise risk management, risk exposures, Risk Management, supplier network, supply chain exposures
