If You Can’t Measure Supply Chain Risk, Talk to Your Insurer

Supply chain optimisation is the reason why companies like Walmart dominate their sectors. Supply chain continuity is essentially business continuity in this case. That should mean risk assessment and mitigation to make sure everything keeps working. However, supply chain risk seems to be a slippery item that is difficult to pin down. Businesses often state their concern about the chances of interruption to their supply chain, yet have no clear solution for measuring or managing that risk. Could your insurer help out?

A number of insurers want to provide more customers with more insurance against supply chain discontinuity. Already active in other areas relating to business continuity, they see supply chains as a largely untapped market for insurance. They also realise both the challenge in assessing the risk and the need to convince businesses of the desirability of buying or extending an insurance policy for the added protection.

So some insurers have been studying supply chains or partnering with established experts in the area. They have been combining traditional insurance models with the models for assessing process risk in complex factory contexts. They have even been adding in techniques for modelling and evaluating risks due to weather and pandemics. The results are new models for putting a price on, and transferring risk associated with supply chains.

Armed with these techniques for measuring supply chain risk, the next hurdle is to get businesses to buy in. On the plus side, top management in organisations appears to be increasingly committed to finding a better way to tackle this risk. On the minus side, risk managers still appear to be largely positioned in either legal or compliance functions in their respective enterprises, but without addressing the supply chain. Perhaps CEOs and insurance companies working in tandem can help to adjust risk management expertise and orientation, and finally get supply chain risk measured and managed too.

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