Knowledge Hub

Your business is not as resilient to disruption as you think!

Tuesday, June 24, 2014 | By Gregory Rose, Chief Executive Officer
Share This On: SEE ALL

Your business doesn’t have to suffer physical damage in order to incur significant uninsured contingent business interruption and extra expense losses due to disruptions to your operational chains.

The problem is such contingent interruptions are not typically covered under the standard business interruption policy and upwards of 80% of Barbadian businesses do not have adequate continuity plans to respond in time of homegrown or international crisis. If you fall into this category you need to read on and take our recommended action.

According to the FM Global supply chain Resilience Index Barbados ranks 35th out of 130 countries in resilience to disruption based on criteria such as economic factors, supply chain issues and risk quality. Disruption has proven to be costly globally:

  • The International Air Transport Association (IATA) estimated that the airline industry worldwide lost €148 million (US$200 million, GB£130 million) a day during the disruption from volcano Eyjafjallajökull.
  • After hurricane Sandy, 20% of all losses incurred were due to interruption to revenue streams from businesses that actually had no physical damages, but saw business being diverted from their region.
  • The Japan earthquake and Tsunami in March 2011 caused US$300 Billion in damage, shutting down 20% of the global semi-conductor market, Motor manufacturers suspended and eventually relocated production to alterative plants.

What could happen?

In Barbados many of our key Hospitality, Manufacturing, Retail and Public Sectors all stand at risk and are largely uninsured and unprepared today.

Contemplate a hurricane impacting Barbados, your hotel remains largely intact, however inbound tourist traffic dives along with your revenue, you are presently at risk.

A local manufacturer relies on a key supplier for product. A catastrophe in the supplier’s region makes it impossible to source the input, causing extra expenses to utilize an alternate input and delays in production. Your end product is now priced out of a competitive range. Your customers are dissatisfied with delays to market and shift to new providers. You are presently at risk

An extended strike at the Port disrupts inbound product supply to a retailer for a month. You are presently at risk

The scenarios are endless. Our island sits alone in the middle of the Atlantic and the intricacy of the global supply chain feeding business here makes it all too important that we employ sound risk management practices analyzing our situation and planning to respond in the face of crisis.

There are consequences when supply chain disrupts your business (by the numbers):

  • 60% of businesses report lost sales and revenue
  • 2/5ths incur long term reputational damage to their business
  • 43% have increased operating costs
  • 25% lose market share
  • 27% pay out additional compensation to customers affected

Source: Zurich, Risk Insight: Supply Chain – Reducing risk in your Supply Chain

What should you do?

Start with the fundamentals, risk management needs to be an agenda item in the Board room and a disciplined process throughout your enterprise.

Develop robust continuity plans. Conduct and internal exercise with leaders from all departments, evaluate not only your critical suppliers but also their suppliers and identify where there could be breaks to the process chain. Place a cost on disruption based on possible scenarios and tackle the priorities. Manage the relationship with these suppliers and dovetail contingency plans together. Adapt your continuity plans for any gaps.

Finally your property damage and business interruption insurance does not adequately cover contingent losses. Supply Chain Insurance is specifically tailored and covers disruption to your business where there is no physical damage to your enterprise, Events covered include catastrophes, pandemics, strikes, and political risks that disrupt or delay products and services. If you are unable to cost effectively mitigate the risk through management controls, you should evaluate Supply Chain Insurance as a risk financing option to ensure your survival.

Comments
Have Your Say!
Name:*
E-mail:*
Comments:*
SPAM Check*
Please answer the question:
4 - 1 =