4 Reasons Why You Need Supply Chain Insurance
by Rolf Zimmer
… and why it’s easier (and cheaper!) than you think. ‘Supply chain risk’, ‘insurance’ and ‘easy’ are not words that usually go together. But, with the advent of Big Data and Saas technology, insuring your supply chain has never been easier or cheaper.
Everyone knows that modern supply chains are increasingly complex and vulnerable to risk, and that they should probably have (or get) supply chain insurance. But, everyone also knows that getting supply chains insured is difficult, time-intensive and incredibly expensive. What most people don’t know, however, is that getting supply chain risk insurance doesn’t have to be so hard or cost quite so much.
In this first part of our three part series on supply chain risk insurance, we will cover the four main reasons why supply chains are becoming more and more vulnerable, and why supply chain risk insurance is increasingly expensive and exhausting to get.
Our 4 Reasons Why You Need Supply Chain Insurance
Reason 1: Globalization
The effects of globalization are immense and by no means slowing down. Globalization continues to spur vertical integration, outsourcing and value added supply chains. The Automotive industry is a perfect example of these trends: 75% – 85% of products are developed by suppliers, with more and more key innovation coming from Tier 1 and Tier 2 suppliers. As a result, complex supply chains are becoming even more complex.
But, supply chain complexity and supply chain risk are intertwined; as a supply chain becomes more complex, it simultaneously becomes more susceptible to risk. The more complex the supply chain, the more opportunities there are for it to be disrupted.
Reason 2: Best Country Sourcing
It is impossible to quantify the value that best country sourcing brings to procurement and supply chain, but the benefits do not come without risks. Suppliers selected from best country sourcing are frequently in emerging countries with heightened geopolitical or environmental risks, and where regulatory enforcement is less reliable.
Reason 3: Demand & Supply Aggregation
Procurement’s drive for demand and supply aggregation dramatically reduced their number of suppliers, so much so that many critical supplies are now single-sourced. But, reducing the number of suppliers also increases the number of risks in the supply chain; a risk that affects a single-source supplier is a risk that affects your entire supply chain.
Reason 4: Environmental and Social Responsibility
Any corporate wrongdoing in the digital age won’t remain a secret for long, if at all. It has never been easier to uncover corporate misconduct, and consumers increasingly care and are influenced by a brand’s record on issues like sustainability and working conditions. Negative publicity on these topics directly affect an organization’s bottom line, and repairing brand-damage is resource and time intensive.
To make matters more complicated, brand damage is contagious. Damage to one supplier’s brand isn’t isolated to that one supplier; it spreads and ‘infects’ every brand in the supply chain. A risk to your supplier’s reputation is a risk to your reputation and bottom line.
Supply chain insurance – Top 10 Triggers
You know that you need supply chain risk insurance, but what do you need to do to get it and how do you make sure you aren’t paying too much? Or for those of you who have insurance already, how can you significantly reduce the cost for your supply chain risk insurance? Insurance companies require proof that you have reduced risk through to your 2nd tier suppliers at a minimum, and specifically look at how you handle the top ten risks as identified by the ‘World Economic Forum Supply Chain & Transport Risk’.
The good news is that it has never been easier to prove to insurance companies that you have reduced risk across your entire supply network. Why? Technology. By harnessing the power of Big Data and SaaS, it is finally possible to gain real-time visibility into the risks facing your supply, and insurers will reward you for doing so with dramatically lower rates.
The next part of this series is a step-by-step checklist of everything you need to do to get your supply chain insured – or if you already have insurance, you will learn what actions you can take to significantly reduce the cost of your insurance.