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Business Interrupted: Mitigating Supply Chain Risk & Maintaining Resiliency

Since the beginning of the COVID-19 pandemic, the global apparel and textile sector has been among one of the most heavily disrupted, largely due to supply chain disruption. In general, the term “supply chain” refers to the entire network of companies that work together to design, produce, deliver and service products, consisting of any activities associated with the flow and transformation of goods from raw materials to end users. Industries whose operations are more globalized were most exposed to initial supply chain disruption due to the pandemic and to supply chain business interruption in general.

From retailers to manufacturers, apparel supply chains span across the globe, with dependability, cost efficiency and speed as critical components for operations. Global supply chains have been tested more in the last year than many organizations have experienced throughout their entire existence. While the pandemic’s impacts are still deeply felt and may continue for quite some time, they have revived the urgency of managing supply-chain risk resiliency by mapping your supply chain, assessing suppliers, creating a model of scenarios and sourcing the proper insurance coverage. It’s more important than ever for businesses to establish a business continuity plan.

A solid business continuity plan requires that you conduct a thorough risk assessment to identify critical processes and functions that would be impacted during a business disruption. You must also identify compliance requirements and align business travel to align with government mandated travel restrictions. It would be beneficial to review supplier service level agreements for consequences for not abiding by contracts and to review supplier business continuity plans to determine whether or not they align with your business’ expectations.

When you establish a business continuity plan, define the capabilities of the upstream supply chain to determine their capability to provide your business what it needs during a disruption. Consider increasing inventory to extend operations if the upstream supplier is not capable of delivering needed goods. Define the capabilities of the downstream supply chain to assess impact to your customers if operations are no longer feasible at normal capacity.

It’s important to also communicate business decisions to appropriate audiences. Train response team members on responsibilities during a disruption, and test the continuity plan by conducting tabletop exercises.

While appropriate planning can help minimize the impact of a supply chain interruption on your bottom line, unforeseen events can still break the link in one major component of your supply chain. When manufacturing operations stop, so does your income. And if an interruption occurs, you should be able to rely on insurance protection to absorb some of the financial losses.

To transfer the burden of supply chain risk, begin with sourcing the right insurance coverage. When the business interruption is the result of a natural disaster, key personnel loss, structural collapse, power interruption or machinery breakdown directly related to the business, business interruption coverage (BI) will bridge the income gap caused by the disaster, finance a temporary relocation for the business and more.

When it is the result of an unforeseeable supply chain failure that prevents your organization from producing its products or delivering its services, contingent business interruption coverage (CBI) will bridge the gap of income for your business and help you get on your feet again. 

By following these guidelines, you can potentially avoid becoming one of the businesses that falls victim to a supply chain loss this year. Your insurance advisor should be able to conduct a full supply chain assessment on your business and determine the best insurance coverage options to defend your company from supply chain risks and the associated financial implications of a potential business interruption.

Frank DeLucia serves as senior vice president of HUB International Northeast, a full-service, global insurance brokerage. With over three decades of experience, DeLucia specializes in building insurance and risk management programs for the real estate and apparel industries and is a long time active member of the Fashion Service Network (FSN). He can be reached by phone at (212) 338-2395 or at frank.delucia@hubinternational.com.

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