Global supply chains have been pushed to the brink with disruption greatly impacting the global apparel and textile sector. 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 few years than many organizations have experienced throughout their entire existence.
Ongoing supply chain challenges could cost North American apparel and footwear brands between $9 billion and $17 billion in lost EBITDA (earnings before interest, taxes, depreciation and amortization) in 2022, according to a recent report by Kearney. The report also shows that only 12% of organizations in the sector are “leaders” in resilience, meaning they have design, distribution, financial agility and other qualities that can help weather supply chain disruption.
While the pandemic has caused and continues to present all sorts of logistical problems, additional and likely associated supply chain threats, such as labor shortages, manufacturing uncertainty and inflation, continue to jeopardize business continuity for textile and apparel businesses. It has never been more urgent to manage supply-chain risk resiliency by mapping your supply chain, assessing suppliers, creating a model of scenarios and sourcing the proper insurance coverage.
Essential Steps to Create a Business Continuity Plan
•Conduct a thorough risk assessment to identify critical processes and functions that would be impacted during a business disruption.
• Identify compliance requirements.
• Align business travel to align with government- mandated travel restrictions.
• Review supplier service level agreements for consequences for not abiding by contracts.
• Review supplier business continuity plans to determine whether or not they align with your businesses’ expectations.
• Define the capabilities of the upstream supply chain to determine their capability to provide for your business 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 impact to your customers if operations are no longer feasible at their normal capacity.
• Communicate business decisions to the appropriate audiences.
• Train response team members on responsibilities during a disruption.
• Test the business 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. If an interruption occurs, you should be able to rely on insurance protection to absorb some of the financial losses.
Transferring the Burden Through Proper 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.
However, when your business is interrupted as a 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. CBI is an important extension to your business interruption insurance to help minimize the financial loss of a supply chain disruption. When your operations rely on others coming through, you can rest assured knowing you’ve planned for events outside of your control.
Don’t become 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 currently serves as senior vice president of Hub International Northeast, a leading full-service global insurance brokerage. He can be reached by phone at (212)338-2395 or at frank.delucia@hubinternational.com. For more information on Hub, visit hubinternational.com.
