Insights for Your Industry There’s a common phrase among supply chain managers, according to Paul Raw, BSI’s senior consultant for supply chain security: “You inherit the risks of your business partners.” He adds that “if you don’t understand your business partners, and you don’t understand their risk, you don’t understand your own exposure to it.”3 But, given the number and range of factors disrupting supply chains, how much time and effort can an enterprise really devote to monitoring its business partners and their operating environments? To illustrate, consider the advice provided by consultants from McKinsey & Company, who propose a four-step approach to supply chain risk management: (1) identify and document risks; (2) build a supply-chain riskmanagement framework; (3) monitor risk; and (4) institute governance and regular review. Sound simple? It’s not. The McKinsey authors themselves cite three major impediments to implementation of effective supply chain risk management4: PAGE 2 Supply Chain Risk Continued • “Supply-base transparency is hard (or impossible) to achieve.”There are so many parties involved in the creation and distribution of a product that simply identifying them requires significant investment. • “The scope and scale of risks is intimidating.”The number and range of hazards and operational shortcomings is so great that it is extremely difficult to quantify probabilities and severities. • “Proprietary data restrictions impede progress.” Not all participants in a chain are willing to share critical information, especially with parties they do not have direct relationships with. Most organizations must therefore rely on a “risk-aware culture,” which the McKinsey authors describe as one where employees are free to acknowledge mistakes and share bad news, issue warnings about internal and external risks, and respond rapidly to changing circumstances. At the same time, a risk-aware culture ensures that risks to the organization and the individuals within it are aligned. No one should benefit individually from taking or avoiding risks that affect the larger organization. Where insurance comes in Insurance is available to transfer some, but not all, risks of disruption in supply chains. Coverage is likely to be more costly and harder to come by in 2022, so enterprises are well-advised to understand the extent and limitations of coverage. Standard commercial property insurance almost always includes an option to add business income, or business interruption, (BI) coverage for lost revenue and extra expenses incurred when an insured business is forced to suspend operations because of damage by a peril (fire, wind, vandalism, etc.) covered by the policy. 877.482.1234 | aiblc.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com Copyright © 2022 Adjusters International, Ltd. All Rights Reserved. Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. E06-1025 PROTECTING YOUR PROPERTY
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