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ARC: HOW INSURERS, BROKERS AND RISK MANAGERS CAN BE BETTER PREPARED FOR A NATURAL DISASTER

Superstorm Sandy reinforced the need for thorough risk assessments

Supply Chain Risk Assessment

To successfully manage their often extensive supply chain risks, manufacturers should make sure that their senior executives are fully involved in the risk assessment process.

Supply chain risk assessments should focus “above and beyond some traditional risks” such as floods, high winds, earthquakes and hurricanes, said David Gluckman, senior vice president and property risk control executive for Willis North America Inc. in Morristown, N.J.

“The time period that's involved where the effect of the event is really starting to have a significant impact on the business ... is what we're trying to figure out,” Mr. Gluckman said.

Such risk assessments should examine suppliers' production and service capabilities, potential bottlenecks and supply routes, and identify critical single-source suppliers, he said.

Superstorm Sandy reinforced the need for such risk management assessments last year when electrical outages left some businesses closed for weeks (see related story). Such disruptions can come from several sources.

“Supply chain disruptions are increasing in frequency, duration, consequences and costs,” said Cal Beyer, head of commercial manufacturing for Zurich North America in Edina, Minn.

First, middle-market manufacturers should determine areas of vulnerability in their product and supplier mix and then identify critical suppliers without which business could be lost or the operation could fail, he said.

Rather than focusing on suppliers with which a company spends the most money, manufacturers “should factor in the criticality of the different components,” said Jill Dalton, partner in charge of Dempsey Partners L.L.C.'s New York office. “There may be something in the supply chain that they spend the least amount on, but actually is the most critical piece.”

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Such in-depth risk assessment also can help middle-market manufacturers secure insurance coverage, experts say (see related story).

Aside from top executives, manufacturers need to include all parties within a company when conducting a risk analysis and buying insurance, experts say.

“It's not been uncommon, even in larger companies, for us to see a disconnect between the people who purchase insurance and those that are responsible for procurement,” Mr. Beyer said. “There should be more collaboration between the disciplines in the manufacturing company” to include the CEO, chief financial officer, operations and procurement managers, he said.

Supply chain, business continuity and enterprise risk management are interrelated and should be part of a robust risk assessment, Willis' Mr. Gluckman said. “It's all part of a holistic approach to risk management and supply chain risks.”

Manufacturers also should strive to have suppliers adopt the main company's risk management philosophy, said Jeffrey Beauman, FM Global's Johnston, R.I.-based vice president and manager of all-risk underwriting.

“Well-managed companies ... are going to help assure that their supply chain becomes more resilient by asking their third parties to believe and subscribe to those same aspects,” Mr. Beauman said.

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