With the critical role supply chains play in many companies' strategies, supply chain exposures are ideal candidates for consideration in a strategic risk management program.

“It's such a key element of success or failure in a company that it's got to be built into strategy,” said Linda Conrad, director of strategic business risk for Zurich Global Corporate, at Zurich Insurance Group Ltd. in New York.

While most companies' top supply chain consideration is reducing costs, many fail to recognize that a disruption could cost them those savings and more, Ms. Conrad said.

A blind spot for many organizations in addressing supply chain exposures is failing to manage outside risks the same way they manage their internal exposures, said Eric Jones, manager of FM Global's business risk consulting group in Dallas.

“You have to have consistency in how you manage risk,” he said. “Ultimately, it comes down to forming as detailed an understanding as we can of the business and what the business drivers are.”

Kirk Rider, director, ocean marine risk control at Travelers Cos. Inc. in New York, said that in working with clients in assessing supply chain exposures, he typically groups them into two categories: high velocity/high volume, and those whose supply chains are low velocity but involve critical shipments.

“When we talk about a critical shipment or something we really need to protect ... we typically have more critical path discussions with the client about the supply chain,” Mr. Rider said, such as whether there are risk aggregations at a single port.

“When you're talking about a high-velocity shipper, it's a little more difficult to get a strategic risk management program to attach to that because every (risk management) step someone has to take slows that process,” Mr. Rider said.

%%BREAK%%

In high-velocity supply chains, the best results usually come from working with the client and helping them develop a strategy of addressing exposures by making small adjustments along the way to accommodate any changes, Mr. Rider said.

Gary S. Lynch, managing director and global leader of risk intelligence and supply chain resiliency at Marsh Inc.'s risk consulting practice in New York, cited the April apparel factory collapse in Bangladesh as evidence that supply chain risks can go beyond the cost of disruptions to threatening a company's reputation.

In response, some retailers are taking cues from the high tech industry and trying to be more creative in the way they evaluate supply chain exposures, looking to managing the risks in the various links in their supply chains as though they were exposures to be underwritten, Mr. Lynch said.

In the process, they're using predictive analytics and data, and “using that data to look at it through a risk lens and using that data to do more profiling around the places that are doing the sewing,” Mr. Lynch said. “They're starting to get really good hard data that gives them the ability to match the investment decision to the exposure.”