Article date: 24 June 2008
Businesses outsourcing supply chain services are leaving themselves open to disruption, warns Norwich Union Risk Services (NURS).
The warning comes following The Chartered Management Institute's survey revealing that whilst 37% of respondents thought that supply chain disruption could have a significant impact upon costs and revenue, only 19% actually addressed this threat within their business continuity arrangements.*
Alan Trueman, business interruption risk adviser for NURS, says: "For many businesses the supply of raw materials, components, goods and warehousing facilities are routinely outsourced, together with many services which, until recently, have usually been carried out ‘in house', such as payroll, IT and even HR. But this leaves firms wide open to disruption.
"The loss of just one supplier could have a serious effect upon a firm, particularly if that one supplier provides the main component for the business. The effect on an organisation could greatly increase if the goods being supplied are in anyway seasonal and not reaching the business in time.
"With globalisation, the threats to the supply chain are far greater than previously and could now include risks such as severe exchange rate fluctuations, pandemic situations, weather and political issues.
"The recent substantial increase in the price of fuel is one example which has led to concerns that haulage companies could be forced out of business. This, together with the prospect of demonstrations and blockades of oil refineries by hauliers, will be a concern to any company depending on their services.
"Distances between many suppliers and customers, and the popularity of delivery systems such as ‘just in time' working practices could see potential disruptions being harder to deal with.
"It is wrong to expect a business continuity plan to enable a business to continue trading through supply chain problems when these have not been considered at the outset.
"Business continuity cannot act as a band-aid for the lack of strategic planning when the business designed its supply chain processes. This adds to the growing acceptance that business continuity can no longer be seen as an add-on activity but has to be part of the management culture of successful businesses."
Trueman identifies several strategic measures, which businesses can undertake to counteract possible threats to its supply change services and ensure good business continuity practice:
- Identify which of the business's critical activities are dependent upon suppliers of products and services and undertake an appropriate risk assessment and business impact analysis on them, as if they were "in house" activities. Then implement any necessary mitigation measures.
- In respect of critical suppliers, consider the possibility of at least dual sourcing or ensuring they have excess capacity, possibly at another location. Consider alternative suppliers in different currency zones to mitigate the ups and downs of exchange rates.
- Check the efficacy of the supplier's business continuity arrangements to safeguard the businesses position and make this a key part of the competitive tendering process when engaging new suppliers.
- Introduce service level agreements and re-draw supplier contracts if required. Where insurance is one of the business's risk management solutions, ensure that the cover has been extended beyond the firm's premises to protect against incidents happening elsewhere in the supply chain.
For further information, please contact:
Sam Bramwell at Staniforth or 0161 919 8024/077381 96667 or Sally Leeman at Norwich Union on 01603 684 225/ 07789 270 677.
Notes to editors
About Norwich Union Risk Services
Norwich Union Risk Services is the specialist risk management division of Norwich Union that is dedicated to helping UK businesses manage their risks in an effective way.
They achieve this through their national team of approximately 180 staff which includes:
- Risk advisers and specialists - Who visit commercial properties across the UK to help identify risks and recommend dynamic and practical risk management solutions for Norwich Union's insured customers.
- Safety consultants - Who provide expert health, safety and environmental training and consultancy services.
Norwich Union's news releases and a selection of images are available on the Aviva internet press centre at www.aviva.com/media.