Recovery threat to supply chains

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Manufacturers are being warned about the risks to their supply chains as the economy recovers by insurance broker Marsh, which says that the upswing in demand may place renewed pressure on the supply chain and procurement processes, as well as cash flow management.

In response to the latest manufacturing index figures released recently by the US Institute for Supply Management, Marsh said competition for suppliers may be fierce following a period of inactivity, pricing may increase to capitalise on the recovery and potentially recoup previous losses, and part quality could be compromised in the stampede to ship goods.

It recommends that manufacturers should seek assurances from their suppliers that demand can be met and orders fulfilled in the time specified. These can be contractual assurances but should also include scrutiny of suppliers’ production capacity.

And it says that for any new suppliers, due diligence should be undertaken to evaluate the capacity and capabilities of their facilities to ensure continuity of supply. In particular suppliers’ business continuity programmes and risk mitigation techniques should be considered.

Where possible, it says, work should be undertaken to evaluate and identify potential back-up suppliers in the event of disruption to supply.

Marsh also reckons that businesses should work with their insurance advisors to make sure their business interruption coverage is adequate and addresses any changes to their direct and indirect supplier base. Specialty insurance policies, such as supply chain insurance, can be structured to address supply chain risks related to bankruptcy, strikes, terrorism, pandemics, and other events that may not be covered under traditional programmes.

William Bruce, a Senior vice president in Marsh’s Risk Consulting Practice, said: “The latest figures from the ISM, showing manufacturing output rising once again, is good news for the sector globally. However, new orders are accompanied by new risks.”

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