Can you quantify the cost of an interruption to your supply chain?

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One of the issues highlighted by last year’s natural disasters in Asia has been the use of insurance in the supply chain.

Now a survey by US forensic accounting firm Dempsey has highlighted a lack of clear standards for quantifying business interruption. Managing partner John Dempsey are that this “could be one reason behind the lack of innovation the industry has shown in addressing supply chain risk”.

Some 61 per cent of those surveyed experienced a supply chain disruption in the last five years that led to a loss of earnings, but only 30 per cent actually recovered insurance claims related to those losses.

The survey covering mainly $1bn plus companies, found that 40 per cent said their insurers did not clearly articulate their requirements business interruption values.

But it also found a wide variations in the methods used by insured companies to report their business interruption values to their insurance companies. Most report vales each year but the methods range from informed estimates (four per cent) to comprehensive annual studies (ten per cent).

“The most popular reporting approaches include customised worksheets tailored to their business (39 per cent) and business interruption worksheets supplied by their insurers (32 per cent).”

And more than 30 per cent of respondents felt that their organisation had not adequately described their supply chain risks to their insurers.

For organisations that have been affected by natural disasters, the first strategic priority is generally to look at building more resilience into the supply chain. That is highlighted by a new study from the Business Continuity Institute which found that more than 80 per cent of the companies affected by the Japanese earthquake last year have made changes to their supply chain.

But clearly there is also work to be done in terms of identifying and reporting business interruption values.

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