Lean production may traditionally be considered the linchpin that holds successful supply chain management together, but reducing your exposure to risks is becoming a key priority for maritime companies.
Our dependence on, and partnerships with suppliers, whether it be via outsourcing or mitigating stock opens up a whole world of exposure for marine businesses and their procurement teams. That’s why risk management is so crucial to the supply chain.
Navigating risks really is the key to management success. With the global expansion of supply chains comes ever more complicated business structures and so countless issues can arise causing disruption, delays and ultimately money going down the drain.
Both buyers and suppliers can be hit by a number of unavoidable problems. From natural disasters to terrorism or cyber attacks. Each problem can have big effects on both upstream and downstream partners.
In a study by Zurich Insurance, researchers found that 74% of respondents had experience of supply chain disruption. The results of said disruption included; a loss of customers, higher cost of capital, potential breach of contract and a decrease in sales and increase in costs. Some companies cannot survive this, particularly if they haven’t got the cover they need or risk management strategies in place.
Businesses, particularly in the maritime industry, can even be held liable for supply chain partners’ mistakes. A faulty turbocharger could cause liability for the designer, manufacturer, shipper, distributor, seller and installer.
So what can you do to mitigate risk?
The best way to reduce exposure is to make sure you and your company keep up to date with developments in the maritime sector. And to follow a few key steps...
1. Choose your suppliers carefully
Conduct audits of your suppliers on a regular basis and if necessary, inspections to make sure they are committed to risk management like you are.
2. Authenticate suppliers’ insurance cover
It’s worth remembering that a certificate of insurance is only evidence of the insurance cover as it was when it was written. Circumstances may have changed since then, and the insurance not updated. This can leave you feeling exposed.
3. Clearly define contract scopes and draft contracts
Be careful when defining contract scopes and draft contracts. Work with a specialist maritime legal professional and look at indemnification, hold harmless and defence agreements.
4. Understand the extent of your exposure
How much risk are you and your business exposed to? Work with an insurance broker to quantity the effect these exposures could have on your business revenue and profit. Once you've done this, you should be re-evaluating periodically to keep on top of maritime market changes and/or your business model.
Really consider the inherent risk of a broken link in the supply chain and how the parts and the whole could be affected.
5. Put a plan in place
Identifying risks is the easy part, now you have to get an action plan in place. Think about formulating a business continuity plan, and look into ways you could mitigate risks. If a port was hit by a terrorist attack how would you respond? Would the geographical location of your suppliers be diverse enough to alleviate delays? Or would you have enough sources to ensure a steady supply?
Every business continuity plan should fully detail what would happen if and when unfortunate situations occur.
6. Lower the threat of risk by purchasing the right cover
Making sure your policy covers your company’s specific exposure mix and risk tolerance is important. Always read the policy and know that it covers loss of supplier, stoppage of supply and interruption of service for example.
When all is said and done, mitigating risk is a collaborative effort in business. Maritime companies need to work with their supply chain partners to ensure they minimise exposure from the beginning to the end of the supply chain.
The International Marine Purchasing Association is also launching a new distance-learning course in Maritime Supply Chain Management, which, in part, covers mitigating risk. To find out more visit the IMPA Post Graduate Certificate website.