When it comes to the occurrence of hazard risk, the question is “when” not “if”.
There has been no shortage of hazard risks over the past several years. We’ve seen a rash of hurricanes, tsunamis, fires, etc. All have severely disrupted supply chains.
Between 2017 and 2019, the NOAA reported 44 natural disasters or weather-related events. Their total cast came to a whopping $463.4 billion.
Here are some other mind-blowing facts about risk hazard events. (Sources: ARC Advisory Group, Gartner, Price Waterhouse and Coopers, Dunn and Bradstreet.)
- 50% of businesses experienced disruptions between 2017 and 2019.
- 81% of these disruptions shut down businesses for one or more days.
- 80% of companies that suffered a major disaster go out of business within three years.
- 44% of businesses that suffer a major fire fail to survive.
Given the damage and costs involved, it pays to protect your business against hazard risks. As you might guess, this post is about managing hazard risk.
There’s another way to reduce your risk exposure to hazard risk events.
Mitigate Risk with Supply Chain Visibility
Supply chain visibility has been in the news of late. Usually supply chain visibility is associated with the mention of new and emerging technologies.
The focus here is on gaining deep visibility into supply chains. That means gaining visibility into second and third tier suppliers. Having deep visibility along the extended supply chain can alleviate disruptions.
In disruptive times, supply chain visibility can improve supply chain agility. We’ve seen that with the Coronavirus. By itself, supply chain visibility is insufficient in bracing your busines from disruption.
This brings us to a more strategic way in which to promote resiliency in the face of hazard risk events.
Mitigate Risk with Contingency Planning
When preparing your business against disasters, you need a strategic approach. That calls for business continuity or contingency planning (BCP).
A viable BCP is one that is actionable. It’s more than shelf ware. But it consists of thorough and detailed planning. But it goes beyond that. You must rehearse, test, and rehearse and test again.
That ensures you’ve considered all key processes . It also ensures backup plans and workarounds actually work. It all comes down to execution. The takeaway is whether you can execute your BCP plan.
You can test and assess your BCP in stages, taking a piecemeal approach. That way you won’t interfere with ongoing operations. It also allows you to view your plans in depth. Drilling down allows you to see the second and third order effects of your plans
This gives everyone the ability to learn about their revised roles and responsibilities. It also boosts your confidence in exercising your revised roles under degraded conditions.
At some point, you would graduate to conducting an enterprise-wide exercise. This will ensure the prior component tests work in a holistic fashion.
BCPs can keep your business running in the face of hazard risk events. A BCP is a powerful strategic tool that give you an edge over the competition.
Many businesses will fail due to unpreparedness. If you prepare, you’ll defy the statistics. You’ll survive a catastrophic event and likely gain market share at their competitor’s expense.
One size no longer fits all when it comes to insuring against risk hazards. Traditionally companies have managed risk hazards with insurance. In order to be properly insured, you must quantify your risk. You must identify your appetite for risk. After doing that, you can explore other means for mitigating hazard risks.
But there’s more you can do.
You can create a disaster recovery plan to get your business back on its feet quickly.
This approach assesses hazard risk from a strategic view. That is, you should perform these tasks with the big picture in mind. Only then will you ensure you’ve minimized your risk exposure.
Hazard risks fall into several categories: property, political, trade and logistics. The purpose of this post is to understand how to mitigate the impacts to your supply chain.
Mitigate Risk with Insurance
Insurance is customary way to stave off losses from hazard risk events. It’s a way of mitigating rather than preventing or avoiding risk. And it’s a partial solution of your overall risk mitigation plan, not a complete one.
The trick with hazard insurance is to identify all the possible risks. Then it’s a matter of assigning probabilities that those risks will occur. And from there, you need to determine how much risk you’re willing to accept and how much coverage you should buy.
Types of insurance for supply chains you can buy to:
- First-Party Commercial Property Insurance
- Cargo Insurance
- Cyber insurance
- Business Interruption Insurance
- Contingent Business Interruption Insurance
- Trade Disruption Insurance
- Global Logistics Insurance (Supply Chain Risk Management, Schlegel & Trent, p. 88.)
Additionally, you can limit your risks and your insurance costs upfront. You can do this by avoiding or minimizing doing business in high risk countries.
A Lloyd’s of London research report identified 17 severely underinsured countries. Eight of the underinsured countries are in Asia, including China. Four of the uninsured are in Central and South America. Two each are in Africa and in the Middle East. Finally, Europe has one underinsured country.
The main point is to know what your risk exposure might be in countries you choose to conduct business. Following that you can insure your supply chain adequately.
Steps You Can take Now to Reduce Your Risks
Hazard risk comes in many varieties. But one feature they have in common is their unpredictability. That doesn’t mean you can’t prepare to mitigate the devastating effects of risk hazard events.
On the contrary, you can take positive steps to mitigate your risk exposure. Besides insurance, you can develop a disaster recovery plan that goes beyond identifying and quantifying your risk exposure. It lays out in detail, how to recover mission-critical tasks .
In doing so, you build resiliency into your supply chain. When you build resiliency into your supply chain, you protect your business from hazard risk events.
Although these events are unpredictable, you can plan for them. At Terra Worldwide Logistics we can help you prepare for the expected and unexpected.
We’ll help you build a resilient supply chain. When a Black Swan event occurs, you’ll be ready to respond and rebound. You’ll mitigate the negative impacts to your business.