Earthquakes highlight imperative nature of supply-chain risk mitigation
The devastating Turkish earthquakes have highlighted the fragility of many supply chains and the associated business interruption risks accompanying such vulnerability.
Ironically, Turkey was a country to which various businesses and major fashion brands moved supply arrangements post-pandemic. It was also the EU’s second largest source of textile and apparel imports.1
Therein lies the issue. In 2021, a University of Cambridge academic published his insight into the impacts caused to global supply chains, following a localised environmental disaster, referencing the 2011 Japan earthquake. Proving the profound interconnection of the global economy, his work demonstrated how supply chains are a conduit for wide scale economic disruption.2
In Turkey’s case, it is not just textile manufacturing that is affected.
The shipper, Maersk, suspended all operations from Iskenderun’s port, following a fire, leaving exports such as corn, bran, iron, wheat, and polyester fibres in short supply. While moving cargo vessels to Mediterranean ports may have disrupted marine shipping schedules, creating further knock-on effects.3
As the supply chain reverberations continue, businesses solely reliant on an earthquake-impacted Turkish supplier will probably suffer impacts themselves, unless a robust supply chain risk mitigation strategy exists. One supply chain risk management expert states that only 24% of companies can immediately remediate supply-chain events and disruptions through such a plan.4
Calling upon Business Interruption insurance may prove fruitless for affected companies, unless their policy names all – and not just Tier-1 – supply-chain suppliers. Yet, with a lack of transparency within many supply chains, and a reticence on the part of direct suppliers to name their own suppliers, this can be challenging, resulting in latent supply chain underinsurance.
Furthermore, not all causes of supply chain losses are from physical damage, such as fires. Some are as unanticipated as the 2010 Icelandic ash cloud, leading to more underinsurance occurring.
Despite the challenges, all businesses must attempt to analyse their supply chain and engage in risk mitigation strategies, and also know where they attain supplies and what risks prevail in those regions. They should bring risk management and procurement together, to completely understand their suppliers’ roles within their overall business output, and name as many suppliers as possible on their Business Interruption policy. Full supply chain visibility is almost a 21st-century must.
Buying policy extensions, for non-physical damage and goods-in-transit delays, should be a consideration, and policies always reflect current situations, such as stockholding levels.
Too many companies are exposed to threats besetting suppliers. Businesses should have solid crisis plans in place, facilitating a shift to new suppliers or warehousing facilities, if necessary, for quick disaster responses. Many ‘what if?’ questions need to be asked and acted upon.
An experienced broker can help with both a supplier risk management strategy and the Business Interruption cover required, to help best protect against supply chain disruption. Take the steps today to buffer your business against storms, other weather events, natural disasters, political upheaval, and health emergencies.