At first glance, a technology provider’s property insurance needs may seem relatively straightforward or maybe even diminishing as the world becomes more virtual. However, as a technology provider, your client’s ability to deliver products and services to their customers, when and where they need them, is at the heart of their business success. And, the ability to deliver is dependent upon a strong supply chain, and/or a network of third-party vendors who provide everything from raw materials to distribution and transportation channels, to the storage and management of crucial cloud-based information. But what happens when there is a disaster?
A loss to business income can occur to an insured when there is direct physical loss to their supplier’s property at another location.
Let’s take an example of a mid-sized U.S. electronic components manufacturer who had a strong supply chain relationship with a computer chip provider located in Thailand. The U.S. component manufacturer also had a documented, current and tested disaster recovery plan. But when their chip supplier in Thailand was wiped out by the Thai floods, it affected all the supplier’s clients worldwide. And there were much bigger fish in line ahead of our mid-sized manufacturer that got whatever limited capacity of chips that were available in the marketplace, leaving our manufacturer "high and dry". Our mid-sized manufacturer experienced a sizable business income loss that eventually resulted in their going out of business as they were never able to recapture the market share they had lost.
You can see how your client’s property exposures expand beyond their own locations.
Technology providers, whose supply chain is dependent on service providers, need to understand their vulnerabilities relative to:
- whom they sell or provide services
- their ability to purchase components or access data
- their ability to run their businesses
So, what can you do?
Minimizing your exposure to supply chain disruption requires a solid contingency plan one that goes beyond the basics and includes:
- the location of all your vendors
- the location of all of your data
- the contingency plans your vendors have in place
- a clear understanding of the time frames to resupply raw materials, stock or other supplies that you rely on from third parties chain and the impact on the business if that vendor cannot meet your needs.
- how much is stockpiled and how long you can continue to operate in the event that vendor cannot fulfill your order.
Armed with key information, you can then put a detailed plan in place that includes the following components:
- appoint backup vendors not just identify them, but formalize arrangements in advance, and in writing
- develop standardized parts and sub-assemblies so you have multiple sources from which to get your part
- increase the number of stored critical parts and sub-assemblies
- determine the location of critical parts and having a backup plan in place for each
- ensure a full backup for tooling and drawings
- establish solid contractual relationships with every vendor and supplier, as well as with backup vendors and suppliers
It has been an extremely difficult year with the world impacted by what feels like a staggering number of critical events, and technology providers are not immune.
It all comes down to having a complete contingency plan that has been tested. It is never just once and done’, and should take into account the many interdependencies among your suppliers and the risks associated with them, as well as your own vulnerability to financial loss as a result of a break in supply chain continuity
Those who mitigate risk, plan and prepare for disasters in advance greatly increase the likelihood of staying in business and getting back to work quickly —
especially in the fast-paced world these companies live in where every moment counts.
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