Supply chain risk coverage and availability “inadequate”: FERMA

European risk managers generally believe coverage and capacity for supply chain risks is insufficient, according to a survey by the Federation of European Risk Management Associations (FERMA).
The majority of the 153 respondents were FERMA members in the manufacturing sector. Of those, 52% said they were very concerned about continuity of supply from direct suppliers. Thirty-six per cent were somewhat concerned.
Only 14% of the total pool of respondents felt existing coverage and capacity were adequate. Just half said they insured against contingent or non-damage business interruption.
Taking a look at conditions, 28% of survey respondents found them to be too restrictive and 26% stated the cost was too high, FERMA reported.
Twenty-one per cent of the risk managers said their business had suffered a material breach in their supply chain over the past two years. The Japanese earthquake and tsunami in March 2011 were the principal causes cited, followed by the eruption of the Iceland volcano Eyjafjallajokull in 2010. Only 13 respondents cited political upheaval as a source of business disruption.
“In light of the current limitations of insurance, businesses need to apply risk management to the whole supply chain,” said Igor Mikhaylov, a FERMA board member. “Risks of partners and subcontractors should be considered to reduce their vulnerability to supply chain ruptures.”
Mikhaylov said the recent flooding in Thailand’s industrial parks highlights the long-term implications of dependence on limited sources of supply – i.e. the price of hard disk drives for computers and other electronic equipment has doubled.