The drive to control operating costs and improve efficiencies by global businesses during recession has the potential to create new risk exposures within supply chains according to leading insurer ACE European Group.
Speaking at The Economist Risk Summit in London last week, Phil Wall, senior account engineer at ACE, urged businesses to recognize that initiatives designed to reduce costs and streamline operations can create unforeseen side effects, such as increasing property loss and business interruption exposures within their supply chains.
In a recent survey sponsored by ACE, close to 60 percent of global businesses were shown to have negotiated lower prices with suppliers over the last year and taken other steps to cut costs. "Whilst such measures represent short-term gains on the balance sheet, businesses need to be aware of the potential impact of these initiatives and understand the additional longer-term exposures that may come with these," says Wall. "The failure of one supplier in a small chain or an incident in a large-scale warehouse creates very real and major risk exposures that could significantly damage a company."
He also called on businesses to consider adopting specific measures to mitigate these exposures. These include more rigorous risk identification, "best of class" loss-prevention standards in supply chains, greater communication with suppliers, and creating more robust alternative supplier arrangements.
