Managing Risk Across the Supply Chain

Written by: Roland Guillen

While lean manufacturing has become a cornerstone of successful supply chain management and a way for manufacturers to stay responsive to changes in their markets, the dependence on and relationship with suppliers, resulting from outsourcing and minimizing stock, creates a host of exposures for manufacturers.

Successfully navigating and managing the risks presented by a convoluted supply chain that spans across regional, national and international markets could be a complicated endeavor, considering the countless factors that can cause disruptions or liability issues across the entire supply chain.

The survey of over 500 companies from 68 countries across 14 different industry sectors conducted by the U.K. Business Continuity Institute found:

 65% of respondents experienced at least one supply chain disruption
 44% of these disruptions occurred with tier 1 suppliers
 Loss of productivity was the most common consequence of supply chain disruption

Risk Factors Abound
A key supplier or buyer can be debilitated for a number of reasons such as natural (floods, pandemics, earthquakes, and severe storms), human (terrorism, civil disorder, electronic security breaches) or technical (power failure, hardware or software viruses). These events can have dramatic effects on supply chain partners both upstream and downstream. A single disruptive event in any part of the world could initiate a customer service nightmare in the United States.

And disruptions are more common than one might imagine. The survey by the U.K. Business Continuity Institute revealed that 73 percent of respondents had experienced a supply chain disruption in the last 12 months, not only affecting top and bottom lines but also damaging their brands and relinquishing market share.

Potential effects of supply chain disruptions include a variety of potential negative consequences:
 Reduced market share
 Loss of customers
 Damage to image, reputation or brand
 Higher cost of capital
 Potential breach of contract
 Failure to meet legal or regulatory requirements
 Decrease in sales and increase in costs, from which many companies never recover

Considering Your Liability
Worse, companies can be held liable for their supply chain partners’ mistakes. A defective or inherently dangerous product or part can cause liability issues for its designer, off-shore manufacturer, shipper, wholesale distributor, retail seller and installer, who are collaboratively and jointly responsible. In fact, even though a seller has exercised all possible care in the preparation and sale of the product, it can still be held responsible. Wholesalers or finished product manufacturers can be sued by an injured third party individually or together with any or all other parties involved in bringing the product to market and selling it to the consumer.

Mitigating Risk
What, then, can a risk manager do to effectively mitigate risk in such an environment? Fortunately, there is a growing body of best practices for risk management across the supply chain. One of the most important things is to stay abreast of every development in your business environment. Consider the following steps you can take to mitigate your business’s risk:

 Choose suppliers carefully, and conduct regular audits and visits to ensure their commitment to business interruption prevention matches yours. Consider the following:

o Which suppliers do you depend on for raw materials and component parts?

o What would happen if you lost one of them for any reason?

o How long would you be able to operate?

 Verify suppliers’ insurance coverage. Remember, a certificate of insurance is evidence of insurance only when the certificate is written, and not at any time after that moment.

 Clearly define contract scopes and draft contracts carefully with the assistance of specialized legal counsel. Consider indemnification, hold harmless and defense agreements.

 Work with your insurance broker to understand the extent of your exposure, and create a business interruption worksheet to quantify, as accurately as possible, the effect these exposures could have on revenue and profit.

One aspect of business interruption, and often not considered, is Contingent Business Interruption and Extra Expense Insurance.

For a business, the risks associated with catastrophic events go far beyond the damage caused to its facility. For instance, many manufacturers rely on parts and raw materials from external suppliers. If a supplier’s factory is temporarily shut down or if a key shipping channel is closed as a result of damage caused by a catastrophic event, this could prevent a facility from receiving components needed to effectively produce a product on time.

Unfortunately, the smallest interruption in the supply chain can incapacitate a facility’s operations for a significant period of time – and even put a company out of business. To help mitigate this risk, a business should evaluate the appropriate limit of coverage for Contingent Business Interruption and Extra Expense Insurance.
This type of insurance is designed to cover the loss of income resulting from property damage at supplier or receiver locations, rather than damage directly to a manufacturer’s operation.

Of course, some supply chain partners may have several locations that could keep the flow of raw materials in the event of a disruption. Investigating these factors is an important component to creating a supply chain risk management plan.

Consider the following and transfer your risk by purchasing appropriate insurance coverage, which could include the following, depending on your exposure mix and risk tolerance:

 Business Income and Contingent Business Interruption Insurance
 Marine and Cargo coverage for long voyages taken by commodities, components and finished products
 Product Recall coverage
 Liability coverage, including Commercial General Liability, Directors and Officers Liability
 International Liability Coverage
 Other special endorsements specific to your exposures
 Carefully review your policy with your insurance broker and ensure that it includes coverage of loss of supplier, stoppage of supply and interruption of service.

Collaborative Approach

Engaging supply chain partners in your effort to minimize supply chain risk and regularly reassessing exposures can help you to successfully manage your business’s risk from beginning-to-end of the supply chain. Advances in technology, evolving customer preferences, and the entry and exit of business partners are driving changes in the global economy and supply chain. Those companies that establish and follow robust risk management plans for their supply chains will be in the best positions to respond to these changes and recover from interruptions.

Filed under: Manufacturing — Jillian Bender-Cormier @ 7:23 pm January 16, 2019

What Do 2018’s Marijuana Developments Mean for Your Business?

Marijuana legalization continues to spread, as 33 states now allow for its medical use and Canada recently legalized recreational use throughout the entire country. But businesses need to determine how marijuana will affect their workers’ compensation claims, workplace policies and drug screening plans.

Scientists have determined that marijuana can relieve pain and has other medical uses. However, the federal government continues to consider it a Schedule I drug because of its potential to significantly impair a user and lead to drug abuse. As a result, researchers are reluctant to begin definitive studies on marijuana’s long-term medical benefits and side effects.

Marijuana’s dual identity as a legitimate medical treatment and casual psychotropic can lead to significant problems for businesses. Here are some of the marijuana developments over the past year and how they could affect your workplace:

• Growing acceptance— A report from Pew Research found that 62 percent of Americans support marijuana legalization. As a result, customers and job candidates may not be attracted to businesses with strict drug-free policies.

• Opioid epidemic— The widespread and dangerous use of opioids have led many state governments and businesses to consider medical marijuana, which can also relieve pain. However, each state has different regulations for how medical marijuana is paid for and businesses need to examine their local laws.

• Workplace drug screenings— Positive tests for marijuana increased by 4 percent in the general workforce from 2016 to 2017, according to Quest Diagnostics. Positive tests after a workplace incident can be difficult scenarios for employers, since tests can’t accurately determine impairment levels or when the drug was taken.

• Workers’ compensation— Recent court cases have found that employers may have to pay for employees’ medical marijuana through workers’ compensation plans. However, individual states continue to set their own regulations and some may give businesses or insurance carriers the option to provide or deny coverage at their discretion.

Filed under: HR,Property & Casualty — Jillian Bender-Cormier @ 5:29 pm January 7, 2019

Predicting the Top 5 Cyber Threats in 2019

As large-scale cyber attacks continue to make headlines on a regular basis, many businesses have started to realize the importance of safeguarding their systems and data. However, hackers will keep exploiting cyber defense trends and new technology to steal valuable information and cause chaos.

Staying aware of developments in cyber security can help your business prepare an effective response plan. Credit reporting agency Experian recently released its 2019 data breach industry forecast, which predicts the five biggest cyber threats for the year:

1. Biometrics—Device manufacturers like Apple, Google and Samsung have started to use biometric scanners as a more secure form of authentication. But as fingerprint and facial recognition systems become more popular, hackers will start to target servers that store biometric data.

2. Digital skimming— Criminals have used skimmers to steal credit card information for decades, but hackers are looking at a digital version of this crime that can target e-commerce websites.

3. Wireless carriers— Recent security tests have found that hackers can infiltrate the signaling platform that allows wireless carriers to connect to each other. As a result, hackers may be able to start a large-scale attack on a motor carrier and remotely access data on smartphones.

4. Cloud vendors— Hackers have targeted cloud computing systems before, but mostly focus on individual businesses instead of the service providers. If a large cloud vendor is attacked, it could expose data from thousands of businesses that assumed their data was safe.

5. Gaming— Nearly a quarter of the world’s population play games, according to Experian. And since games require downloading third-party software and setting up anonymous accounts, hackers can easily infiltrate systems to install malware or steal financial information.

Are you concerned about your cyber security? Contact your team at Bender for help: 916-380-5300

Filed under: Cyber Liability — Jillian Bender-Cormier @ 5:26 pm

Top 10 OSHA Violations in 2018

OSHA recently unveiled its top 10 most frequently cited standards. The agency reports the leading causes of workplace injuries during its fiscal year (October through the following September) to help businesses identify common safety pain points.

Here’s the list of the top 10 violations in 2018:

1. Fall protection: 7,270 citations—Falls from ladders and roofs still account for the majority of injuries at work, and the first step in eliminating or reducing falls is to identify all hazards and decide how to best protect employees.

2. Hazard communication: 4,552 citations—This standard governs hazard communication to employees about chemicals that are both produced or imported into the workplace. Most violations concern the failure to develop a written hazard training program or failure to provide a Safety Data Sheet for all workplace chemicals.

3. Scaffolding: 3,336 citations—The vast majority of scaffold accidents can be attributed to planking or support giving way. Employers should ensure that all scaffolding is set up and inspected by a qualified employee before it’s used.

4. Respiratory protection: 3,118 citations—Employers must establish and maintain a respiratory inspection program to protect employees from oxygen-deficient atmospheres and hazardous materials.

5. Lockout/tagout: 2,994 citations—Employees who service mechanical and electrical equipment face the greatest risk of injury if lockout/tagout standards aren’t properly followed.

6. Ladders: 2,812 citations—Most ladder violations occur when ladders are used for purposes other than those designated by the manufacturer, when they aren’t used on stable surfaces or when defective ladders aren’t taken out of service.

7. Powered industrial trucks: 2,294 citations—Many employees are injured when lift trucks or forklifts are driven off of loading docks or when they fall between docks and unsecured trailers.

8. Fall protection training requirements: 1,982 citations—Employees should be trained to use fall protection methods such as guardrails, safety nets and personal fall arrest systems, and employers should verify that employees have been trained by preparing written certification records.

9. Machine guarding: 1,972 citations—Machine parts can cause serious injuries, but the risk is substantially reduced by installing and maintaining proper machine guards.

10. Eye and face protection: 1,536 citations—Safety goggles, masks and other equipment can help prevent eye injuries, which cost employers an estimated $300 million every year in lost production time, medical expenses and workers’ compensation claims.

Filed under: OSHA,Safety — Jillian Bender-Cormier @ 5:16 pm

Making a Flood Claim

Photo by DAVE GATLEY/FEMA News Photo

Heavy rain, storm surge, hurricanes and other severe weather events can lead to devastating floods that cause extensive damage. According to the Federal Emergency Management Agency (FEMA), flood damage totaled over $8 billion in 2017 and many of the affected areas are still recovering from the impact.

After a flood hits your business, you’ll still have expenses such as building leases, employee payrolls and cleanup costs. And because any business interruption means that your revenue will be lowered or gone altogether, you’ll need a source of income quickly.

Although flood insurance is there to help you recover and rebuild your business, you need to know how to make a claim so that you can get all of the coverage you can as soon as possible.

Starting the Claims Process

You can start the claims process immediately after a flood. However, before you call us at (916) 380-5300, you should make sure you have the following information:
• A copy of the policy declarations page that details your flood insurance coverage if you have it
• The best way to contact you, since normal phone lines and internet access may be disrupted
• The name of any applicable mortgage company

When the insurer that issued the flood policy gets notice of your loss, you may be able to qualify for an advance payment before the inspection. However, these payments are at the discretion of the insurer and shouldn’t be relied on when you’re planning your recovery process.

Pre-inspection Steps

After the claims process has started and local officials have determined that it’s safe, you should return to your property to prepare for an inspection to assess the damage.

Here are some steps to take before an inspection:
• Make sure that all of your employees are safe and accounted for.
• Ensure that the gas, electricity and other utilities have been shut off before entering your property.
• Cover any part of your workplace that’s exposed to the elements to prevent further damage.
• Take well-lit pictures and videos of property damage as soon as it’s safe to do so, since receding waters could affect the situation. Pictures and videos should focus on structural damage to the building and standing floodwater levels both inside and outside. You should also document damage to appliances, furniture and other items before moving anything.
• Record the serial numbers of any appliances, electronics and other property that you find.
• Look for undamaged samples from flooring, wallpaper, drapes and other materials so a claims adjuster can assess their value.
• Arrange for any temporary repairs that will protect your property from further damage. However, you shouldn’t make agreements with a cleaner or contractor without consulting Warren G. Bender Co. first.
• Keep detailed records of any expenses you incur after a flood.
• Keep a detailed inventory of all damaged and undamaged personal property. Be sure not to dispose of anything until a claims adjuster gives you the OK.

The Inspection Process

Once a claims adjuster arrives to inspect your business, make sure to record their contact information. After walking through the National Flood Insurance Program’s claims process, the adjuster will inspect your property and take measurements and pictures of the damage.
If an adjuster finds that your business has extensive damage, you may qualify for an accelerated claims process to help you begin repairs immediately. Your adjuster may also have advice for you based on your specific policy.

Making Repairs and Other Resources

When working with contractors, vendors and third parties after a flood, it’s important to keep copies of all receipts, bank statements, invoices and other documents that show how you paid for repairs. These items may be used as permanent records in case your business floods in the future, and they could affect how much you’re compensated.

Getting your insurance coverage after a flood is key, but you have other resources at your disposal. FEMA’s website has a number of resources and programs you can use to recover. You can also contact Warren G. Bender Co. for any questions on your flood policy or for resources to help you reduce your damage with pre-incident plans.

Filed under: Flood,Property & Casualty — Jillian Bender-Cormier @ 8:00 am